G&A broker PI series – The 7 Deadly Sins 2

9 April 2019

Deadly Sin 2: Failing to effect valid or accurate cover…

When creating our exclusive Compass PI Scheme in conjunction with Griffiths & Armour, our key intention was always to provide a different solution to our members based on the core principles of relevant and detailed advice on risk management along with the most secure and reliable PI safety-net available.

Since the turn of the year there has been a surge in the interest of members in taking advantage of the PI Scheme’s benefits and it continues to grow in numbers each month. The landscape in which brokers operate in is continually changing and our continued investment in this proposition continues to assist members in protecting their businesses from the daily risks they face.

Having proactively assisted and advised their broker clients through hundreds of claims, the team at Griffiths & Armour have undertaken a detailed analysis of the causes of claims across all sectors of the broking profession, and uncovered common themes.

Deadly Sin 2: Failing to effect valid or accurate cover…

The failure of a broker to effect valid or accurate cover is almost certainly the clearest breach that they could commit and it may seem too obvious to be a realistic concern for management and their broking staff. However, these more fundamental errors (or omissions) are far more common than many would think and there can be several shades of grey between a job well done and a complete failure. Negligence claims can arise anywhere along the chain between the two and here we will look at some of the more common areas where this type of failure (or partial failure) can arise:

Failure to renew cover

This is self-explanatory and we have seen dozens of claims notifications over the years where a policy has lapsed only for the client to try and make a claim for a loss in the weeks or months that follow. Fortunately we have been able to successfully defend our broker clients in most cases but this is only fully possible where there is evidence of a number of clear attempts made to contact the client prior to the policy lapsing to invite renewal, clearly stating the position and the dangers of cover lapsing and follow this up with a final confirmation that there is no cover in place. Where several stages of this cannot be evidenced then a broker can be vulnerable, particularly with claims made policies where clients often assume they will still have cover for  past work or activities.

Incomplete instructions or extensions lodged with insurers

We expect that this is an area which many are acutely aware of and is faced frequently by brokers up and down the country. There is also some uncertainty around this as the requirements can vary from insurer to insurer so firms should always have clarity on what the agreed procedures are for each insurer that they work with. The key mitigation hints that brokers should ask themselves are:

  • Do we have robust systems in place to identify renewals that have not been formally bound or debited by insurers?
  • What is our system of checking and recording where policies have to be extended?
  • What escalation process is in place where there are time-pressured renewals that may not get over the line?

Ensuring insured entities are correct

This is another which should be straightforward but many will also recognise is very easy to get wrong. Do our staff have appropriate, and regular, training on this matter and the right prompts to ensure that all of the correct names and entities are included in policy documentation? What is the process of checking this, particularly for new clients? Issues can often arise where there are changes in business names, predecessor businesses (particularly partnerships) that require cover. We see many examples of claims where the wrong entity has been used as the named insured but who does not actually have insurable interest in the risk. It is fair to see in our experience that insurers are often not particularly forgiving to clients or brokers in these circumstances.

Ensuring the accuracy of policy cover

Again this is a self-explanatory subject matter but it is absolutely critical as some of the largest claims we have seen against our broker clients have arisen from a failure to achieve this. Straightforward checks on insured names, retentions, postcodes and wordings should be routine and all firms should have checking procedures in place to ensure this is done properly. Some of the largest claims we see are inner limits applied to policies that may not have been clearly identified at quotation or renewal stage, or, where the quotation or cover offered by insurers does not match what we asked for in our presentations to them. Where inner limits are applied by insurers it is very difficult for a broker to defend themselves from liability if a client is subsequently left underinsured by a particular type of relevant loss.

To find out more about the Compass PI scheme and how it can make an impact on your business, speak to your BDM.

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