When procuring specialist insurance such as Professional Indemnity (PI), Cyber, Employers’ Liability and other core commercial insurance products, a broker is generally used as they can provide specialist advice, ensure competitive quotations from a range of markets, guide your firm through volatile market conditions, and manage claims.
In this article, Anna Beadsmoore, Gallagher’s Head of Legal Indemnity, examines the reasons why your lawyers should be using brokers to procure title insurance and the potential risks of going direct to insurers. Lawyers often take control when procuring title insurance and often law firms approach insurers directly, all too often only one carrier is used - typically based on prior relationships. However, this can cause problems as all insurers have fundamentally different approaches and capabilities in respect of risk appetites, capacity limits, sector expertise, security rating and, finally, jurisdictional capabilities.
Gallagher recently was asked to assist in a case where a law firm urgently needed assistance when their insurer (that they had transacted with on a direct basis), let them down. A law firm had procured a title policy for their client for a site upon purchase of the land; there were some easement issues and a number of missing transfers within the title.
The site was to be developed and lawyers approached one insurer who was able to incept a policy at a reasonable premium, allowing for future development. However, one year later, at the point that the development was due to start, the lenders requested major changes to the insurance policy. Unfortunately, the insurer was not able to agree to the changes due to reinsurance requirements and a low risk appetite for some of the additional covers. This caused significant delays to the project and increased costs, not only in legal fees but in premium costs.
A broker would have known that the future redevelopment could cause problems with the insurer as this particular insurer has a notoriously low risk appetite for contingent covers within title policies. There are many benefits to lawyers to approach a broker when procuring title insurance, namely:
The Insurance Conduct of Business Sourcebook (ICOBS) requires that a statement of the demands and needs must be communicated to the customer prior to the conclusion of a contract of insurance. It also states that a firm must take reasonable care to ensure the suitability of its advice for any customer who is entitled to rely upon its judgement.
Generally this means that a broker must approach the appropriate insurers for the risk and ensure that if they are giving advice that a recommendation is made upon the product that is to be incepted. By marketing the risk to more than one insurer, this can give greater certainty that the client would be getting market leading coverage, and paying competitive premiums.
The Insurance Distribution Directive (IDD) requires an Insurance Product Information Document (IPID) to be included with the insurance policy. It is imperative to ensure that insurers are including these within all policies.
The legal landscape is increasingly competitive and law firms will quote fees based on the total project, rather than hourly. When lawyers are charging hourly, this can increase costs significantly and by using a broker, money is saved as brokers are remunerated by insurers. Spending hours liaising with multiple insurers would on paper appear not to be practical or a good use of time, as such, a broker can take care of the leg-work of seeing multiple insurers, as well as managing policy issuance and invoice raising.
The financial stability of insurers is constantly changing and most insurance brokers have a dedicated team to ensure that the security ratings of insurers meet with their minimum requirements. They also have a responsibility to notify customers if insurer security changes.
If an insurer’s rating fall below a certain requirement, advice can be given to clients and options provided. This is particularly important as most title insurance policy periods are in perpetuity. In the unfortunate event that negligence is deemed to have occurred when placing an insurance policy on a direct basis with an insurer, the law firm must call upon their PI insurance in order to pay the insured’s claim. If a broker is used, this risk can be transferred.
In short, a broker will help protect you as the client by ensuring the following regulatory requirements are completed:
- Producing demands and needs statements for the insured
- Liaising with insurers and managing timelines
- Ensuring competition
- Only using insurers that meet our strict market security criteria.
1. Coverage & Premium:
Insurance brokers have leverage with insurers. They place millions of pounds of premium annually and are able to utilise their relationships to negotiate cover and premiums. They are also more knowledgeable on the types of cover and specific wordings available as they will push for certain amendments to be accepted. At Gallagher, we have marked up policies for certain situations, allowing for a suitable coverage position against insurers standard wordings, ensuring less time spent back and forth with amends.
Approaching more than one insurer enables a comparison against premium. These policy premiums can range from GBP50 to GPB5m and even for a simple covenant risk, the premiums offered can differ by thousands of pounds. A broker’s leverage also comes into play here.
In the event of a claim, brokers have in house claims teams to manage the claim, not only from a legal process, but ensuring that their corporate leverage is used. There have been instances where Gallagher have secured a claim payment, even though technically the policy had been voided by the insured.
Gallagher’s Legal Indemnity team are experienced with working to tight timescales, delivering complex transactions and developments.
Our clients include law firms, property owners and developers. The team understand the complex nature and the significant impact on the future value of a property associated with these risks. Our experience enables us to provide advice and comment on the availability of products, coverage and premium rates to assist your firm quickly and thoroughly to avoid unnecessary delay.