In this chapter of our Annual Insurance Review 2021, we look at the main developments in 2020 and expected issues in 2021 for brokers.
Key developments in 2020
The hard insurance market coupled with the effects of Covid-19 has meant that 2020 has been an extremely challenging year for insurance brokers. The pandemic and Government-directed lockdown in March put enormous strain on brokers as a result of the significant volume of health, travel and business interruption claims, with clients desperate to know whether or not they were covered for their losses. The broking community breathed a (short-lived) sigh of relief when the High Court in the FCA business interruption test case (The Financial Conduct Authority v Arch Insurance (UK) Limited and others  EWHC 2448 (Comm)) found in favour of the arguments advanced for policyholders on the majority of key issues, which meant that many of them were likely to recover their losses. On 2 November 2020, however, just as businesses had been told that they faced another national lockdown, the Supreme Court granted permission to a number of the insurers to appeal. Whatever the outcome, the Supreme Court's decision will have a major impact on brokers. One thing that is certain is the next 12 months will be as challenging for them as the last.
What to look out for in 2021
If insurers' appeal is successful, brokers may find themselves in the firing line. In difficult financial times, policyholders will look for somebody to blame. Claims against brokers are likely to relate to a failure to arrange suitable business interruption cover or advise on the scope of cover obtained. Causation may well be a significant issue. This could have a substantial impact on the brokers' professional indemnity market and premiums.
If the Supreme Court upholds the High Court decision, customer support will be more important than ever. Clients will seek assistance with their business interruption claims. We anticipate that insurers will react to the decision by tightening up their policy wordings and restricting the scope of cover. Brokers are, therefore, likely to be called upon by their clients to fully understand the policies they are arranging and provide more technical knowledge. When placing policies, it may be prudent for brokers to demand from insurers confirmation as to what cover they will provide and be very careful to explain to clients when their insurance requirements cannot be met.
In order to be able to give that explanation, it is vital for brokers to fully understand their client's needs. As a result of Covid-19, the risk profiles of a lot of businesses will have changed and so brokers will need to spend time getting to know their clients again. Remote working means that, for many, new and innovative ways to keep in touch with clients and conduct business will need to be developed.
Small businesses will continue to be hit hard for the foreseeable future, putting a strain on brokers' fee income and commission volumes. For those businesses that manage to survive, cost cutting is likely to mean their focus is less on insurance and more on risk management. This is where brokers can really add value to their relationships.
Authored by Kirstie Pike.
Download our full Annual Insurance Review 2021 for more insights.