Schemes are at the heart of UK broking. But the Covid crisis, where many claims have arisen from schemes, will force insurers to take a renewed look at the way they set up and manage broker schemes.
By content director Saxon East
Schemes are the bread and butter income for so many brokers.
Beach huts, thatched roof cottages or convicted drivers are just a few of the type of schemes that a broker might take charge of.
Brokers and insurers have generally enjoyed a strong and profitable relationship. Millions of customers have benefited over the years. It is insurance at its finest.
But Covid is going to change that relationship. Why?
Willis Towers Watson estimates UK business interruption claims could hit $12bn if insurers are forced to pay out on disputed business interruption claims.
Across the piste, insurers are giving Insurance Times the same message: disputed Covid claims have arisen from schemes policies, and to a lesser extent, some MGAs.
Many insurers believe that the looser policy wordings, in which brokers have played a major part constructing, are at the heart of the problem with the disputed business interruption and denial of access claims.
Whether right or wrong, this is the perception.
Where next for schemes?
Once the dust has settled, insurers will review and implement much tighter policy wordings on schemes. Brokers will lose some degree of control. This will especially be the case in high risk areas such as business interruption, cyber and terrorism.
Some insurers may even scale back extensively from writing schemes. At a time when the Lloyd’s market has also scaled back from UK retail, this would lead to an uncomfortable time for brokers searching for paper.
Many insurer will review and clean up their whole fragmented distribution chain - schemes, MGA and direct. The scars from this crisis will run deep.
All this could even lead to the emergence of unrated insurers of dubious solvency making a play for business.
So in the short to medium term there is certainly potential for disruption to schemes and other parts of the distribution chain.
However, schemes are an essential feature of the insurance landscape. They are vitally important for the customer, and insurers themselves are heavily reliant on the premium sourced from schemes.
Broker schemes will of course survive this crisis, even if things might never quite be the same again.
The great wash is on the way.
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