As part of our ongoing series focusing on broker claims, Mark Healy and Sorcha Blessing map out the crucial issues brokers should consider when advising clients with complex or multi-faceted businesses. In such cases, a client’s risk profile becomes intertwined with the broker’s responsibilities, where a single oversight can lead to uninsured losses, strained relationships, or even a professional indemnity claim.
Below, we explore the key pitfalls we routinely encounter in defending broker negligence claims and discuss how to avoid them to better protect both your clients and your firm.
1. Incomplete Understanding of the Client’s Business
The Risk: Complex businesses often have layered structures, international exposure, or unconventional revenue models that may not be immediately apparent.
How Claims Arise: A broker may overlook a material detail, such as overseas operations or contractual liabilities, resulting in a coverage gap. A pertinent example is the Supreme Court decision in Norman Hay v Marsh [1] where such oversight became a central issue, leading to a finding of liability against the Defendant brokers.
Prevention: Go beyond the proposal form. Face-to-face meetings and structured fact-finding discussions are essential to fully understand the nature and nuances of complex businesses.
2. Insufficient Enquiry at Renewal Stage
The Risk: Too often, renewals are handled on a ‘rollover’ basis, relying on outdated information or assumptions about a static business model. In reality, most clients’ businesses evolve, whether through growth, diversification, or project-based expansion.
How Claims Arise: A key exposure goes undisclosed, resulting in a loss not being covered.
Prevention: Meet with the clients. Ask targeted, up-to-date questions. Never assume that the client will proactively flag changes; they may not have considered the insurance implications. "A broker comes to renewal with an existing fund of knowledge. The broker need not begin each renewal pretending to forget all that and start again. But it cannot simply assume that renewal is all that is required, even if nothing appears to have changed. A broker must apply its mind to the client's present circumstances and the sufficiency of cover to those circumstances."[2]
Some brokers in the US are now using Artificial Intelligence (“AI”) to automate policy checking which can include comparing documents during renewals and policy changes. This can catch errors which are easy to overlook when reviewed manually. AI can also identify gaps in coverage and provide policy recommendations to cover gaps. However, where AI development is still in its infancy, any AI use must be supported by broker oversight.
3. Failure to Identify Emerging or Non-Standard Risks
The Risk: Clients operating in fast-moving or highly regulated sectors, such as technology, logistics, or energy, face exposure to risks that may fall outside traditional cover, including:
- Data liability
- Regulatory sanctions
- Reputational damage
- Climate-related losses
How Claims Arise: A bespoke requirement is overlooked, and the policy fails to respond at the time of loss.
Prevention: Stay alert to sector-specific developments. Develop a progressive relationship with clients. Engage specialists or underwriters early when non-standard risks are identified.
4. Not Tailoring Cover to the Business
The Risk: Off-the-shelf policies may not accommodate unique liabilities, indemnity provisions, or contract terms present in complex businesses.
How Claims Arise: The client assumes a loss is covered when, in fact, the policy wording does not respond.
Prevention: Work with insurers to customise terms where necessary. It is vitally important to clearly document any limitations or exclusions in writing and explain them to the client. Brokers could use generative AI to draft educational materials which could assist in providing explanations to consumers which are easy to understand and tailored to each consumer’s requirements.
5. Poor or Incomplete Documentation
The Risk: Even when sound advice is given, a lack of clear documentation can expose a broker to challenge if a dispute arises.
How Claims Arise: In the absence of written evidence, a misunderstanding can quickly escalate into a formal complaint or professional indemnity claim.
Prevention: Maintain thorough file notes, confirm advice in writing (via email or letter), and use suitability statements. If a client declines a recommendation, record it clearly.
6. Conflicts of Interest
The Risk: In niche or hard-to-place markets, there can be tension between securing appropriate cover and maximising commission, particularly where capacity is limited.
How Claims Arise: Clients allege they received biased or substandard advice influenced by commercial considerations.
Prevention: Be transparent about your placement strategy and any commission arrangements. Prioritise the client’s best interests and ensure this is clearly documented.
Summary: Best Practice for Complex Clients
- Structured Client Meetings: Vital to building a true understanding of the business and identifying key exposures.
- In-Depth Renewal Reviews: Ensure insurance coverage evolves in step with the client’s growth and operational changes.
- Robust Documentation: Mitigates risk in the event of a claim or dispute.
- Customised Cover: Recognise when standard policies do not suffice and adapt terms accordingly.
Final Thought: In an increasingly complex risk landscape, brokers must take a proactive, diligent, and client-centric approach. Doing so not only reduces the likelihood of a claim but also strengthens long-term client relationships and reinforces the value of a broker’s professional advice.
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