The Law Commissions of England and Wales and of Scotland have published a policy statement on the status of intermediaries in transmitting pre-contractual information between a consumer and the insurer.
The set of principles which are set out within the policy statement should be included in the Commissions’ draft bill on pre-contractual information. The aim of the principles is to provide a framework which both the courts and the FOS (Financial Ombudsman Service) may apply to individual cases.
The principles consider: cases where an intermediary acts for the insurer; cases where the court needs to consider all the circumstances of the transaction and the factors which will be indicative as to the status of the intermediary; and dual agency.
The following are understood to be circumstances where an intermediary is always considered to act for the insurer:
- Where the intermediary has authority to bind the insurer to cover
- Where the intermediary is the appointed representative of the insurer
- Where the intermediary has actual express authority from the insurer to collect and pass on pre-contract information.
In other cases the intermediary is understood to be the agent of the consumer unless the relationship between the intermediary and insurer is so close as to imply apparent authority to act on the insurer’s behalf.
The following factors are indicative of the intermediary being close enough to the insurer to be seen to be acting as their agent:
- The intermediary only places insurance with a limited number of insurers. (The smaller the number of insurers, the greater the indication that the intermediary acts for the insurer.)
- The insurer sells that particular policy through only a limited number of intermediaries.
- The insurer permits the intermediary to brand its services with the insurer’s name, thereby giving the intermediary apparent authority to act on its behalf.
- The insurer permits its policies to be branded with the intermediary’s name, thereby representing that the consumer is dealing with an insurer rather than an intermediary.
- The insurer requests the intermediary to approach the consumer to market the insurer’s particular product.
- The insurer exerts substantial control over the way that the intermediary conducts its business.
In a similar vein, the following will indicate that the intermediary is acting for the consumer:
- The intermediary undertakes to act in the consumer’s interest by, for example, giving impartial advice or providing a fair analysis of the market.
- The consumer pays the intermediary a fee.
- The intermediary provides full disclosure to the consumer of the commission it has received from the insurer.
The nature of the relationship may alter in relation to different tasks. The intermediary may act for the consumer when obtaining a quote but the insurer when they are paid to transcribe the proposal form onto the insurer’s computer system. Such scenarios will involve a dual agency status.
It should be noted that the list of factors is not exhaustive and can change over time with market practice.
For further information on the policy statement: Law Commission policy statement on the status on intermediaries