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Claim Brokers

Many corporate, commercial and business insureds shrug off the idea that they won’t get a fair deal from their insurer because of their buying power and they have an Insurance & Risk Manager, a Company Secretary/Finance Director and/or an Insurance Broker who are there to ensure this can’t and won’t happen. Think again. Yes, in some very limited cases this is true but we are now post-HIH/FAI and insurers will no longer make settlements which will compromise their bottom line. ASIC will not allow it! Everyone at this level of the market is either a provider or a buyer of insurance eg. the insurer/broker or the client/customer. Essentially everyone is an expert in either providing or purchasing insurance but who is the expert when it comes to assessing and adjusting claims? The funny thing is that the corporate/business market looks to their broker as “Claims Brokers”. So what you have is an organisation which has procured the account, services the client purchasing decisions and now represents them as claims brokers when dealing with claims. There is a massive conflict of interest for the broker and a real concern for the client as to whether they can rely upon their broker to make full and frank disclosure where professional negligence is involved, which will affect the claims outcome. Common sense suggests that the client’s interests may well be overlooked in these circumstances due to human frailty.

To put matters in perspective the majority of brokers are not claims experts even though many hold themselves out as such. Unfortunately the broker is the agent of the insured and not the insurer and therefore the problem has to be addressed at the broker/client level as the insurer is in the clear. Even where the broker has professional indemnity insurance it does not necessarily mean that it will respond in the given circumstances in every particular case. Even where it does the question will become, what is the limit of indemnity and how much of the loss does the broking organisation have to book to their house account? That is, the higher their deductible the greater their exposure and should the known circumstance become known circumstances then depending upon the structure of the deductible it may be applied once or on a number of different occasions. If the latter then the whole claim may have to be booked to their house account and the insurer apart from notification may have little involvement. It is often said that this cannot occur but it does. This may have potential serious financial consequence for the broker not only because their PI policy may not respond but they may lose an important account.

This problem is further exacerbated as broking organisations come under additional pressure because at the top end of the market they are talking about premiums measured in the hundreds of thousands/millions/tens of millions of dollars. The loss of these types of accounts may be a real threat to the financial viability of a brokerage house dependent on its size and may cause some unusual decisions to be made about the responsibility for the placement of a cover and or how any one claim falling for consideration under the relevant insurance program is to be deal with. The reality is, that all insurance claims should be referred to insurers who can make an unfettered decision as to their acceptance or rejection. Should the client believe that they have been unfairly treated then they can appoint their own independent expert to achieve the desired outcome. Of course issues associated with the nature and extent of a cover can be independently addressed together with the quantification of the loss. Under some policies claims preparation costs may be included which would be of benefit to the insured. Once again whether you be an insurer or an insured when you become involved in a problem claim seek independent legal advice from LAC Lawyers which possesses the necessary expertise to address your concerns.

Submitted by:

Frank Egan - LAC Lawyers

Frank Egan is the Chief Executive Officer of LAC Insurance Lawyers Sydney and has over 27 years of experience as a lawyer.




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