Insurance broker E&O exposures: COVID-19

As insurers brace themselves for large volumes of notifications across all lines of business relating to Coronavirus disease 2019 (COVID-19) we expect to see a second wave of E&O notifications by insurance brokers when policyholders (businesses and individuals) find themselves without adequate cover for losses relating to the pandemic. Some insurers are already seeing a spike in such notifications.

Future claims against insurance brokers seem likely to fall within two broad categories (1) broker negligence at the point of policy placement; and (2) those 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.  As well as claims against brokers, we anticipate aggregation issues arising between brokers and their insurers.

The risks here for insurance brokers and their insurers are clear.  On the 19th March 2020 the FCA stated when publishing its expectations of insurers in relation to COVID-19 that "In these uncertain times, brokers have a key role to play to help consumers understand the market, the impact of Coronavirus, and search the market for products that meet their demands and needs.  We encourage brokers to keep abreast of market developments so they can suitably advise their customers."  

In this publication the FCA was thinking forward.  For many brokers though their E&O exposure will track back to professional services provided over the last 12-18 months when current policy programmes were being negotiated.

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