The opinions expressed in this article are the author’s own and do not necessarily reflect the view of UKGI.
Customer Care as an Outcome of PI Risk Management
Well there we have it. Whoever thought you could claim that PI Risk Management was the first and main step to discharging your duty of Customer care and then spend 20 weeks demonstrating how to do it.
That is not the end of the matter by any means and we will be back after the summer with a formal assessment of your knowledge on the subject.
For now, as long as you have reflected on the articles and evaluated your learning you might consider that you have complete perhaps 20 hours of structured CPD.
If you have put in place any of the ideas then do let us know and tell us about your own experiences.
We are taking a break for the summer but back in September when we will be launching a Masterclass on the subject. Let us know if you want an invitation.
To end with, here are a few more examples of how to get things very wrong.
- “I am a specialist on waste recycling risks”
Typically a waste recycling business will have what is called a Picking Plant. The waiting time for a replacement can be over 2 years. Often a business cannot operate without one. The specialist broker should know this fact and that the indemnity period should be at least 24 months.
An ordinary insurance broker should warn the client to check replacement times for machinery and should explain the issues to consider when deciding the indemnity period.
As a specialist you should get involved with the industry to understand the specifics of your clients’ needs and not just the generalities.
- “I am a specialist in advising on contingency insurance for events”
When a band goes on tour a critical contractual element is that there is contingency insurance for non-appearance. The sums involved can be astronomic and in a hard market, capacity may be limited.
A specialist should know that there are two levels of need for cover. The performer and the tour operators themselves (including the venues) and the concessions (everything from T shirts to hot dogs). The concession’s needs will often exceed the needs of the performers and the tour operators for capacity.
In a very famous case, the broker got the timing wrong on placing the main cover and when he approached the lead underwriters in London the concessions round the world had placed their own contingency cover locally and by way of the vagaries of the insurance market had filtered back to Lloyds and used up all the capacity available. The deficiency was tens of millions of dollars and the tour was cancelled.
If only the broker had known his market. It takes more than the gift of persuasion to be a specialist broker.
- “Yes of course your Professional Indemnity policy covers theft of money by staff or partners”
A partner of the client stole £3 million of the firm’s own money over 8 years. A PI policy is a third party liability policy and would only cover theft of client’s money.
Know the scope of the policy you are recommending and the scope of your service, particularly when you are not the only broker advising the client. For example: we know that a specialist PI broker generally advises on little else but does the client know that?
- “I explained to your predecessor 7 years ago about average and its effects. Don’t blame me that you are under-insured”
This actually happened in a case this week. We hope that after this series you know that you have to remind your clients about significant and onerous conditions on a regular basis and that you have to start again when the person handing insurance at your client changes.
Know your case law and build procedures around the judgments. We have acted on many of the reported cases and can help you with specifics of any case.
- “Why are you blaming me for giving incorrect advice on the client’s shop policy. I am a financial adviser and know nothing about general insurance!”
Yes, it really happened and in the witness box.
Know your limits of competence before you give advice, not afterwards.
- The broker failed to recommend D&O cover to the directors of a client and was sued by the Trustee in Bankruptcy for not doing so.
Never be afraid to try to sell additional cover. Keep telling the client about the potential gaps in cover and the possible effect. Remember, your duty is to remind clients of cover they do not have (ICOBS)
- The broker had printed a TOBA on both sides of a sheet of A4. The client’s assistant photocopied only the odd sides for circulation.
The Court was critical of the broker. It is not normal practice to send a client double sided TOBAs.
- The broker identified 6 insurers that were in the market for a difficult to place risk and to prevent attack from competitors, obtained a quote for insurer A and then persuaded the other 5 to decline to quote or offer ridiculous terms.
This was a serious breach of the broker’s duty to the client. It prevented the client from seeking alternative quotes from other brokers. Beware of what the market regards as “dodgy” practices (e.g. desk top quoting).
- Under pressure from the market and other brokers, the broker obtained a saving in premiums from £60,000 to £30,000. He thought the client would be pleased but was actually sued by the client for recommending too high premiums for the previous 6 years.
Always be wary about not providing a range of costs to the client. We know that often one pays for what one gets but it is often difficult to make a case to defend the higher premium in court when the differences in cost are so stark and the client was denied the right to choose.
- Pre Insurance Act, a client had a major flood claim a few days before the end of the MGA’s financial year. The loss was mitigated to the extent of a few million by the fact that the new tenant was in residence and managed to save over 50% of the art in the property. The MGA declined the loss on the basis that fundamental to the policy was a warranty that all tenants had to be notified to and approved by the pen to the scheme. The ultimate insurer felt in the circumstances it was a ridiculous decision and authorised full payment of the claim but the MGA refused to accept the instruction and tried to show that contractually they were not obliged to pay at all.
We have not yet dealt with the issue of customer care and choosing insurers but this is an example of how legal issues can prevent a client’s claim from being paid.
We know in this case that a massive claim would have ruined the MGA’s profit share for the year and no-one should ever deny an insurer the right to rely on the law to avoid paying a claim so where does this leave the broker?
The MGA could not survive the reputational damage it suffered by the decision and no longer exists (hoorah!) and the well known and reputable insurer providing the capacity paid in full after conducting what would have been the appropriate checks on the new tenant, but it is worth remembering that the broker was probably in the cart for not warning the client properly about the rules for new tenants. Always be thorough in your research in choosing your insurer.
Choosing insurers and studying policies you are recommending is a critical part of customer care and when we come back in September, we will start to look more closely at how to achieve, assess and maintain competence to discharge duties of Care to your clients.
Have a good summer and keep the questions and ideas coming.