Insurance brokers are no different to consumers when it comes to buying protection for their own business, according to criticism levelled at them not only by insurers but from those within their own ranks.
When Manchester Underwriting Management (MUM) launched its Brokers Own Professional Indemnity policy, founder Charles Manchester thought it would be a product brokers would be clamouring for and feared being swamped by too much demand.
The reality was very different. “This is something brokers need and you’d think that they’re interested in their reputation and in having happy customers,” Manchester told Insurance Business UK. “But bizarrely, brokers are just the same as their customers in that they buy on price and are happy to by-and-large buy a crap product because it’s cheaper.”
For Manchester, who wrote his first broker E&O policy in 1986, but has only recently launched the class at MUM, he thought packaging PI with specialist legal advice from the get-go would be a sure-fire win. “The difficulty with insurance brokers is that they have some attritional losses but they also have some spectacularly large losses that you don’t expect to see unless you stop and think about them.
“Often it’s because there’s a breach of warranty or a survey requirement the client says they’ve done but haven’t. So when you get a £20m property in a fire loss, insurers crawl all over it to find something wrong with it,” Manchester said. “And brokers typically have £1m to £5m in cover, but if there's a £20m fire claim that’s not properly insured, you’ve just wiped out your PI cover.”
The same could be said of broker attitudes to D&O. When Richard Talbot-Jones set up Talbot-Jones Risk Solutions earlier this year, he approached his network for recommendations of providers of D&O for brokers. “The network didn’t have any recommendations and said that most sole trader brokers don’t typically buy D&O cover.”
Talbot was shocked at the lack of protection small brokers had for their livelihood. “If you’re in insurance you surely understand what D&O is for. So many things can go wrong. And if you employ someone, you have an extra liability. This just sums up the level of expertise in the market,” he said.
Indeed, Charles Manchester believes that lots of brokers wouldn’t buy PI at all if they weren’t forced to by the FCA. “Ask them what their largest sum covered is and they might say £47m, then they go and buy £2m in cover,” he said. “This is their business, and they will go out of business if lightening strikes and they get a large loss, for which they’re not covered.
“Times are tough but not as tough as when you get hit by a big PI claim that could have been prevented with right cover.”