According to insurance buyer and claims resolution firm Mactavish, the legal disputes over pandemic business interruption (BI) claims have exposed systematic flaws in the re/insurance market, including vague policy language and potential conflicts of interest for brokers.
Last week, the UK Supreme Court upheld an earlier legal ruling that required insurers to pay out on a sample of BI policies brought forward in a test case by the Financial Conduct Authority.
But Mactavish believes that only a small minority of the headline figure of 370,000 businesses will actually receive a claims payment as a direct result of the judgement.
Many of the businesses with an interest in the case clearly purchased business interruption and other covers under the assumption that they would be protected in the event of a pandemic or similar severe event.
Analysts at Mactavish charge that insurers themselves did not seem to fully understand what was covered under their policy language, leading to a wordings “lottery” scenario where coverage was left to chance.
Furthermore, the firm says brokers must accept responsibility for effectively mis-selling policies, and for discouraging policyholders from filing claims earlier in the year, who may have now missed the window of opportunity to receive compensation.
In fact, Mactavish says the relationship between brokers and insurers requires “robust and immediate regulatory action” after reports showed that some brokers receive revenue from insurers that is far in excess of their fees from clients.
This income is often directly linked to the premium they place, meaning that as policyholders’ costs increase, some brokers stand to make greater profits.
“The insurance industry is not held in high esteem, and rightly so,” said Mactavish CEO Bruce Hepburn. “A lot of the practices we see in our work are wrong. Policyholders appoint brokers to work for them to get the best deal. In reality, whilst there are some very good brokers, they are too often also working as the agent of insurers, producing incredible potential for conflicts of interest.”
“We have a ludicrous situation in which policyholders all too often pay brokers for professional advice only to find that such advice is deemed irrelevant by the FCA and the courts, and that the onus is entirely on the policyholder to interpret incredibly complex insurance law,” Hepburn continued.
“Worse, many brokers’ terms of business actually exclude liability for the professional advice they do supply on wordings, meaning that clients cannot pursue them for damages even when their guidance has clearly been wrong. In reality, in too many cases there is little difference between using a broker and simply buying insurance through the aggregation websites we might use for travel or car insurance – except that brokers charge much higher fees and aren’t held to the same standard as consumer intermediaries.”