Covid-19 has impac­ted the UK in many ways. The topic of insu­rance has made its way into the natio­nal media and not in a good way. Much of this is the issue around the cover being pro­vi­ded for busi­ness inter­rup­tion. Insu­rers never inten­ded to cover a pan­de­mic but loo­se­ly wor­ded poli­cies led to a court case that was fast tra­cked to the Supreme Court for a final deci­sion, which was han­ded down very recently.

Richard Webb is Direc­tor at Man­ches­ter Under­wri­ting Mana­ge­ment (MUM), exclu­sive part­ner of CGPA Europe in the Uni­ted-King­dom. MUM is a spe­cial­ty under­wri­ting agen­cy whose cur­rent pro­ducts include Bro­kers’ Pro­fes­sio­nal Indem­ni­ty Insu­rance, and is a lea­der on this mar­ket. This Pro­fes­sio­nal Indem­ni­ty insu­rance faci­li­ty, insu­red by CGPA Europe and under­writ­ten and mana­ged by Man­ches­ter Under­wri­ting Mana­ge­ment Limi­ted has been accre­di­ted by the Bri­tish Insu­rance Bro­kers’ Asso­cia­tion (BIBA) to pro­vide cover to its members. 

Richard has over 30 years’ insu­rance expe­rience : he star­ted his career with Gene­ral Acci­dent, before spe­cia­li­sing in the Pro­fes­sio­nal Indem­ni­ty Mar­ket. In this article, he high­lights the dan­ger for Insu­rance Bro­kers with the UK PI mar­ket : indeed not only a hard mar­ket is a hard envi­ron­ment to work in, but it could also create higher risks of claims against Insu­rance Brokers. 

The case was brought by the UK regu­la­tor, the Finan­cial Conduct Autho­ri­ty (FCA) against a sample of insu­rers because it felt that a large num­ber of com­mer­cial package poli­cy wor­dings would cover claims ari­sing from the pan­de­mic, whe­ther deli­be­ra­te­ly or not. The Court deci­sion is gene­ral­ly in favour of the FCA and it is esti­ma­ted that over 60 insu­rers and 700 wor­dings are affec­ted by the jud­ge­ment. Most of these poli­cies are for small and medium-sized enter­prises (SME). 

The jud­ge­ment means that insu­rers are having to review claims that had been made and decli­ned as well as making it pos­sible for new claims to be made. This means contac­ting their insu­reds to make them aware that the claim is being revie­wed. This has crea­ted a lot of addi­tio­nal work for insu­rers, bro­kers and clients. It has also rai­sed expec­ta­tions of clients who pre­vious­ly had had their claim rejec­ted or had been told that they could not make a claim – most of these cus­to­mers will be insu­red on wor­dings that are not affec­ted by the test case but the care­less repor­ting in the media has rai­sed expec­ta­tions that won’t be fulfilled.

Bro­kers will be expo­sed to com­plaints whe­re­ver there are unful­filled expectations. 

First­ly, those clients who now have a valid claim that will be asses­sed and set­tled. This is an easy task and made even easier by insu­rance com­pa­nies having to contact their insu­reds to make them aware they are revie­wing the file. Many of the affec­ted wor­dings car­ry very low sub-limits for busi­ness inter­rup­tion and even cus­to­mers that receive a pay­ment might be disappointed.

Second­ly, there are those clients who had not made a claim but may now be entit­led to. The advice to bro­kers is to contact those clients to make them aware that they can make a claim if they so wish and that time is tight.

This leaves those clients who made a claim which was not cove­red and so has been cor­rect­ly decli­ned. They might argue that the pos­si­bi­li­ty of a glo­bal pan­de­mic should have been dis­cus­sed when bro­kers were revie­wing their needs, which would have invol­ved crys­tal balls and cus­to­mers paying mate­rial pre­miums even if spe­ci­fic cover had been avai­lable (and would they have paid?). Or they might argue that the bro­ker should have sold them a poor­ly draf­ted poli­cy that took dozens of lawyers, the High Court and the Supreme Court to unders­tand. In the UK, cus­to­mers can make a com­plaint to the Finan­cial Ombuds­man without expense to them­selves, who can make final deci­sions on com­plaints up to a value of £355,000 that are bin­ding on bro­kers and insu­rers. And they can still go to the courts.

Hand­ling claims is often made more com­pli­ca­ted by the emo­tio­nal fac­tors that can creep into any dis­pute. Life is tough in the mid­st of a pan­de­mic. People have suf­fe­red berea­ve­ment of fami­ly and friends and serious finan­cial losses. Hand­ling clients who are faced by such chal­lenges is not easy, espe­cial­ly when the media has incor­rect­ly rai­sed expectations. 

This has left bro­kers in the UK facing a lot of addi­tio­nal work in revie­wing a myriad of dif­ferent poli­cies, hand­ling and advi­sing clients on what to do next and, in the worst case, having to deal with com­plaints against them or, worse still, legal action. Bro­kers are having to under­take this work whil­st we are in a lock­down in the UK with most people wor­king from home. 

And this has affec­ted the pro­fes­sio­nal indem­ni­ty mar­ket in the UK mas­si­ve­ly. Here, bro­kers are always expo­sed to claims any­way – the UK is a liti­gious socie­ty where unful­filled expec­ta­tion often leads to legal action at the best of times – and this is the oppo­site of the best of times. Very few insu­rers will quote for new busi­ness and rates have rough­ly tre­bled in the last year.

The FCA Test case jud­ge­ment is posi­tive news for many cus­to­mers but it has crea­ted an expo­sure for bro­kers. The like­li­hood of an SME client suc­cess­ful­ly suing their bro­ker for not pro­vi­ding them with a poli­cy that covers pan­de­mic is still fair­ly remote – they will need to show that there was a duty to look at insu­ring pan­de­mic, that the bro­ker brea­ched that duty and that the breach led to finan­cial loss (i.e. that cover would have been avai­lable and pur­cha­sed). As is well docu­men­ted in the court case, insu­rers were not kno­win­gly offe­ring pan­de­mic cover for SME cus­to­mers who in turn were unli­ke­ly to buy such cover even if it had been avai­lable. But it has left bro­kers facing a group of unhap­py clients who now feel their claims should be cove­red, right­ly or wron­gly. Whil­st the claims and com­plaints can be defen­ded, it will take time and enor­mous legal expense. It will take many years to res­tore the insu­rance profession’s reputation.