Professional indemnity insurance deals tend to be as good as the broker that negotiates them for you. So how can you tell how good your broker is?
There is a lot of speculation in the insurance market right now as to the true impact of the estimated $80bn (£46bn) bill that insurers will have to foot after last year's natural disasters. One thing is certain: firms will have to continue to meet the challenge of a volatile marketplace, and so it is natural to consider shopping around for professional indemnity cover. However, a deal might look good on paper, but if it isn't brokered properly a firm could find itself with cover that doesn't meet its needs.
Here is a "broker proficiency test" to help you determine whether your broker is the right one to help you meet the challenge. Simply answer A, B or C to the following questions, add up the total number and see how your broker scores …
1 - When you notify a claim, your broker:
A Is nervous and unsure, and asks if they can call you back.
B Asks you to send on details so they can talk to another broker and work out a plan of action.
C Talks matters through in detail and tells you that they will negotiate with the underwriter.
2 - You've heard that premiums are falling, but yours continue to rise. Your broker's response is:
A They blame Hurricane Katrina, the Buncefield oil disaster and the threat of bird flu.
B They say "that's the price we've been given" and provide no further explanation.
C They discuss the situation with you and offer to arrange a meeting to negotiate the price face to face with the underwriter.
3 - Your biggest client has changed its law firm and all contractual documents have been amended. As a result you have been asked to sign a new form of collateral warranty and appointment. You ask your broker what effect this will have on your PI. How do they respond?
A They ask you what a collateral warranty is.
B There's a lot of head shaking before they tell you that they will get back to you with the insurer's comments in a couple of weeks.
Firms will have to continue to meet the challenge of a volatile marketplace, and so it is natural to shop around for professional indemnity cover
C They email the documents over straight away and tell you they'll get back to you within 72 hours. If they feel the situation calls for definitive legal advice, then they tell you they will arrange this at heavily discounted rates.
4 - Last year you left your PI renewal to the last minute and so didn't have time to shop around for a better deal. This year, you've promised yourself that you'll secure a final quotation from your broker well in advance of the renewal date. You call your broker. Do they:
A Promise to review options early, but the quote lands on your desk two days before the renewal date.
B Provide renewal terms seven days in advance, but wants more time to seek other options.
C Obtain a range of options for you to consider up to 14 days before renewal.
5 - You request a meeting at renewal with your broker. They respond:
A Sorry, face-to-face meetings are for new customers only.
B No problem - your place or mine?
C We'd welcome the opportunity to get together with you and would you like us to bring along the underwriter to meet you as well.
6 - You're looking to merge with another firm but are concerned about the PI implications. Your broker advises:
A You can merge, but it would be better to hold off until your policy expires.
B It's complicated as there are lots of issues. We'll need to seek advice and get back to you.
C There are a number of options. We've dealt with this issue for a number of other clients recently - let's meet at your earliest convenience to discuss.
Alex Phillips is business development manager for PI at Lloyd's broker Howden. Email firstname.lastname@example.org