The market for insurance brokers’ Professional Indemnity Insurance (PII) has seen claims surge in recent years. Economic turbulence, regulatory changes, and the complexity of modern insurance products mean that brokers are experiencing more frequently and costly claims than ever before. These often stem from issues around the quality of advice, and a lack of clarity around coverage – leaving brokers to navigate a volatile risk landscape.
Below, we look at the key claim trends impacting the broker PII market, and the actions required to mitigate potential liabilities:
1. Failure to advise on adequate coverage limits
Allegations that a broker did not properly advise their client on sufficient coverage limits is one of the most common types of claim. Clients who experience losses exceeding their coverage limits may allege that their broker failed to guide them on potential risks, or underestimated the level of coverage that would be required. This type of claim is particularly prevalent in sectors like cyber, liability, and property insurance, where underinsurance is common.
2. Misrepresentation or omission of policy exclusions
Claims involving misrepresentation of policy exclusions, or failure to disclose limitations, are also becoming more frequent. As insurance policies become ever more complex, clients may allege that their broker did not adequately explain what was – and was not – covered. Such claims can arise if a client incurs a loss, and later finds that the policy excludes that specific scenario. A common example is seen in business interruption claims, where clients may have misunderstood coverage applicability during events like COVID-19.
3. Errors in policy placement and documentation
Administrative errors, while often unintentional, can lead to costly claims. Issues like incorrectly recorded policy details, unprocessed endorsements, or missed renewals can all result in coverage gaps. Clients who experience losses during such gaps may file claims against their broker, arguing that inadequate documentation or mismanagement led to their uninsured status.
4. Failure to meet regulatory or compliance standards
Brokers are increasingly facing claims related to regulatory compliance, particularly in jurisdictions with strict consumer protection standards. For instance, regulatory bodies in the EU (opens a new window) and UK (opens a new window) have increased scrutiny on how brokers disclose commissions, manage conflicts of interest, and meet transparency standards. Brokers who fail to meet these standards may face claims both from regulators and clients, especially if clients feel they were misled.
5. Cyber and data breach liability
The rise in cyber risk has led to an increase in claims related to data breaches and cyber incidents. Brokers, who often handle sensitive client data, are vulnerable to claims if a cyberattack compromises client information. Clients may allege that brokers were negligent in their cybersecurity practices, especially if the breach results in identity theft, financial loss, or regulatory fines.
Why are claims becoming more severe?
Various factors are contributing to claims becoming increasingly severe. Crucially, the cost of defending PII claims has risen sharply as cases become increasingly complex, and lawyers deploy more aggressive legal tactics. Even the most straightforward claim can now incur high legal costs. For brokers, this is creating pressure to settle out of court and minimise reputational risk.
In parallel, clients are increasingly aware of their legal rights and are quick to pursue litigation in cases of perceived oversight or omission by their brokers. This cultural shift, combined with rising litigation support services, has contributed to an increase in the frequency and severity of claims. Even minor advisory missteps can lead to significant financial settlements.
At the same time, regulators have heightened their focus on the insurance brokerage industry, particularly around disclosure and advisory practices. Claims related to alleged compliance failures – such as failure to disclose exclusions adequately – are now common, as regulatory bodies enforce stricter standards.
Managing your PII risk
Claims against brokers are increasingly following recognisable patterns, shaped by regulatory scrutiny, and increased client expectations. Recognising these recurring themes is key to anticipating exposures, strengthening advisory practices, and protecting client relationships.
Key actions to manage PII risk include:
Strengthen internal controls – For instance, double-check policy documentation, maintain clear records of client communication, and ensure comprehensive disclosure of policy terms and exclusions.
Educate staff on risk – deliver training to employees on compliance and risk management best practices to help avoid errors before they occur.
Prioritise transparency – Be transparent about policy limitations, exclusions, and coverage terms when communicating with clients. Confirm clients’ understanding and documenting discussions to reduce the likelihood of claims based on misrepresentation.
Monitor regulatory developments – Remain up to date on regulatory changes, as non-compliance can lead to costly claims. Consult with legal professionals where necessary.
Update technology and software – Policy management software, automated compliance checks, and data security tools can reduce the likelihood of human error. Updating cybersecurity standards through measures such as multi-factor authentication can also protect against potential cyber-attacks.
With claims likely to increase in both frequency and severity, brokers who prioritise compliance, risk management, and transparent client interactions will be better positioned to navigate these challenges. Additionally, insurers may look more favourably upon brokers who demonstrate proactive claims management strategies, potentially leading to more favourable PII terms.
For more information, reach out to a member of our team.
