Posted by Rory Wilson, business development manager at Litigation Futures sponsor Amberis
The recent administration of insurance agent AU Insurance Services gave a real-life example of the difficult trading conditions in the post-LASPO era. We have seen law firms cease trading, but until now there have been fewer service providers casualties.
Whatever the reason for AU’s failure, it is clear that the effect of the reduction in income post-LASPO is having an impact on a range of services.
So what is the impact on a solicitor and their customers when their insurance provider goes in to administration/run off?
The first and most crucial question is, who is covering the risk? Remember, the insurance policy is the claimant’s and as such the solicitor must quickly establish who has ultimate responsibility for the policy.
The solicitor should be aware as to the status of their insurance provider, whether it be a direct insurer, an insurance agent or an insurance broker. There is a direct correlation between the providers status and the impact on policy holders.
A direct insurer’s failure has the most significant impact on policyholders and means that they are potentially left uninsured. If the insurer contributes to the Financial Services Compensation Scheme, then the policyholder is protected. If not, all transactions will be managed by the administrator and any claims paid if there are sufficient funds available once all other liabilities have been discharged.
Whilst similar, there is one distinct difference between an insurance agent and an insurance broker. An agent conducts business on behalf of the insurer and represents them in the insurance process, including claims. A broker works for the policyholder (and/or solicitor) and acts independently of insurers in obtaining quotes and guiding clients in determining the most suitable from a range of products.
If the provider is an agent, then the terms of the administration/failure need to be understood as they may impact on the cover provided and any potential claims. As the agent will generally be tied to an insurer, guidance should be sought from them to ensure ongoing cover is provided to the claimant. The policyholder should be advised as soon as possible of the situation and the potential impact on the policy coverage.
In the case of a broker, then the solicitor will have received regular updates as to the selection of the insurer and the performance of the scheme. He or she will then be able to make direct contact with the insurer to clarify the process in terms of the ongoing management of their account and cover for the policyholder. In the event of a failure of the insurer, then the broker will be responsible for the situation and will manage the run-off for the solicitor and/or seek an alternative as quickly as possible.
In light of the AU situation, it is important that solicitors consider the information above and how such an event would impact on them and what, if any, contingency plans they have in place.
If you have been affected by the administration of AU, please contact us.