Majority of claims made against brokers relates to new business

More than half of claims made against insurance brokers between 2007 and 2010 related to new business, prompting a warning shot across the bow to the industry to focus on the fundamentals even as pressure is high to write new business.
Hugh Fardy of CG&B Group presented Insurance Brokers Loss Control and Risk Management, Claims Trends to the Insurance Brokers of Toronto Region (IBTR) luncheon held in Toronto on Jan. 17.
Fardy’s presentation did not include a global total of claims against brokers. But it did include a breakdown of the areas in which the claims are made.
Specifically, he highlighted the fact that claims related to new business with brokers – including new and existing clients – increased between 2003 and 2010.
For example, new business with existing clients was a central factor in 19% of the claims made against brokers between 2003 and 2007. That percentage increased to 21% of the claims between 2007-09.
Claims related to new business with new clients increased from 25% of the claims between 2003 and 2009 to 29% of the claims in 2007-09.
Overall, the percentage of claims against brokers relating to new business increased to 50% by 2009. That figure climbed even higher – to 57% – in 2010.
“Our new business opportunities are giving us 57% of the claims,” Fardy observed. “I’ll tell you what I think it means. It means that as a result of industry pressure to produce new business [including the pressure insurance companies feel to write new business]… I think we are in too much of a hurry to pay attention to what we are doing.
“I’m not picking on anyone individually. But as an industry, I start to wonder if perhaps we are not in too big of a rush. And, as a result, we are hurting ourselves.”
Fardy noted claims were on the high side in areas in which brokers are expected to excel. For example, 18% of claims against brokers in 2010 cited an error made in risk assessment. Seventeen per cent of claims related to recommendations that brokers made, and 13% of the claims errors related to brokers making policy changes for clients.
Fardy described the claims trends as “scary,” since a big selling point for brokers is their advice to clients.
“We help make their choices so they can sleep well,” he said. “And yet, 57% of our claims issues are coming from our new business opportunities.”