This following scenario might sound familiar: An insurer issues a policy “subject to proposal” but without ever asking for it again, proceeds to issue the policy and renews it annually without the proposal form. A claim then comes in but is rejected with the policy being cancelled “ab initio". The reason: because the client did not disclose the insolvency of a completely unrelated business tenuously linked to the client some years before. As a result, the broker’s PI becomes the insurer of last resort.
Under BIBA’s Professional Indemnity Initiative guidelines, it is the broker’s sole responsibility to chase the client until the broker is satisfied that compliance has been effected. Under the Consumer Insurance (Disclosure and Representations) Act 2012 the consumer is duty bound to volunteer information honestly and reasonably but the insurer has the responsibility to ask for all information required to assess the risk. This is all in the context of insurers’ COR moving inextricably up and past 100%, brokers trying to cut costs and simultaneously improve service and clients appearing to be making more claims.
In the end it appears that the case will be decided not by the merits of the claim but who has the best documentation to prove their position. If you think this is a temporary situation driven by necessity, you might want to think again. Insurance has permanently moved on from the days of “my word is my bond”. Today, there is a modern day ethos of “my Word document is all I am bound by”.
Broker systems have always been capable of recording their actions more comprehensively than insurers, albeit they are not always used by the broker. Insurers are now upping the ante by getting more aggressive in requiring brokers to follow the BIBA guidelines. The Mexican standoff which simply results in “prove it or I will see you in court” is about to ensue.
For insurers to avoid paying unreasonable claims, reduce their exposure but also act in good faith, they need to have better records. This will not just require the “what” of what they did, but also the “when”, “how”, “why” and “who” even down to “why it was not done” if that decision was made consciously. There is only one way to achieve this: rigorous management and attention to detail underpinned by the robust, rules-based automation of the underwriting process to ensure quality work can be done and recorded while sloppy work does not lose the company a fortune.
This is not rocket science. Leading insurers are already working on tightening up the whole underwriting process from start to finish. Several are automating much of the work and making sure underwriters concentrate on getting out in the market, thereby closing more quality business but also not letting money flow out of the back door with costly disputes and legal cases. Refreshing legacy systems with modern Business Process Management and Case Management systems ensures there is a complete record of who did what, where, when and how. Only by having levels of record keeping of this quality will insurers survive in the new world of “Prove it!”