Across financial lines, it’s not just the soft market that can cause a broker headaches. Some underwriters are pointing to other challenges that have emerged recently, including an important coverage issue and misleading wordings in policies.
“We are receiving more new business requests for risks that have no professional indemnity (PI) exposures, as these businesses do not provide professional services or advice,” said Louise Soutter (pictured), financial lines underwriting manager for Pen Underwriting.
Soutter said these quotes are typically requested by brokers due to contractual requirements imposed on their client’s business, with contracts that are general in nature and not specifically tailored to a business and its actual exposures.
However, she said brokers could encounter an issue they may not be expecting. “The issue with this is that any PI policy sold to a business with no exposure could be deemed not fit for purpose as the policy would not respond to an event,” said Soutter.
The underwriter said this is in line with Australian Securities and Investments Commission (ASIC) regulations under the Corporations Act 2001 and the Insurance Contracts Act 1984. “Consequently, the client is paying for something they cannot use and PI policies should not be sold to these businesses,” said Soutter.
However, this important insurance revelation is at odds with the reasons behind businesses buying this coverage and the brokers likely advising them to do so. “If a business does not purchase a PI policy,” said Soutter, “they may be unsuccessful in tenders or lose contracts.”
In recent months, Soutter has also noticed some contradictions in the financial lines insurance documents that brokers are providing to clients.
“I have also seen examples where coverage is included under a professional services description but excluded in the wording,” she said.
The underwriter said this could be viewed by regulators as misleading or deceptive.
“Therefore, it is imperative that brokers thoroughly review the wording, not just the quote schedule,” said Soutter.
In the current soft market, insurers are also offering covers that were previously undesirable or excluded. Soutter said one example is statutory liability cover which is being offered at lower deductibles or premiums than were available when the market was harder.
She said brokers should make sure they’ve found their client the best offer.
“Finding a competitive premium with the right coverage is a priority,” said Soutter.
Another challenge impacting brokers in the financial lines space has been around for years: low uptake of cyber insurance by SMEs. “Unfortunately, the purchase of cyber coverage remains very low, particularly among small to mid-sized businesses,” said Soutter.
She said there are instances where small businesses are falling victim to cyberattacks and struggling to recover. “We observed a similar trend when management liability was first introduced in the early 2000s, which is now much more widely purchased by smaller companies,” said Soutter.
Soutter said for brokers considering cyber covers for their financial lines customers, it could be beneficial to keep both coverages with the same insurer. “I believe there are benefits to having both professional indemnity (PI) and cyber policies with the same insurer,” she said. “If cyber coverage is specifically excluded under a PI policy, we would likely be able to offer a cyber quote alongside the PI policy.”
Soutter said having both policies with the same insurer helps avoid potential issues with insurers disputing which policy should respond to an event, preventing delays and claims coverage issues for a broker’s clients.
Are you an underwriter or broker in the financial lines space? What challenges or issues are you noticing in coverages? Please tell us about them below
