Insurance Intermediaries Flashcards
Who are intermediaries?
Virtually all commercial insurance is arranged through intermediaries. Sometimes there are two or more involved in the formation of the contract. Despite the growing importance of direct insurance done on the internet or by telephone a substantial amount of insurance to individuals is still put in place through intermediaries.
What distinction should be drawn between intermediaries?
The distinction to be drawn is that between an independent intermediary – a broker – who acts for the insured, and a tied agent who acts for the insurer. A tied agent is limited to selling the products of his principal. Both independent brokers and tied agents are usually rewarded by a commission.
What is the obligation of the broker?
The obligation of the broker:
- To satisfy himself as to the nature and value of the risk proposed for insurance;
- To advise his client as to the most appropriate form of coverage; and
- To negotiate with the insurer to secure the best terms[ Doesn’t necessarily mean the cheapest.] available.
A broker will also assist the insured in collecting any claim that may need to be made on the policy (and they will normally do so without being paid for this - an invaluable service since they are better equipped at pursuing claims and will have contacts at insurance companies)
Do the rules of agency apply?
Since brokers are agents, normal rules of agency will apply.
⁃ As a matter of general agency law, while the knowledge of a broker is imputed to his principal, it is certainly not imputed to the other party in the transaction. Important in relation to the duty of disclosure.[ So for an insured to make full disclosure to his broker is NOT SUFFICIENT TO SATISFY THE REQUIREMENTS IN RELATION TO DISCLOSURE TO BE MADE TO THE INSURER. The broker must transfer this information to the insurer.]
⁃ Also, as a matter of general agency law a principal will be bound by his agent’s acts carried out within the scope of his actual or apparent (“ostensible”) authority.
What is “dual agency”?
There is frequently an element of dual agency involved in the insurance process. e.g. sometimes a broker will also have authority to issue a cover-note[ A cover-note is a temporary confirmation of insurance that the insured can rely on pending receipt of the actual policy.] on behalf of the insurer. This can lead to issues relating to agent’s fiduciary duties not to act in conflict of interest situations (since in some elements of the situation they are acting for the insured and some elements for the insurer.)
⁃ There is a general rule that only an agent under the direct employment or control of an insurer is an agent of the insurer, but in some of his dealings with the insured he may not be regarded as the insurer’s agent. Therefore, all other agents are agent’s of the insured.
Stockton v Mason and The Vehicle and General Insurance Co Ltd [1978]
⁃ The policyholder asked his broker to transfer insurance from his old car onto his new car. The policyholder then assumed that the terms would be the same, including that his son would be an additional driver on the policy. The policyholder’s son had an accident and later in the same day the policyholder receives a letter from the brokers indicating that the insurer requires some more information before determining whether the son is able to drive the car - in the meantime the cover was restricted to the policyholder until this decision had been made.
⁃ The policyholder’s son sued the insurer. An issue which arose was who was the insurer acting for at this time. The court held that in the ordinary incident of the relationship between brokers and underwriters in non-marine insurance, brokers had implied authority to issue cover notes, and thereby contract for temporary insurance on the insurers behalf. Not good explanation, look this case up
Newsholme Bros v Road Transport and General Insurance Co Ltd [1929]
⁃ The insurance company’s agent filled in a proposal form - but he was not authorised by the insurance company to fill in proposal forms, issue a cover note or enter into a policy of insurance.
⁃ The insured had supplied the correct information to the agent, but in filling in this form the agent answered 3 out of 14 questions incorrectly. The insurer’s refused to pay out based upon untrue statements on the proposal form and an issue arose as to what capacity the agent was acting in at the time of filling in the proposal form.
⁃ It was held that whilst he was filling in the proposal form the agent was acting as an agent of the insured, not of the insurer. As such any information obtained by the agent could not be imputed by the insurance company (since the agent was not acting as agent for them). So the insurer was entitled to avoid liability.
Cherry Limited v Allied Insurance Brokers [1978]
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McNealy v The Penine Insurance Co Ltd [1978]
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section 9 and Schedule 2 of the 2012 Act
Sets out rules for determining whether an agent is acting as an agent of the consumer insured or insurer–
An intermediary will be the agent of the insurer when the agent:
⁃ does something in the agent’s capacity as the appointed representative of the insurer for the purposes of the Financial Services and Markets Act 2000
⁃ collects information from the consumer insured if the insurer had given the agent express authority to do so as the insurer’s agent
⁃ enters into the consumer insurance contract as the insurer’s agent if the insurer had given the agent express authority to do so.
What happens in other cases when one of the three above possibilities of when an intermediary will be held to be the agent of the insurer does not apply?
it is to be presumed that the agent is acting as the consumer’s agent unless, in the light of all the relevant circumstances, it would appear that the agent is acting as the insurer’s agent.
What are the relevant factors which may tend to confirm that the agent is acting for the consumer are that?
⁃ a) the agent undertakes to give impartial advice to the consumer
⁃ b) the agent undertakes to conduct a fair analysis of the market
⁃ c) the consumer insured pays the agent a fee.
What matters may tend to show that the agent is acting as the agent of the insurer?
⁃ a) the agent places insurance of the type in question with only one of the insurers who provide insurance of that type
⁃ b) the agent is under a contractual obligation which has the effect of restricting the number of insurers with whom the agent places insurance of the type in question
⁃ c) the insurer provides insurance of the type in question through only a small proportion of agents who deal in that type of insurance
⁃ d) the insurer permits the agent to use the insurer’s name in providing the agent’s services
⁃ e) the insurance in question is marketed under the name of the agent
⁃ f) the insurer asks the agent to solicit the consumer’s custom.
