Brokers

Written by Daniel Charity

Key developments in 2024 

The claims inflation seen in the market over recent years continues to pose a significant risk in relation to underinsurance, putting brokers at risk of negligence claims where an insured finds its cover insufficient to compensate for its losses. Industry research indicates that over 40% of commercial properties are underinsured, and claims managers are increasingly having to have difficult conversations with underinsured property owners. The impact of underinsured losses can be catastrophic for customers, particularly when policies contain average clauses. Insufficient property damage cover can also lead to longer business interruption periods, which are also not adequately insured.  Brokers are playing a crucial role in seeking to tackle the underinsurance crisis and should continue to have frank discussions with clients and provide detailed advice on the implications of underinsurance in the event of a claim, including the application of average clauses. 

Meanwhile, the use of AI continues to create opportunities and risks. Some brokers are using AI 'chatbots' to process first notifications of loss and streamline the early claims process, with touchless claims applications being introduced. Brokers are routinely using sophisticated AI tools in risk profiling and pricing, based on the vast amounts of data at their and insurers' disposal, which AI can digest in a matter of moments. The benefits of such automation include the fact that brokers now have more time available for in person meetings with both their clients and insurers.  

An FCA review in 2024 identified some high-level trends from the first round of reports by insurance firms regarding their compliance with the Consumer Duty. The FCA appears to be placing emphasis on transparency and data from insurers being provided to customers, to ensure they are equipped to make informed decisions; whether on inception, renewal, or in the claims process. This duty extends to brokers, who should ensure they are asking the right questions of both insureds and insurers when placing cover. Although this has always been required of brokers, it will be more closely monitored and enforced under the Consumer Duty.

What to look out for in 2025 

AI in the insurance industry is no longer in its infancy, with a RSA survey showing that 8 out of 10 brokers use it on a daily basis. Whilst AI pricing tools offer tangible benefits in terms of efficiency, risk and speed of data processing, this must be balanced against the need to consider the characteristics of individual customers and to tailor the service provided by brokers accordingly. Consumer groups have also raised concerns as to the lack of transparency in relation to complicated pricing algorithms and it is suggested that this could lead to discriminatory pricing practices. We anticipate that the regulator will remain keen to ensure that the increased use of AI in this context does not pose any risk of 'ethical harm' to customers. 

The year ahead should bring further clarity as to how the FCA will be approaching brokers' compliance with the Consumer Duty. One key question is how brokers can meet the needs of insured clients while also avoiding tension with insurers. It remains to be seen whether the Consumer Duty will, for example, require brokers to take stronger stances against declinatures, on the basis that doing so is likely to always be in the interests of achieving a good outcome for the customer. BIBA's plea for proportionate regulation in the broking industry, following periods of significant regulatory change, may not be answered as the application of the Consumer Duty continues to evolve.

The High Court's decision in Norman Hay Plc v Marsh Ltd, concerning the loss of chance test for causation in brokers' E&O claims, will reach the Court of Appeal in early 2025. The first instance decision was a positive development for claimant policyholders, as it clarified that a claimant is not required to prove on the balance of probabilities that a putative insurer would in fact have indemnified the claimant, in circumstances whereby the broker's breach had led to there being no insurance policy in place. The outcome of the appeal could therefore have important repercussions for the brokers' E&O claims landscape with regards to the correct approach to causation.

Explore Annual Insurance Review 2025