November 2008 Blogs
TCF Claims
Waltham Pitglow - RWA Compliance Specialist
28 Nov 2008, 10:28 AM
An interesting question from a Club Member was whether an insurer, under a policy with a 30 day cancellation clause, could cherry pick just one property from a portfolio and withdraw cover at no notice or notice less than this.
The general consensus is that whilst the policy generally referred to cancellation of the whole contract, mid- term cancellation of cover (with the appropriate notice) for just part of the risk was generally accepted as market practice on the basis that the insurer could cancel the whole cover if it wanted.
However, another member introduced an interesting and important point that if for example the property excluded was a poor unoccupied risk, the client’s best interests would be served by absorbing that property into an attractive portfolio rather than placing it in isolation and that the broker should be aware of the customer’s legal rights under the contract of insurance so that the best option for the client can be negotiated.
The underlying learning point was that a broker should know the rights of a customer under a policy of insurance as well as the obligations and readers would do well to remember to read the policy document before accepting anything from an insurer which is not to the customer’s advantage.(Indeed a broker would do well to read every policy in any event!)
Perhaps this can be compared to the case of a broker dealing with a claim for a client and accepting an avoidance for non-disclosure without question.
We see many brokers who just accept avoidance by an insurer and often brokers who argue against a decision for the wrong reasons. It is not uncommon for a broker to argue that an insurer is being unfair when in fact it would be better to argue that the grounds for avoidance are unfounded. The embarrassment comes perhaps much later after the client has sued the insurer and won.
In case you have any doubts about how ridiculous reasons for avoidance can be, we actually worked on a case where the broker and client notified a serious loss for a previous company of the directors of the proposing company under the declaration of the proposal (“are there any other matters you wish to disclose”) rather than responding directly to the question asking for claims/loss experience.
The policy was avoided for misrepresentation with a claim that the broker deliberately put the details in other than the question on claims to mislead the underwriter!!!!
So, the CPD Learning Point is: before you accept what the insurer tells you (or offers your client), check that your acceptance of the situation is in the best interests of a client and that means checking the policy wording and being reasonably sure that the insurer is acting correctly.
Fact Finds for Insurance Brokers
Waltham Pitglow - RWA Compliance Specialist
21 Nov 2008, 14:39 PM
One of the mainstays of risk management and TCF is that we as brokers gather enough information that we can recommend a suitable policy but also that we address the issue of disclosure and take reasonable steps to not only ensure that the customer knows and understands the duty and the effect of a breach, but also that the customer is assisted in making sure that all material facts are disclosed.
Remember, the information requested on a proposal is not the limit of what has to be disclosed, particularly in commercial cases.
Quite a number of brokers have now developed their own fact finds even though there is no regulatory responsibility to do so.
What is difficult for many brokers is to know where to start and RWA is starting a working party to consider the subject and to see whether we can devise a fact find which could be a template for brokers.
Remember, this is not so much about satisfying the FSA but more about:
(a) Treating the Customer Fairly
(b) Risk Management
(c) New Business Development
(a) Treating Customers Fairly
Is it enough to just tell a customer about the duty of disclosure and the effect of a breach and then rely on the questions on a proposal and what the customer tells the insurer or should we go further and using our skill and experience give the customer proactive guidance on things which might be material?
Well, it is a fact that we promote the idea of using a broker rather than going direct because there is a more professional, personal and competent service, so really we do need to offer more and our extra skill and experience is one of those benefits.
So, in gathering more information in a structured manner there is a good argument that we are using the additional skills that a broker has to reduce the risk of an insurer rejecting or reducing a claim and also to make extra sure that the cover we recommend is reasonable.
(b) Risk Management
Remember, you do not have to be a Sherlock Holmes in seeking information from a client and you can assume they are telling the truth (unless there is good reason to do otherwise), but a broker should have sufficient skill and expertise to know what reasonably might be treated as material by an underwriter. The test is that the reasonably competent broker would be able to identify a fact that the body of opinion amongst peer practitioners would deem to be material.
For example, if a jeweller is proposing for shop insurance there is rarely a question on the proposal about losses under the customer’s personal insurance policies, but if the customer had had several robberies involving the theft of jewellery from his/her home then a reasonably competent broker should know that this could be a material fact.
On the other hand, if a solicitor is insuring an office and had several serious robberies under a household insurance, the body of opinion amongst brokers would be that this would not be material to an underwriter. Whether or not the Court felt that this was a material fact, if there is no case law supporting the notion then it is quite likely that the broker would not be found negligent.
Do bear in mind that a broker is expected to know the law (ignorance is no defence) so it is important that someone in your office keeps an eye on the insurance and legal press to see if any particular case affects the way you do things and the information you gather.
In an interesting case last year a Court held that an underwriter could treat as material the fact that a proposer had been accused of a crime even if it was proved later that the accusation was false.
Think Fact Find: Would you ask your clients the question as to whether they had been accused of a crime as well as convicted of a crime?
(c) New Business Development
The formal fact find really started on the life side of the business and became universal in the 1990’s.
Leaving aside all the aspects of regulation and good practice, what many brokers found was that the fact find process opened up many avenues of doing more business with a client.
Suggestion: CPD Exercise
RWA is very keen that learning and CPD for brokers is focussed on the job in hand. Why not ask your staff to undertake a short CPD exercise (say an half an hour).
Ask them to note down a bullet point list of some of the questions or sections that might be on a fact find that applies to their job and in particular ask them to include questions that they think might be helpful in finding out facts which, in their experience, are material to the risk.
Put the results on the individual learning files.
Not only will this exercise create awareness of the duty of disclosure and issues of TCF but it will also give you feedback from staff as to how useful a fact find will be to them.
Don’t forget that the FSA is not prescriptive about the gathering of information. How you do it is up to you and you need to make sure that you are not creating unnecessary paperwork, but equally you need to balance this against the accusation when something goes wrong that you did not use sufficient skill in gathering information.
Practically every broker I have spoken to over the last 6 months has complained about the fact that not enough is being done to help the public understand the benefits of using a broker over a direct seller and many brokers have suggested that they are far more skilled and experienced than employees of these insurers.
Enough Said!!!!
Claim Rejections
Waltham Pitglow - RWA Compliance Specialist
17 Nov 2008, 11:07 AM
It seems to me that the world has either gone mad or some insurers are just getting rotten in their approach to settling claims.
This one is about the case of a customer who did not comply with a stillage warranty and the underwriter then turned down a fire claim that had nothing to do with the stillage point.
I know that they are entitled to avoid a policy if there is a breach of an unconnected warranty under a commercial policy but is it not the case that the insurers told the Law Commission that they wanted to retain this inequitable piece of law so that they could protect themselves against insurance fraud.
Surely if there is not question of fraud in a claim, to rely on an unconnected breach of warranty to avoid a claim is in itself fraud?
Perhaps not in the legal sense but certainly in the sense of Treating Customers Fairly. Surely it is a breach of the CII Code of Ethics and Conduct?
About time we started telling the FSA every time an insurer rejects a claim and if they are a member of the CII how about letting the institute know. There will be many cases when a rejection is justified but these official bodies will be well able to identify when one insurer/underwriter is being more liberal in rejecting claims and avoiding policies.
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