April 28, 2020 by David Gambrill
Broker advice and advocacy are shining brilliantly during the days of the global pandemic, with insurer products, coverage options and consumer relief packages in a constant state of flux. Many in the P&C industry have noted that broker value has now taken centre stage in the public spotlight.
But as author Ken Kesey warns in his 1986 book Demon Box, the spotlight is not always the safest place to be.
“Stand in this spotlight, feel this eye pass over you. You never forget it,” Kesey wrote. “You are suddenly changed, lifted, singled out, elevated and alone, above any of your old bush-league frets of stage fright, nagging scruples, etc….But there’s the scaly rub, right? Because if you go around to the other end of that eye and look through at the star shining there so elevated, you see that this adoring telescope has a crosshair built in it, and notches in the barrel filed for luminaries…”
In other words, the very same advice that highlights the broker value proposition may also provide the basis for an E&O claim, if the broker is not careful.
“Advice is what we offer and [information presented during the COVID-19 pandemic] is a great example of when individual-based advice is the target,” as Hugh Fardy, senior vice president of Arthur J. Gallagher Canada Ltd., discusses in a paper he wrote and posted on LinkedIn. The paper is entitled “Insurance Brokers protecting you and your business.”
RPC, a professional services firm based in the U.K. and Asia, cautions against two potential E&O exposures for brokers emerging out of COVID-19.
First, there could be future claims based on broker negligence at the point of policy placement.
The second area of potential exposure includes “those [future claims] concerning a broker’s ongoing duties to their client after policy inception, including missed opportunities to recommend mid-term adjustments to policy programmes in the earlier stages of the disease’s spread — before it became an acknowledged global health and financial crisis.”
Specifically, RPC is referring to E&O exposures “over the last 12-18 months when the current policy programmes were being negotiated,” and particularly during the period between Dec. 31, 2019, and Mar. 11, 2020, when the World Health Organization declared the novel coronavirus outbreak to be a global pandemic.
RPS notes that the SARS pandemic in 2003 led many insurers to change their policy wording to limit the scope of cover for communicable diseases. “However, this is not to say that insurance capable of responding to communicable disease outbreaks has been unavailable since SARS,” the firm states in its bulletin. “Policy wordings differ markedly from insurer to insurer…
“Brokers have still had the opportunity to advise their clients about the availability of communicable disease cover by way of policy extensions and endorsements that include categories of disease, which (depending on how the disease is defined) could include COVID-19.”
In his written post on LinkedIn, Fardy issues the general precautionary advice to brokers.
“With all of the coverage opinions going around, I remind us to check our particular wordings before advising clients on applicability,” the paper states. “Caution around future coverage application is a must. Markets are changing and we need to be aware of new exclusions or other coverage implications….Broad statements or generalizations can be dangerous and we are responsible for what we say.”
Like Fardy, Swiss Re Corporate Solutions advises brokers to leave the claims decisions to the insurers.
“Do not advise your customers whether COVID-19-related claims are covered or not,” says a bulletin issued by Swiss Re Corporate Solutions. “Let the insurance carriers do that.”
Also, in the heat of the battle, brokers may become the authors of their own demise if they let empathy get the better of them, as Swiss Re Corporate Solutions observes.
“Be empathetic, but don’t tell anyone that something is covered or not,” Swiss Re notes in its bulletin. “You can continue to tell them you feel sympathy for all affected by the situation, but customers MUST report a claim to their insurance carrier to determine if there is any coverage for the event.”