ROLE OF AN INSURANCE BROKER
NIHAL SENARATNE FCMI, ACII, AIII, CHAIRMAN, SENARATNE INSURANCE BROKERS (PVT) LTD.SRI LANKA
One of the earliest documented references to professional intermediaries in the insurance market was in England as far back as 1575. As Britain’s trade developed, by the early 1700s Insurance Brokers, as such, had become an important component of the commercial scene in London. To quote Gibb in “Lloyds of London”, the Brokers were “the fixed point in a floating market”.
There are of course other levels of intermediaries active in the insurance market i.e., Principal Agents and Agents. The latter is the most commonest form of intermediary and can best be described as one who is authorized by a party called the Principal who brings that Principal into a contractual relationship with another party i.e., a third party.Agency is consensual since the Principal & Agent must agree i.e., by words or conduct that the Agent should act for the Principal and for legal purposes effectively as the Principal. The Lawyers concept of agency is broad because it encompasses several varieties of the term. The three essential features are a service performed by the Agent for the Principal, the representation by the Agent of the Principal to other parties and the valid subjection of the Principal to rights, liabilities and obligations by the Agent to himself and to third parties.
A”Principal Agent” is a person who effectively has the “pen” of the Insurer and therefore enjoys the authority of underwriting business, issuing of policies, settlement of claims etc., within the parameters laid down by the Insurer.
Unlike a Principal Agent or an Agent, an Insurance Broker is an entirely independent entity. In other words, a Broker does not owe allegiance to any one particular Insurer but, in his dealings in the market, it is his client’s interests that assume paramountcy. Thus, a Broker has no inflexible linkage with any one Insurer which could influence his judgment and is therefore, in a position to provide unbiased professional advice to his client in seeking the insurance cover most suited to the latter’s particular needs.
A Broker is deemed to be the Agent of his client for whom he provides a service. It is a Broker’s duty to ensure that, not only does he obtain the best terms for his client but that in the event of a claim, his client receives an equitable and satisfactory settlement within the scope of the policy that he has arranged. A factor which distinguishes Insurance Brokers sharply from other forms of intermediaries is their acceptance of responsibility for negligent acts. The duties of care and skill required to be exercised are high and this was emphasized in 1964 when in the celebrated case of Hedley Byrne vs. Heller, it was held that care on advice given had to be exercised by persons even without any formal contract. Judgments supporting the need for duty of care to be performed are numerous and much reported but fundamentally whether the required degree of skill has been exercised depends in each case on the circumstances.
Risk Management techniques are invariably recommended to the client by the Broker which often result in more favourable terms being obtained from Insurers. Various dictionaries have defined risk in different styles such as, the possibility of incurring misfortune or loss; the degree of probability of loss; the chance of loss or injury; a factor likely to cause loss or damage etc. In this context, it can be inferred that, Risk Management involves the analysis and control of a possible hazard. The four underlying principles of risk Management are:-
- Identification of risk.
- Evaluation of risk.
- Prevention and control of risk.
- Financing of risk.
It is believed that the word “Broker” comes from what has been described as the middle upper English word “Brocher”. A Brocher was a man who sat at British docks such as Liverpool, London & Plymouth awaiting the boats bringing in Sherry & Port. When the wines were unloaded, the Brocher tasted such wines and then advised prospective buyers on the quality of the goods and what price they should pay. For such service he received a commission. This system epitomizes the role that an Insurance Broker is called upon to play in today’s World.
A Broker is an independent body who holds himself out to be an expert in insurance and thus, owes a higher duty of care to his clients. It is for this reason that, Brokers have been brought under strict statutory control in most other countries. From an Insurer’s point of view, negotiations with Brokers are easier and speedier.
In Sri Lanka, the insurance industry has gone through several rather exacting changes. To elaborate, up to around 1960, there were over 50 foreign Insurers operating in this market. However, in 1961, Life Insurance was nationalized followed by General insurance in 1963, where there existed a Government monopoly which brought with it, a myriad of problems. It was in 1988 that the industry was denationalized – the first country in the world to do so, and at the same time, Insurance Brokers were statutorily recognized and brought under the control of the Government Regulatory Authority.
Senaratne Insurance Brokers (Pvt) Ltd., had its beginnings in 1979 and currently operates with a staff of 35 highly experienced personnel, including three Chartered Insurance Brokers, on the four corner stones of integrity, honesty, professionalism and good governance.
To conclude, I would like to quote below, the words of Winston Churchill:-
“Success is not final
Failure is not fatal
It is the courage to continue that counts”.