Binders… challenging the status quo / Binders… changing the future / Binders – changing the broker game

Danny Joffe, Senior Legal Advisor at Hollard Broker Markets

A corporate binder is a mandate granted by an insurer to either a broker or an underwriting manager to underwrite policies and settle claims with respect to products that are bought by corporate clients.

One needs to understand that corporate binders are currently granted by certain insurers in the short term market for various reasons, but with the advent of the proposed changes to the Binder Regulations from the Financial Services Board (FSB), these binders granted to brokers or non-mandated intermediaries may well be under threat and may become the exclusive domain of underwriting managers in the future.

Niche sector binders
These binders are dealing with large independent brokers or the multi-national and national brokers who have access to experienced and skilful underwriting staff, and a corporate client base that they understand well. This client base also has a large amount of trust in their brokers’ ability to deal with their needs efficiently and correctly for the insurer.

It is typically the more niche sectors of short term insurance, examples of which would include medical malpractice and professional indemnity generally, Group Personal Accident and General Broad-form Liability policies.

These typically are done on a scheme basis for the corporate’s employee base and the attention to strong administration accuracy and fast turnaround times is critical. It is also important to have the requisite skill and ability to manage the underwriting claims that would be outsourced in the binder from the insurer.

Lack of confidence
When one looks carefully at the recent Retail Distribution Review papers, it has become clear that there is a feeling that the regulator does not believe that brokers, regardless of their size or capacity have the relevant ability to manage commercial binders, let alone large corporate binders.

There is a feeling that brokers may maintain their personal lines binders given that those personal lines clients are the ones who require the quick turnaround of service. However, commercial (which includes corporate binders) should be the exclusive domain of insurers and underwriting managers given that the underwriting and settling of claims skills required to manage these binders effectively does not reside with a broker whose first priority should be to provide quality advice to their client and act on behalf of their clients with respect to their dealings with insurers.

The regulator is of the view that such specialised insurance skills (underwriting and claims) required to manage these corporate binders would reasonably be expected to be found with insurers and underwriting managers only and that brokers should be more focussed on doing what they do best, which is providing sound advice and risk management.

Taken away

Brokers with corporate binders may in the near future find that their ability to manage these binders are taken away.

Given their skills and expertise in this area, it would be a pity for clients and insurers, and it is hoped that a workable compromise may be found with the Regulator.

Corporate clients are certainly capable of making sure they are treated correctly and not exploited in any way. They are currently finding well run and competitive corporate products being sold and administered by specific brokers who possess experienced and efficient staff and are able to manage the value chain very competently.

If the current proposals are promulgated, it will result in the products being managed directly by insurers with the broker only able to provide broker services on such products and it may be that the insurer, not being as close to the clients, or not being as familiar with the client’s business, will not be able to provide the same services and underwrite the policies as effectively.