Eric Evian, Directeur Général Délégué – CGPA Europe
More than 55% of insurance in Europe is distributed by insurance intermediaries (general agents, brokers, etc.).
Since the implementation of two harmonisation directives, the 800,000 European insurance intermediaries1 are required to hold professional indemnity insurance (PI insurance) covering their activity2.
A key element of their ‘work permit’, this insurance protects intermediaries against the financial consequences of professional errors, safeguards their clients, and preserves trust across the entire distribution chain.
The CGPA group is an insurer specialised exclusively in this line of business.
Eric Evian heads CGPA Europe, its subsidiary responsible for the European markets.
After holding senior management positions for around twenty years within reinsurers and insurers notably as General Counsel he joined the CGPA group in 2012 to launch its European activity by establishing CGPA Europe in Luxembourg. He is also an independent arbitrator and mediator for companies in France and abroad.
Classified among the ‘financial lines’, Professional Indemnity insurance for intermediaries (in English, intermediaries’ Professional Indemnity or Broker’s PI) is a relatively little-known insurance line, yet essential to the sector.
By protecting policyholders and ensuring the solvency of distributors, it contributes to the stability of the insurance ecosystem.
In practice, Professional Indemnity insurance concerns mainly insurance brokers and ancillary insurance intermediaries, but exclusive insurance agents (or ‘general agents’) are increasingly taking out such cover, particularly in France, Italy, Spain and Germany.
Depending on the type of insurance distributed and the insured value of the goods or activities concerned, intermediaries may hold limits of cover far above the regulatory minima3, sometimes reaching EUR 20 to 50 million for major players.
One of the particularities of this line of business lies in the very wide variety of claims that a PI insurer may face.
The scenario is often the same: the insurer recommended by the intermediary considers that a claim should not be covered; the client feels wronged or poorly advised and turns against the intermediary. The intermediary’s PI insurer then steps in, dissects the underlying insurance contract, reviews the placement conditions and analyses the underlying claim to determine whether the intermediary’s liability is engaged.
This diversity, both technical and sectoral, is what gives this line of business its distinctive flavour: no case ever resembles the previous one.
This can lead to involvement in all areas of insurance, from the simplest (home, motor) to the most complex (marine insurance, life insurance and investment, and even… aviation and space insurance).In practice, Professional Indemnity insurance concerns mainly insurance brokers and ancillary insurance intermediaries, but exclusive insurance agents (or ‘general agents’) are increasingly taking out such cover, particularly in France, Italy, Spain and Germany.
Depending on the type of insurance distributed and the insured value of the goods or activities concerned, intermediaries may hold limits of cover far above the regulatory minima[3], sometimes reaching EUR 20 to 50 million for major players.
One of the particularities of this line of business lies in the very wide variety of claims that a PI insurer may face.
The scenario is often the same: the insurer recommended by the intermediary considers that a claim should not be covered; the client feels wronged or poorly advised and turns against the intermediary. The intermediary’s PI insurer then steps in, dissects the underlying insurance contract, reviews the placement conditions and analyses the underlying claim to determine whether the intermediary’s liability is engaged.
This diversity, both technical and sectoral, is what gives this line of business its distinctive flavour: no case ever resembles the previous one.
This can lead to involvement in all areas of insurance, from the simplest (home, motor) to the most complex (marine insurance, life insurance and investment, and even… aviation and space insurance).
Liability insurance operates under several regimes that determine how cover is triggered.
In most European and global markets, cover is triggered on the basis of the so-called claims-made principle.
It is the notification of the claim that triggers the cover, regardless of the date of the alleged error. The insurance policy in force at the time the claim is notified therefore applies.
A few markets (mainly Germany and Austria) use the so-called occurrence basis. In this case, cover is triggered by the date on which the supposed error occurred (e.g. the professional mistake), regardless of when the damage is identified or the claim is made. The policy in force at the time of the occurrence therefore applies, even if it has since expired or been replaced. This model is not widely appreciated by insurers due to its very long development period (long tail).
For a long time, the line of business was referred to by the acronym ‘E&O’ for ‘Errors and Omissions’ and focused on the material errors an intermediary might make when arranging cover for clients errors in describing the property to be insured, failure to issue or renew a policy, etc.
The evolution of the regulatory framework, in particular the IDD, has gradually imposed specific and strengthened obligations on insurance intermediaries. This trend has been amplified by changing consumer expectations and by judicial requirements.
Today, it is the intermediary’s duty of care that is at the forefront of claims and litigation. Owing in particular to the reversal of the burden of proof applied by courts, it is up to the intermediary to demonstrate that they have duly fulfilled their advisory obligations towards the client.
The grounds for liability are varied: loss of opportunity, failure to warn about essential clauses, alleged breaches of the intermediary’s duty to provide ongoing follow-up, or failure to adapt the policy to the client’s needs.
To defend themselves effectively, intermediaries must be able to demonstrate through rigorous traceability the reality and the quality of the advice provided.
Most of the time, this traceability should take the form of an advice sheet (‘demands and needs’), gathering the client’s requests and needs and the intermediary’s recommendations. One of the key factors in improving risk exposure is the regular training of intermediaries in good distribution practices and the formalisation of advice.
In 2020, as soon as the first lockdown measures and business closures were introduced, the question arose as to whether insurance policies particularly business interruption cover could compensate for the damage caused to the economy. Consequently, if insurers were to refuse coverage, there was concern that blame would fall on the distributors of the relevant insurance policies for failing to meet their duty of advice. In this context, some markets notably the UK saw the Professional Indemnity insurance offer for intermediaries virtually disappear between 2020 and 2022 (with the exception of CGPA Europe).
The judgments handed down and the settlements reached in these disputes showed that intermediaries, in the vast majority of cases, had nothing to reproach themselves for regarding the advice given on business interruption cover concluded before the pandemic. Policies specifically covering pandemics were virtually non-existent in Europe and therefore could not have been recommended. Moreover, the issues encountered in the indemnification of business interruption losses lay mainly in the wording of the insurance contracts, a significant number of which were ultimately triggered in situations that insurers had clearly not always anticipated.
What are the challenges ahead?
Three factors of evolution should be highlighted: the consolidation of distribution, digitalisation, and artificial intelligence.
The brokerage sector has, for several years, been experiencing a concentration trend leading to the emergence of large, more structured groups. In theory, these large brokers benefit from more robust internal processes and quality controls. This is a factor that improves risk, provided that integration phases are properly managed.
Digitalisation: insurance intermediaries are now custodians of more or less confidential data, to which they must apply the level of care required by regulation (GDPR) both in their use and in their retention. Exposure to cyber risk is therefore now a reality from which intermediaries must protect themselves and their clients or risk seeing their liability engaged.
But it is above all the rapid rise of artificial intelligence (AI) that is drawing attention today.
When insuring advisory professionals, questioning the impact of AI on their professions is self-evident.
At this stage, opinions remain divided:
In sum, insuring intermediaries’ Professional Indemnity means contributing to the security and robustness of the insurance distribution chain. This makes it a fascinating task, marked by the diversity of situations encountered and by the constant dynamism of a sector that continually adapts to new practices.
The information presented in this article is for informational purposes only. It should not be considered as legal, regulatory or financial advice, nor as an exhaustive description of the products or services mentioned.
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