Brokers’ professional indemnity

In this chapter of our Annual Insurance Review 2018, we look at the main the developments in 2017 and expected issues in 2018 with regards to brokers' professional indemnity.

Key developments in 2017

Widely publicised cyber attacks, such as those on the NHS and Equifax, continued to provide brokers with a strong platform for selling cyber insurance in 2017. Since 2016, the number of websites and use of cloud services have increased, with the majority of UK businesses now storing their customers’ personal data electronically. According to government statistics, 74% say that cyber security is a high priority for their senior management. Despite this, however, many companies still do not have the basic protections in place, with only 38% of businesses having insurance to cover a cyber security breach or attack – the same figure as in 2016.

For some businesses, there is still a complete lack of awareness of cyber insurance. For others, there is a perception that the cover provided is not extensive enough. With just under half of all UK businesses identifying at least one cyber security breach or attack in the last 12 months, there remains a significant role(indeed, duty) for insurance brokers to educate their clients on how to protect themselves and respond in the event of a cyber attack or breach.

Earlier this year, a broker who was found to have failed to place professional indemnity (PI) insurance for an accountant had a lucky escape, when the Court of Appeal found that he had not caused his client any loss.The broker was saved by a finding that PI insurers would not have provided an indemnity in respect of the claims against the accountant for reasons other than the broker’s negligence.

What to look out for in 2018

2018 looks set to follow its predecessor with more mergers and acquisitions within the broking community.Merging with, or acquiring, another business can create significant gains, but can also give rise to a number of potential risks. On the one hand, companies will merge to allow the new business to have greater economies of scale and a larger share of the market. On the other hand, however, service issues could arise due to delays or difficulties in integrating the IT infrastructure. Further, mergers can result in a loss of talent resulting from a drop in employee morale. Inevitably, this can give rise to an increase in complaints or claims and we suspect this will be a key trend in 2018.

In addition, increased commoditisation at the lower end of the market and new broking technology(such as auto-rating tools and robo-advisors) will give rise to new challenges. A survey carried out by the Chartered Insurance Institute shows that nearly half of the UK’s SMEs would, in principle, be comfortable buying all or some of their insurance products online or in a commoditised way in the future.

This gives brokers an opportunity to move away from their traditional transaction-led role to more of an advisory role, providing risk information and business advice. It also brings risks. Duties imposed on brokers by the courts are already onerous. The trusted advisor role will place even more pressure on brokers to have a better understanding of their clients’ businesses and insurance needs.

Download our full Annual Insurance Review 2018 for more insights.