The opinions expressed in this article are the author’s own and do not necessarily reflect the view of UKGI.
Customer Care and the Scope of your Services
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.
We are often surprised by the poor quality of the TOBAS that we see.
Many are devised by the firms themselves, compliance consultants or some other entity without any sensible input from a specialist lawyer.
We accept that part of the TOBA is going to be there to comply with FCA regulations, but the rest sometimes makes us chuckle.
How many have we seen that promise to give the client the best possible advice, or to act as insurance advisers for all the client’s needs, and so on?
We will deal with the TOBA specifically in a future article but this week we just want to focus on scope and what you are promising to do or what you are failing to promise to do.
In the Eurokey v Giles case, Giles had a great idea to list all the things they would do as their common law or statutory duty as service A, and then listed all the things they would do as “best advice” (including, say, calculating a gross profit sum insured for the client) as service B, and then charged the client a fee for that. Apart from the fact the judge spotted a couple of duties in List B that should have been in List A, we felt it was a very good and professional idea.
The point is that the majority of insurance brokers we come across in litigation are salespeople, and are just over-enthusiastic about what they are going to do.
Don’t “big-up” the standard of your service. The legal requirement is that you: “meet the standard of an ordinary, reasonably competent insurance broker.”
Some years ago, we visited a broker in the East Midlands and all around the board room were framed posters from an advertising campaign portraying them as experts in half a dozen specialist areas, such as The Plastics Industry; Bloodstock, Waste Recycling and so on. When we pointed out that we were not aware that they employed experts in these classes of business they agreed with us but explained that their PR company had felt it was a great idea to drum up new business!
Don’t promote yourself as something you are not. If you do, the standards are raised to: “what a reasonably competent specialist in this class of business would do.”
It is also very common (indeed, almost universal) for an insurance broker to contract to advise on the client’s “commercial insurance demands and needs”. This is a disaster area. This statement covers every kind of insurable risk imaginable, including Commercial Property, Liability, Motor, Marine, Aviation, and of course the dreaded Key Man Insurance.
Before going any further, stop and look at your FCA permissions. That is what you are legally permitted to advise on unless you limit the scope in your TOBA.
So many brokers tell the client what they will do but forget to give them a list of what they don’t do. This is in sharp contrast to accountants, for example, whose terms of business often dedicate more ink to explaining what they won’t undertake than setting out what they will.
Tell the client the classes of business you do want to advise them on and also those you don’t.
Here is an example list of the classes of business you might wish to exclude:
- Key Man insurance
- Professional Indemnity
- Life, Accident, PHI and Medical Insurance generally
- Certain trades, etc.
Equally, whilst you may choose not to get involved in these classes, if you do develop the expertise, then there is plenty of scope to expand the amount of business you do with clients; alternatively, you may develop relationships with other specialist advisers to fill the gaps.
Know your limitations but consider developing relationships with other advisers so you know your client is likely to be receiving sound advice and always be looking to advise your clients more widely.
A good example we came across some years ago was a specialist in insuring antiquarian booksellers but who had a poor limitation of scope clause in his TOBA and was challenged when a client died unexpectedly with no short-term death cover in place to protect the firm. The broker developed a small package arrangement for his clients which proved very popular.
Have you noticed than when you pull off a difficult piece of business (perhaps a certain trade or perhaps type of stock) you suddenly get more enquiries as your form is passed around amongst similar traders? Many schemes have started this way. Many of our friends in the insurance broking world operate specialist schemes. A very good example is a broker who was passionate about his scooter but could not find a specialist scheme, so he started one and is now well known the world over (well, that is his take on it).
A word of warning: if you see a gap, don’t scrimp on the research. A scheme broker is naturally assumed to be a specialist and if you sub-broke the retail broker will also point at you if something goes wrong.
Also, watch out for others borrowing your idea. Try to take advice from a good lawyer before diving in and spending money on the project.
Always look for the gaps in the market and the limitation of your scope to a specialist scheme, but equally make sure you do your homework on the subject and potential market. Affinity groups can be highly profitable and a rewarding professional focus, but you do need to keep commercial and regulatory considerations to the forefront of your plans.
Next week we are going to look in more detail at the risks that key man cover present if you do not take action and we will also look at how this cover could actually be an adjunct to advising on Business Interruption cover.