A Broker's Duty of Care: Gathering Information and Making Enquiries of the Client

This article has been provided by Robin Wood, chartered insurance practitioner and expert on insurance broking market practice and standards, and Roger Franklin, Head of Insurance Litigation at Edwin Coe Solicitors.

The next element of the Duty of Care is the manner in which we gather information from clients.

In the first week of this next phase, we set down some rules and standards about the process of gathering information and discharging our duty of care.

We will then break down that discussion into subjects that we can expand on, including:

• The rules of gathering information
• The matters to ensure a client knows their responsibility
• Making reasonably sure the client understands materiality
• Establishing Demands and Needs and the duties arising from that
• Designing fact finds

Gathering Information and Making Enquiries of the Client: The Duty of Care.

Your first duty is to ensure that you client knows their own duty of reasonable enquiry and making a fair presentation.

Suitability

The reasonably competent insurance broker must gather sufficient information at inception and renewal, to ensure that their duty to recommend suitable insurance can be discharged.

Customer’s Knowledge of Insurance

This will include gathering information about the customer’s knowledge of insurance and using that information to make a judgment on what information needs to be given to that customer. The standard of the customer’s understanding of insurance should, in our opinion, be noted on the file.

Does the Client Understand Their Responsibilities?

It is a failure on the broker’s part to merely send the client documents (sometimes reams of them) with the instructions “read this and tell us if you do not understand”, unless that client has a sophisticated knowledge of insurance (probably including career experience working in the industry) or is a peer practitioner.

Making a Fair Presentation of the Risk

Above all, a broker must at inception and renewal, gather sufficient information to make a fair presentation of the risk to underwriters.

Assumptions a Broker Can Make

In deciding what information to gather, the broker may rely on the client giving truthful and accurate answers.

The broker does not have to conduct a forensic enquiry. However, they should use their skill and experience to probe for information which a client might not consider relevant by virtue of the questions on a proposal form or some other information gathering process, instigated by the insurer and/or its agents (such as a Statement of Fact).

Materiality and Material Changes

A basic expectation of the reasonably competent insurance broker is that they will gather information that records material changes in the business at renewal. Typically, these are facts which might change the premium charged, the demands and needs of the client, or the underwriter’s approach to the risk. Each year, having recorded changes, the broker will be able to advise the client in a manner which will allow the client to make an informed decision as to what choices to make.

This might also involve ensuring that the client gives accurate figures, upon which sum insured and premium will be based. These may include details of the size of the business in terms of property owned, turnover and staff, changes in business model and processes and of course changes in moral hazard issues, such as: censure by the authorities of the firm or its key officers and owners, events occurring which might give rise to a claim (even if a claim is not made), adverse financial events suffered by the firm of its key officers and owners, and so on.

Establishing Demands & Needs

The broker, having established the client’s demands and needs, must provide the client with a Demands and Needs Statement which should include any instance of those demands and needs not being met.

Methods of gathering and storing information

The broker should gather information in a durable medium and in writing. This might be electronically but, in our opinion, the information must be able to be retrieved in printed format, within 24 hours of request, and be readily understandable to a competent peer practitioner.  As a minimum, this should include a note of instructions taken and advice and guidance given.

Whose Responsibility is it?

A broker should make it clear to a client that answers given are the responsibility of the client. In our opinion (one not shared universally in the market), a broker may complete a fact find, proposal, or Statement of Fact on behalf of a client, but it is imperative that they confirm in writing to the client that they have done this and ask the client to confirm that what has been inserted is correct.

Face to Face or Distant Selling and Advice

Actually meeting with a commercial client (visiting the premises) is often regarded as a necessity if good and reasonable advice is to be given to the client, but in a world of electronic placement of business we would suggest that this is a matter of choice between broker and client. However, in our opinion, what is always critical, is that there is communication with the client at renewal, which ensures that information is gathered to the extent that the broker remains able to make a fair presentation to the insurer and allows the broker to recommend suitable insurance for the client’s demands and needs.

This week we want you to consider the various aspects of discharging your duty and think about how you do this in your own work.

As ever, if you have any questions, just email us.