The broker in question worked with a body corporate to arrange its insurance. At renewal time, the broker sought quotes from other insurers and ended up placing the insurance with another insurer, which offered a lower premium in return for a higher excess.
The broker sent the necessary documentation to the body corporate, which paid the premium, thereby accepting cover.
However, a dispute arose when the body corporate lodged a claim for water damage. Upon discovery that the new excess was higher than they would have paid under the previous insurance policy, the body corporate lodged a complaint with the Financial Ombudsman Service.
It complained that the broker changed insurers without its knowledge and did not discuss the difference in cover before placing the insurance with the new insurer (for example, asked the body corporate if it wanted to remain with the original insurer and pay a higher premium with lower excess or change insurer and pay a lower premium with a higher excess applicable).
The matter was closed by FOS external dispute resolution via negotiation with both parties, in favour of the client.
However, this was not the end of the matter for the broker involved. Following dispute resolution, the broker was referred to FOS to investigate whether its actions constituted a breach of Code Service Standard Five.
Consequently, the broker has been asked to demonstrate whether or not its actions constitute a code breach. If it confirms the events are a breach, the broker will have to take the following steps:
- acknowledge the Code breach,
- confirm that it will list the breach in its compliance register,
- review its procedures and guidelines,
- review and identify if any other customers are potentially affected,
- advise what remedial action it has taken to remedy the situation, and
- advise what training has been/will be undertaken by staff.
On the other hand, if the broker considers its actions complied with the Code, FOS will consider referring it to the Code
The lesson for insurance brokers, FOS says, is to talk to your clients and discuss any changes to the policy, preferably in writing. Do not assume that they will pick up differences of cover just by providing them with the policy terms and conditions.