Duties of insurance brokers

Publication Date01 Jun 2004
AuthorJohn Virgo,Philip Ryley
SubjectAccounting & finance
Duties of insurance brokers
John Virgo* and Philip Ryley
Received (in revised form): 31st March, 2004
*Guildhall Chambers, Broad Street, Bristol BS1 2HG, UK; tel: +44 (0)117 930 9000;
e-mail: John.Virgo@GuildhallChambers.co.uk
John Virgo is a barrister specialising in
financial services law and regulatory
Philip Ryley is an associate and Head of
the Compliance and Training Consultancy
at TLT Solicitors, Bristol and specialises in
financial services, general insurance and
mortgage regulation, including supervision
and enforcement issues.
KEYWORDS: insurance brokers, insurance
brokers’ duties, arranging insurance
cover, notifying insurance claims
In this brief paper the authors consider the
duties owed by professional indemnity insurance
brokers to their insured clients. Given the pre-
valence of claims for financial mis-selling this is
an important issue of concern to all authorised
advisers. Any failure to obtain or maintain
cover leading to uninsured loss will naturally
attract the potential attention of the broker’s
own insurers. The authors summarise what the
law expects of brokers in standard situations.
The issue of obtaining professional indem-
nity insurance cover, particularly for perso-
nal investment firms, has exercised the
financial services industry quite acutely
since 2002. This has largely arisen from tra-
ditional insurers to the market withdrawing
from it or the reluctance of insurers to offer
cover on terms which comply with the
Financial Services Authority’s (FSA)
requirements. The absence of complaint
cover of course breaches the FSA’s rules,
the Principles for Business (PRIN 4 —
financial prudence) and the threshold con-
ditions (Threshold Condition 4 — adequate
resources). From 15th January, 2005 firms
carrying out insurance and re-insurance
mediation services will need to satisfy the
levels of cover required by the Insurance
Mediation Directive (IMD) which will
increase the burden on smaller personal
investment firms. Some assistance in obtain-
ing cover may be obtained by agreeing to
carry larger excesses within limits pre-
scribed by the Interim Prudential Source-
book for Investment Firms (IPRU (INV))
but this is only to be had at the expense of
carrying extra levels of readily realisable
own funds. Cover will generally be
arranged through brokers and it is accord-
ingly timely to look at the scope of the lat-
ter’s duty of care to insureds in this area.
The scope of a broker’s responsibility in
each case may of course depend on the pre-
cise terms of engagement but in the
absence of any attempt to define the scope
of responsibility in any terms of business
agreement, the core minimum duties will
generally include the provision and compe-
tent operation of a strategy for:
arranging suitable cover
— making appropriate notifications under
the terms of cover arranged.
Page 128
Journal of Financial Regulation and Compliance Volume 12 Number 2
Journal of Financial Regulation
and Compliance, Vol. 12, No. 2,
2004, pp. 128–131
Henry Stewart Publications,

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