7 Deadly Sins

Mike observed that professional indemnity claims against brokers would only stop if either of two inconceivable developments occur: either insurance companies agree to pay all claims they incur, or brokers stop making mistakes.
With this in mind, this month’s audience were taken on a guided tour of negligence claims against brokers, including how to help avoid claim notifications and also some background on the economic and societal factors that feed into the ever-changing claims culture.
From a cultural perspective, professional indemnity claims against brokers are not new. But, worryingly, Mike noted that there is a steady year on year growth in claims activity. The reasons for this could well be multifarious and is probably largely driven by economic conditions. For example, negative growth and/or uncertainty around Brexit make people nervous.
In short, people are more litigious in times of uncertainty and austerity.
Interestingly, Mike speculated that some other factors may be driving an increase in negligence claims against brokers, including:
 Insurers’ increasing reluctance to agree to ex-gratia payments.
 Financial Ombudsman Service (FOS) decisions and, most notably, a trend of not following precedent.
 The ‘trickling in’ of a more aggressive claims culture from North America.
 Legal companies may be looking for a new scheme with the Payment Protection Insurance tap soon to be turned off.
 Publicity of court awards against brokers increasing awareness.

Main causes of claims
Mike showed us a pie chart, produced by a study within the last 18 months, that showed the main, but various, causes for claim which create the ‘7 deadly sins’.
Failure to highlight key clauses and conditions prevailed as the most prolific claim contributor. It’s not enough, Mike pointed out, for a broker to send policy documents to a policyholder and expect them to just read them of his or her own accord. Special care must be taken when communicating key information.
All of which seem fairly basic, but it is alarming to note that brokers can often get the basics wrong.
On the subject of market selection and particularly unrated insurers, Mike explained that if the whole market had been covered and the only alternative was no insurance, recommending an unrated insurer constituted sound advice (just put it in writing!).
The good news is that it’s at least reassuring, based on recent studies, that over half of brokers surveyed reported no claims notifications. Of the other half, less than half of those claims did not materialise.
Claims examples and how they relate to the 7 deadly sins
Mike closed by running through the ‘7 deadly sins’, and some interesting (and costly) claims that followed some real life examples of when some of these sins were committed.
1. Failure to effect valid/accurate cover
2. Failure to action client instructions
3. Questionable market selection
4. Ineffective communication
5. Failure to meet clients’ needs
6. Not resourcing the business properly
7. Not sticking to what you’re good at
One such claim involved a broker mistyping a postcode on an insurance application and subsequently the insurer refusing to deal with the claim due to the correct postcode being on the insurer’s blacklist.
Another broker had not recommended to one of their existing policyholders that they take out environmental impairment cover. When a claim occurred that would have been covered under such a policy the policyholder held their broker accountable. Mike explained that in circumstances where policyholders are uninsured, there is an onus on brokers to identify where cover may be appropriate.
One of the more trivial of mistakes that led to a claim was a broker, on one occasion, not dealing with a policyholder’s instructions to add a vehicle to a fleet policy, received by text message, on a Friday afternoon. The broker had been well intentioned to carry out the instructions on the following Monday morning, however had entirely forgotten about it during the weekend and consequently the vehicle remained uninsured. Mike suggested that even the simplest of mistakes can have dire consequences.
Mike explained that if brokers learn to stick to what they’re good at, keep things in writing, keep documentation consistent, record details of conversations and keep tight control over internal processes they will be able to help avoid professional identity claims against them.
However, until then, brokers and their professional indemnity insurers will continue to pay the price.