Insurance brokers – the post-pandemic issues

Summary

Brokers are all too aware of their professional duties in a difficult market. Renewal negotiations across most lines will involve additional issues with availability and scope of cover, and pricing. As COVID-19 coverage disputes abound, insureds whose insurance claims have been denied may well turn next to their broker, asking why they did not have the cover in place to protect their business.

Brokers' duties

The wave of BI coverage disputes which we anticipated in our article here is now hitting the foreshore.  Inevitably, brokers will be following developments closely. As disruption continues in the UK and beyond, through local lockdowns and continued social distancing measures, businesses will hope that their insurance cover will provide some relief.  To the extent that a policy does not provide an insured with the cover they say they expected or needed, brokers must now be fearful of claims.

Insurance brokers, like other professionals, are subject to duties to exercise reasonable skill and care when assessing their client's needs and arranging insurance for them.  They owe contractual, tortious and sometimes fiduciary duties to their clients (and in limited circumstances to (re)insurers or other brokers). Brokers, as authorised insurance intermediaries, are required to comply with the applicable rules in the FCA Handbook, including identifying their clients' needs and advising them on suitability. The FCA has made its expectations of insurers clear during the pandemic, but where insurers communicate any policy changes at renewal it is incumbent on brokers then to pass that information on to the policyholder(s) in a comprehensible form.

A broker hoping to obtain suitable cover for a client's needs must of course clearly understand those needs, as well as what cover is available in the market. This means understanding the insured business, and the context in which it operates, as well as knowing which products are available and the implications of specific policy terms with different insurers. Brokers must work with both insurers and their policyholder clients to ensure that the appropriate information is relayed, in both directions.  As illustrated by the current FCA test case, and other BI coverage disputes, wordings and the scope of available cover can vary hugely from policy to policy. Exploration of the available options is vital.

Renewals since early 2020 will be under particularly close scrutiny. Whilst the pandemic was arguably not foreseeable before very late 2019, COVID-19 started to cause difficulties for markets and supply chains across Asia and beyond in early 2020.

Going forward, brokers will need to look closely at policy wordings, looking out for changes such as the insertion of pandemic exclusions. The LMA has published a series of model wordings, and many insurers have tightened their wordings to ensure clarity going forward. Brokers should ask detailed questions of their policyholder clients to ensure that everyone involved thinks through the implications of the different policy wordings available. The insured needs to understand the scope of cover, including any limits and exclusions, and the implications for the insured business (including affected third parties or supply chains). The broker should be satisfied that the insured is making informed decisions on questions such as whether extensions to cover are needed, assuming they are available and can be negotiated for a reasonable premium. Brokers do not want to face an insured asking why they have BI cover contingent only on property damage, without being able to point to a conversation about the availability of a non-damage extension, for example.

In short, brokers should continue to be very mindful of their duties going forward. They should research the market, assess the client's needs and communicate the options clearly. Careful record keeping, including detailed notes of conversations with policyholders about their needs, and the scope of cover offered by different wordings, is vital.