Some comment and analysis from Kova for you;
Kate Albert, CEO of PI specialist insurer, Kova Professions, has issued the following comment on the current Supreme Court case on motor finance.
“The Supreme Court is considering whether previously widespread discretionary commission arrangements in car finance – where brokers set customer interest rates and receive a percentage-based commission – were unfair and breached fiduciary duties. While this case focuses on car finance, it raises wider concerns about similar practices in the insurance distribution chain, especially in the motor and add-on product space.”
“Although the core of this case is about car finance, the Supreme Court motor finance case could also trigger a wave of PI claims. If the Court rules that these models involved a breach of duty or mis-selling, insurance brokers and MGAs could face scrutiny over historic commission structures, triggering professional indemnity (PI) claims and regulatory action. A secondary result could be that the decision may act as a test case for wider financial services practices, bringing further commission practices into question across other financial lines. Ultimately this case could test PI as a class to the limit.”
“The impacts on the market will also be felt more widely. It is very likely that, should the case succeed, the regulator is likely to respond by increasing its focus on commission transparency in insurance distribution – it may announce additional supervisory, reporting or consumer protection requirements that will impact broker business models significantly.”
“Further, changes and claims could rapidly accrue – the impact could be significant for the overall outlook for rates and for customers and insurers. It is quite possible that firms with a large exposure to motor finance (car leasing and sales businesses) may immediately submit wide-ranging precautionary PI notifications relating to their historic sales models – especially those predating the Consumer Duty Act of 2023, as soon as the case receives a judgement.”
“Professional Indemnity insurers are already reacting, and you can, as of now expect closer insurer scrutiny of notification timing, dishonesty exclusions, and whether claims aggregate. Insurers see the likelihood of significant levels of claims and will look to protect their businesses where they can. Ultimately this will lead to likely rate hardening and more selective underwriting of insurance brokers, MGAs and AR networks by insurers and MGAs.”
“For those looking to buy PI insurance now, it is worth encouraging clients to audit historic commission practices, review disclosure processes, and document steps taken to ensure fair treatment.”
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