Broker Scheme Focus: Should brokers take some responsibility for customers with unpaid Covid BI claims?

WE ASKED: ”Should scheme brokers take some responsibility for all the unhappy customers with unpaid Covid-related business interruption claims?”

Ashwin Mistry, executive chairman, Brokerbility 

”In order to compete, brokers have sought to find creative solutions to markets and sectors they either have access to, have deep knowledge of, or have a desire to venture into.

“Behind every scheme is an insurer or capacity provider who will take the responsibility for providing capacity, agreeing policy wording and adding nuances which they are comfortable with. It is their investors’ money and, equally, their own reputation on the market.

”Meanwhile, the broker concerned should explore any and all exposures relevant to the particular sector they are entering. In a hypothetical world, they would want no restrictions, no warranties, no conditions and no limitations on policy wordings, however the reality is somewhat different. The real world is different.

”Brokers - not just scheme brokers - will ask for this, but insurers and capacity providers always have the right to say ‘no’.

”The principal of  ’caveat emptor’ prevails, as does the broker’s responsibility of highlighting covers and, more importantly, exclusions.

”The bigger questions are: without the benefit of hindsight, would insurers have included ’all diseases’ to secure a competitive position or a greater market share? Would potential policyholders pay the higher premium?

”In reality, who really knows?”

Charles Manchester, chief executive, Manchester Underwriting Management

”By their nature, schemes are aimed at high numbers of policyholders who are not going to be FTSE companies that could have planned for a global pandemic, let alone the lockdowns that we have seen this year. The word ‘unprecedented’ has become somewhat clichéd, but the concept of governments around the world closing whole swathes of their economies is truly unprecedented.

”The financial consequences of this pandemic will total hundreds of billions of pounds to the UK. The entire non-life premium income in the UK is under £100bn. So, whilst the insurance world can help with practical solutions, there simply isn’t enough money in the insurance pot.

”Scheme brokers can negotiate better rates and better wordings based on volume business and this will benefit their customers almost all the time, but they can’t be expected to think of unprecedented situations and negotiate to bankrupt insurers if the worst happens.

”The SME policies that are paying out are only doing so because of poor drafting. If we want these policies to respond to the current type of situation, then businesses need to be prepared to pay an awful lot more. And these are the same businesses that frequently don’t buy D&O cover, cyber insurance or income protection - risks that produce claims far more frequently.

”If something really is unprecedented, which this is, then how can brokers be blamed for lack of clairvoyance?”

Bruce Hepburn, chief executive, Mactavish

”Businesses are facing more complex risks than ever before and, as the recent FCA test case has demonstrated, policy wordings are now so opaque that even the finest legal minds in the country cannot confidently decode them back into readily comprehensible business English. This means that the broker’s role is pivotal. It simply isn’t the case that a business leader outside of the industry could be expected to navigate this landscape unaided.

“For this reason, it seems peculiar to us that the recent test case focused solely on what was sold, not how it was sold. Mactavish actually wrote to the FCA in May to raise precisely this point because it simply isn’t possible to answer the central question of why so many policyholders believe they have coverage when insurers are adamant they do not, without understanding how that mismatch in expectations came about.

“Schemes add an additional layer of complexity to this picture. Indeed, Mactavish has long argued that insurer-derived revenue that is not disclosed to the buyer represents a conflict of interest. We have also argued that arrangements such as profit shares undermine the advisory role of the broker. At this point, one could go as far as to say that in some situations, brokers are now essentially acting as distributors for insurers.

“Ultimately, all of this relates to a fundamental structural problem: brokers are agents of both parties, leaving the policyholder without the truly independent advice they so badly need.”