Richard Webb, managing director of UK financial lines and specialist liability at Pen Underwriting, which incorporates Manchester Underwriting Management, examines the importance of effective record keeping for brokers and what can go wrong if this is not completed
Insurance broking is a skilled profession centred on a duty of care owed to clients. That’s a given.
Every client is entitled to rely on the advice you give them, be that about market selection, policy coverage or indemnity limits. This also means that, should there be a dispute on a claim, the finger of blame will likely turn to you, the broker.
Take it from a team that knows. Manchester Underwriting Management has been insuring brokers’ own professional indemnity (PI) for years while navigating the hard market and pandemic.
We know what it takes to successfully defend a claim made against you or your business – but also the likely compromise needed with a claimant and their lawyer if you cannot evidence the correct advice was given through effective record-keeping.
Regulatory responsibilities
Duty of care is ingrained in brokers’ professional integrity and is now formalised in regulatory obligations, through the Insurance Act, conduct rules and Consumer Duty.
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Even as a ‘veteran of the industry’, it is hard to think of a more important time for brokers to demonstrate the delivery of that duty.
Macroeconomic conditions, insurance market changes and enhanced regulatory scrutiny make it vital for brokers not only to conduct their business with due skill, care and diligence, but to document how they are conducting it.
After four years of tough market, UK PI rates began to plateau during 2022.
Those rates are now shifting again, in a more competitive market with new capacity coming in and many insurers in growth mode.
Greater choice is good news for brokers as buyers, but ask the same questions you would when recommending markets to clients – do they have a track record on paying claims, are they in it for the long-term and do they really understand your business and this complex market?
On the macroeconomic front, asset and claims inflation mean underinsurance is not only a customer issue, but is arguably the biggest exposure to insurance brokers in the current climate. Did you, or your team, advise a client over the phone to increase their sums insured and set out the potential consequences, only for them to elect not to? Document it.
Take your own advice
Take your own advice too. When did you last review your own level of indemnity? Make sure it reflects the largest or heaviest risks you place.
Regulatory scrutiny of broker conduct, fees and commissions will only deepen. Don’t let this become a potential source of claim against you. Simple risk management not only guards against being found wanting, but should be highlighted on your PI renewal.
So, document your internal controls. Everything from peer-review practices, the consistent completion of demands and needs statements and evidential requirements for file notes and follow-ups, to the process for engaging wholesalers or specialists if risks fall outside your experience and training undertaken. Crucially, make sure you communicate it to all of your team.
All of this will not only help you gain the most appropriate terms of coverage for your own PI cover, it will also help ensure any claim against you for poor or wrong advice can be effectively countered and successfully defended.
