A lack of effective communication between brokers, clients and insurers can you land you in deep water – as this Insurance Brokers Code Compliance Committee (IBCCC) code case study on flood non-cover following Cyclone Debbie shows.

The client lodged a claim following tropical Cyclone Debbie in March 2017 under his business policy. A subsequent claim for flood damage to the business premises was denied by the insurer based on an exclusion of flood cover. The client alleged that he had previously requested flood cover from his insurance broker.

The client purchased the business premises in 2014 and at that time requested his insurance broker to provide the same insurance that was in place for the previous owners, which included flood cover.

The broker stated that, based on these instructions, it arranged a commercial insurance package with the insurer with flood cover for the 2014-15 period. The insurer stated that it informed the
insurance broker on a number of occasions that it was unable to provide flood cover to the insurance broker’s client. The insurer requested the insurance broker to amend the closings to remove flood cover and to refer any future renewals or new business to it before offering terms to the client.

This was again communicated to the insurance broker for the renewals 2015-16 and 2016-17. The flood cover was eventually removed by the broker, however, this removal was not communicated to the client.

The insurance broker:
• was not adding value to the relationship with its client
• was not communicating effectively with its client or the insurer, and
• was offering insurance on terms that were not provided by the declared insurer.

Code investigations
As part of its investigation, the IBCCC found the following:
• The insurer requested the insurance broker to amend the closing to remove flood cover and refer any further insurance renewals to head office for approval.
• The insurer notified the insurance broker that it was not able to offer flood cover on the policy and that it would not be accepting flood cover. The insurance broker provided its client regardless with a policy schedule which noted flood cover.
• The client was not informed that flood cover had been removed nor sent an amended policy schedule.
• It was the broker’s submission that its understanding of the insurer’s processes was that usually the insurer does not exclude flood cover in a situation where they had previously provided flood cover for a number of years. Further, there were no claims during those years that flood cover was noted, to justify a sudden exclusion or increased premium.

Steps undertaken to correct the breach
The insurance broker negotiated with the insurer on the client’s behalf to obtain cover for the client’s flood claim and assisted the client by preparing its submissions for the internal dispute resolution process with the insurer as well.

• The insurance broker engaged a contents and business interruption loss assessor at its own cost, to assess the client’s loss so that the client’s claim was not delayed while the broker sought
to obtain cover from the insurer.
• The insurance broker made interim payment offers during the process to help the client mitigate their costs while the claim was being pursued.

Ultimately, due to the need for the client to rebuild its business premises before the landlord began to charge rent and thereby possibly incurring further loss, the insurance broker offered to settle the claim, which was accepted by the client.

• The insurance broker also ran a “flood campaign” where they contacted clients without flood cover (especially those near a river) to ensure that they understood that they did not have flood cover, and the risks associated.
• The insurance broker reported a breach of Service Standard 5 of the Code to the Committee.

Key learnings
Service Standard 5 of the Insurance Broker’s Code of Practice commits insurance brokers to:
• endeavour to add value to their relationships with their clients by not merely acting as conduits for correspondence
• contact their clients regularly, and at least once a year in relation to business and farm clients, to establish current requirements and confirm coverage
• not merely be forwarding renewal notices without satisfying themselves that the policy requirements are met and will cover the clients stated needs, and
• contact insurers and clients in writing where there is uncertainty regarding policy coverage, rather than rely on an assumption or the insurer’s previous conduct.