Navigating the digital shift: balancing efficiency and customer care in insurance brokerage

Workflow and process efficiency is something that insurance brokers report as one of their main challenges year on year. As technology accelerates faster than ever before, using data and technology is critical to providing exceptional customer service and improving productivity, but what are the risks involved in automation?

There is no doubt that the industry is under pressure from digitalisation. Streamlining and automating repetitive tasks tend to be part of the solution to improve business operations. There are many benefits to standardising processes and documents, including:

• Saving time and ensuring greater efficiency as they remove the need to start drafting from scratch, spending time copying and pasting from other documents, or thinking about the correct format and style.
• Improving the quality of documentation by ensuring that it covers all the relevant information that customers need.
• Helping to meet industry standards and ensure that customers can immediately recognise a business's brand.
• Mitigating risk.

Care needs to be taken, however, to ensure that the standard wording does what it is supposed to do. Standard or automated documents certainly do leave less room for human error, but, today, customers want a better service and personalised experiences. In addition, the Financial Conduct Authority (FCA) requires brokers to consider the characteristics of individual customers – and, if necessary, tailor the services they provide accordingly. Brokers who do not provide unique experiences and guidance for each customer could, potentially, find themselves in hot water either with the courts, their regulator, or both.

Risks in standard insurance practices

One such example is the broker in Infinity Reliance v Heath Crawford. The court's decision serves as a reminder of the risks associated with using standard documents.

Following a fire at a warehouse used by Infinity Reliance (Infinity), Infinity claimed on its insurance (arranged by Heath Crawford), but the cover was not enough for the interruption to its business as it had under reported its financial position to insurers. Infinity's business interruption insurance was based on a forecasted gross profit of £24.9m over two years. Given the policy terms, the correct figure would have been around £33m. Infinity was, therefore, underinsured by 26%. The insurers applied 'average' to the claim, meaning it reduced the indemnity for business interruption by the proportion of the underinsurance. Infinity recovered 74% of its loss, being £9.25m instead of £12.17m.

Heath Crawford admitted breach of duty for having provided misleading information in relation to the calculation of cover for business interruption purposes. Specifically, a document provided to Infinity setting out how to calculate cover for business interruption purposes did not match the way in which the calculation was undertaken under the insurance policy. Although the court found Infinity partially at fault, it found that the broker's breach of duty was serious. It went beyond a mere omission to give guidance. It consisted of the positive provision of inaccurate and misleading guidance, on two occasions, accompanied by specific recommendations to rely upon and follow the inaccurate guidance note. The broker was found to be liable for 80% of Infinity's uninsured business interruption loss.

Vulnerable customers

The Consumer Duty remains a top priority for the FCA. On 15 March 2024, it announced that it is going to conduct a review into how firms are acting to understand and respond to the needs of customers in vulnerable circumstances.  Protecting vulnerable consumers is of particular importance for the FCA. It describes a vulnerable customer as "someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care". 

Broker staff are expected to have the skills and capabilities to recognise vulnerability and respond appropriately to individual consumers' needs so they can treat them fairly. The FCA has recognised that standard services with little flexibility can prevent consumers from engaging with, or using firms. One example of adjusting customer services to ensure that customers with specific needs are able to access services, could be to avoid sending automated letters, so a person who is visually-impaired receives more appropriate communication, such as using braille or large print. Brokers may need to make such adjustments to also comply with the Equality Act 2010.

Those not identifying and responding to the needs of vulnerable customers and demonstrating that they are learning and improving from their experiences are likely to find themselves on the receiving end of regulatory action.

The FCA has confirmed that it will prioritise the most serious breaches and act swiftly and assertively where it finds evidence of harm, or risk of harm to consumers, and that where it identifies “serious misconduct”, it will use its full powers, including remedial and deterrent action such as issuing fines and securing redress for harmed customers. It should also be noted that the approach of the Financial Ombudsman Service (FOS) is that vulnerable customers could be more severely impacted by a mistake, and it is likely to consider a higher award to reflect this, particularly if the business was aware of its customer's circumstances.

The Association of British Insurers (ABI) have recently published a good practice guide for the insurance and long-terms saving industry on supporting autistic customers.  The guide offers practical actions and recommendation that firms could consider applying more widely, including providing detailed context for why information is needed and how it will be used when asking certain questions or requesting specific information, and sending follow up documentation after conversations or transactions, including summarising key points discussed, agreements made, and any actions needed.

Balancing benefits and risks of automated documents

Used correctly, automated documents are extremely beneficial for brokers. It is, however, necessary to approach the use of such documents with some caution. One must not assume that one size fits all.  To ensure that they are complying with their contractual, tortious and regulatory duties, brokers must take care to ensure that such documents are suitable to the specific circumstances of the matter and the specific characteristics of the customer. Failure to do so could result in serious consequences.

This article was first published in Insurance Day on May 1