When I last wrote about the subject a few weeks ago, I identified increased vulnerability to litigation as a potential issue for brokers, and also outlined the changes that Source has made to our general insurance platform in order to mitigate those risks on brokers’ behalf.
According to a client survey carried out by compliance consultancy UKGI over three quarters (77%) of those surveyed were worried about liability if incorrect underwriting information submitted results in the repudiation of a claim.
The law of unintended consequences
There is no doubt that the act is good news for consumers as it replaces their duty to disclose material facts with a duty to ‘take reasonable care not to make a misrepresentation to the insurer’. By placing a legal duty on insurers to ask customers all relevant questions at point of sale, consumers should know exactly what they need to disclose upfront. Insurers will, however, still be able to decline a claim if it is found that a customer deliberately or carelessly gave incorrect or incomplete information about their circumstances.
Determining liability isn’t, however, a cut and dried situation. Members of the legal profession have stated that the immediate challenge is to create an accurate body of data that will aid insurers in the event of careless misrepresentation, which could occur if a broker fails to pass on relevant information to customers and encourage them to provide truthful answers.
The question is whether insurers will be able to establish with reasonable certainty what they would have done had a question been answered accurately and completely. This is where insurers face a greater hurdle as there is no precedent.
If in doubt, will the insurers just pass the buck?
The British Insurance Brokers’ Association (BIBA) has raised its own concerns around the liability issue, foreseeing the situation where insurers would look to pursue brokers if they felt there was a chance that the broker hadn’t played its role and made their client fully aware of what should be disclosed. BIBA is urging brokers to ensure their insurance partners are complying with the new regulation and that their customers answer question truthfully to avoid potential disputes.
However it appears that some insurers have been less than forthcoming in explaining to their distribution partners exactly what information they need and how they want that information gathered and submitted. Of those survey respondents who hold a delegated authority from an insurer, over half reported that they had received no guidance from their insurer as to how questions should be asked on their behalf.
Looking at a handful of industry blogs, it would appear that despite having over a year to prepare for the implementation of the Act, some insurers have made little progress. One has apparently advised its brokers that everything will be updated by October 2013 … whoever said that insurance was an industry slow to implement change?
If however, the broker uses a GI platform they simply need to ensure that that platform has conformed to the new requirements on their behalf.
