Key developments in 2018
In contrast to the previous few years, insurance brokers came under substantial judicial scrutiny in 2018.
In April, a broker was found liable for damages in excess of £1m for failing to ask its client the correct pre-renewal questions. Had it done so, information about the client’s directors would have been revealed that would have resulted in insurance cover being declined. This case, Pakeezah Meat Supplies Ltd v Total Insurance Solutions Ltd, is one of the first significant decisions under the Insurance Act 2015.
In July – this time in an unsuccessful claim – the court did not accept that the broker’s failure (to provide oral guidance around its client’s duty of disclosure) amounted to a breach of the duty. The decision was a further reminder of the importance of adducing expert evidence to support technical claims, and the claimant's failure to do so in this case (Avondale Exhibitions Limited v Arthur J Gallagher Insurance Brokers Limited) cost them dearly.
Finally, in October, the court had to decide whether a policyholder can merely assert that its claim under an insurance policy will not succeed as justification for then pursuing its broker in relation to the lack of cover. In Dalamd Limited v Butterworth Spengler Commercial Limited – undoubtedly the most significant case of the year – it was decided that the policyholder in those circumstances must go further than mere assertion and actually prove the lack of cover before claiming against the broker. This decision will be welcome news for brokers as the higher burden of proof may well have a positive effect on the number of claims that are made against insurance intermediaries. On the flip side, however, those claims that succeed could, ultimately, end up being more expensive.
What to look out for in 2019
2019 sees uncertainty about the future direction of Lloyd’s of London and the consequences that it will have on other parts of the London market and further afield. The Lloyd’s profitability review is likely to result in a significant trimming of capacity across all areas of cover and, while there are no targets or predictions for the number of syndicates or the number of classes that will be affected, the most likely to be hit is the MGA market as delegated capacity starts to be drawn back into the carriers rather than being farmed out.
The MGA market is dominated by brokers who either own or manage them and – directly or indirectly – use them to facilitate distribution and enhance front-end profitability. There are already reports of some managing agents starting to close for new business as available capacity dwindles, and this seems likely to be the thin end of the wedge as the reality of the Lloyd’s review starts to bite. Quite what this means for brokers seeking to gain access to markets for their customers or to maintain their profitability remains to be seen, but the market certainly looks set for a period of instability prior to the predicted hardening.