The leading annual event on the Romanian insurance market, FIAR, has recently ended. This year, the attention given to insurance brokerage was a special one, and we dare say, it measured up to the importance of this profession on the market. The debates were attended by a wider number of participants, both from the brokerage companies and the insurers, and they focused on the numerous issues related to the profession itself and the measure to improve its status from two perspectives: the relations brokers-customers and brokers-insurers.
The latest events in their professional life made us consider the contractual relation between the broker and the insurer, a topic that was, obviously, debated at FIAR. For the moment, this relation seems to be based on a force principle, supported by the big gap between the financial power of the insurers and brokers, respectively, as well as by the fact that the insurance brokerage activity cannot be conducted without having contracts with the insurance companies. This somehow shows that brokerage companies depend on the desire and will of the insurance companies.
If one just reads the current Mandate Contracts designed by the insurers, based on the experiences they gathered since their creation and up to the present, it can be quite frustrating.
We shall give an example from a contract that caught our special attention, namely: “THE BROKER shall be held responsible for all consequences that the INSURER would bear for all payment made but which, because of inaccurate or delayed registration or because it was cashed in outside the given mandate, is not considered as being actually paid or cashed in on behalf and for the INSURER”
A concrete case: a customer paid in the insurer’s account an amount in euros. The insurer operated it as being in USD (therefore resulting in a difference representing unpaid premium) and the same Insurer refused to pay for a claim file that was subsequently issued, invoking this reason precisely. Although the situation cleared in a few days, it is hard to comment on the fact that the insurer did not even make a phone call to the customer to apologize...
If the customer had made the payment to the broker and he/she was to make the same mistake, according to the contract, the broker should have paid the claim to the customer. But if the insurer makes a mistake, it does not count. It is obvious that such clauses must apply both ways, namely both parties must undertake mutual obligations, sanctions and responsibilities.
Another interesting clause is the below mentioned one, according to which „In case of a missing (insurance related document, editor’s note), THE BROKER undertakes to present the actual situation and the circumstances that caused the missing document case. In case of a claim related to a missing policy (declared or not as missing), THE BROKER must bear both the value of the claim and the purchase and administration costs of the respective policy”.
It is discouraging and I propose a close assessment of the following:
• if an insurance document is indicated as missing, the first steps should be taken at insurer’s level, where the circumstances that caused the missing document case are described;
• make a public announcement in a newspaper and in the Official Gazette (to declare it null and void);
if there is a claim... all these actions shall not exempt you, as broker, of anything (although, legally speaking, you are exempt; but contractually, you are not!?);
• the purchase and administration costs for the related policy shall be paid for! What on earth does this mean? Are we talking about losses in the insurance company’s account that amount to RON 0.50?
Another regular clause: „failure to pay on time the insurance premiums entails the broker’s obligation to pay the potential losses incurred since the signing date of the insurance contract and until the submission of the premiums to the insurer”.
But all commercial contracts have provisions regarding penalties in case of delays related to the contract obligations of the parties, penalties in a quantum of 0.1% and 0.5%/day, meaning between 36.5 and 182.5%/year. Why do insurers ask for a regress for potential losses?! Is it that a possible delay in payment changes the risk circumstances and turns the broker into insurer?!
We totally agree that the collaboration between brokers and insurers had to cope with various problems over time. However, we suggest that, with the creation and consolidation of this type of business, it is mandatory to have a closer look at the clauses imposing unilateral liability. Personally, I think we have reached a maturity level of the market and a natural selection has already taken place among the brokers, which allows for a change in attitude. The history of the relation, correlated with the reputation of the persons involved should represent the first criteria in negotiating the collaboration between an insurer and an insurance broker.
