Agency Agreements – Creating a Fairer Trading Environment for General Insurance Brokers

Brokers Ireland are acutely aware of the significant challenges with which GI Brokers grapple every day. Our priority from 2019 on wards is to work towards creating a level playing field for GI Brokers, a fairer trading environment where the role of the GI Broker is given due recognition. It is undeniable that at present, GI Brokers are subjected to market practices which operate to their disadvantage. One key objective on the path to creating a more equitable market is ensuring that the agency agreements, or TOBAs, which are standard in the market, fairly reflect the role of the GI Broker, be well drafted and commercially acceptable for GI Brokers.

We believe that the agency agreements entered into by GI Brokers should properly and fairly reflect the role of the GI Broker acting as intermediary between the GI Broker’s client and the insurer. They should acknowledge the value to the GI Broker of the Broker’s client bank and the input of GI Brokers in growing the business. We consider that the agency agreements used in the general insurance market in Ireland fail properly to acknowledge the contribution made by GI Brokers and this is despite the fact that some general insurance companies operating in Ireland describe themselves as “broker companies” and acknowledge that the intermediary channel is a key distribution channel and therefore essential to their business models.   Brokers Ireland believes that the agency agreement ought better to reflect and acknowledge this.

At present, general insurance agency agreements tend to be drafted by insurers with no organised input from GI Brokers, in the expectation that they will be agreed to without the substance of the agreement being queried.  To date, the one-sided drafting has not been challenged on behalf of GI Brokers.  This is in contrast to the position in the life and pensions side of the industry where the market is fairer to Financial Brokers. It took a number of years for this position to be achieved but eventually, through persistence and negotiations, Financial Brokers were placed in a position whereby their property rights over their businesses were established, with inclusion of clauses such as protection of client bank, agency buy-out, protection on death / right of sale or transfer clause, termination of the agency for valid reasons only, and dispute resolution clauses.  The inclusion of similar clauses in general insurance agency agreements we believe would fundamentally enhance the position of the GI Broker.

Of particular significance is the fact that agency agreements on the GI side include clauses providing for termination of a GI Broker’s agency without the need for there to have been any serious breach of its terms and with minimal notice being provided to the GI Broker. This has the potential to impact a GI Broker’s livelihood in an unacceptable way. Our aim is that agency agreements might only be cancelled for valid reasons and with adequate notice being provided. It would also be in the interest of Brokers that a modern dispute resolution clause be an industry standard, allowing for negotiations in good faith and mediation.

Frequently, general insurance agency agreements require that the GI Broker provide a broad indemnity to the insurer in respect of its losses, for any breach of the agreement by the GI Broker.  We consider that this ought not to be standard practice in the general insurance market. It is inherently unfair, particularly given the relative sizes of insurers and most GI Brokers and the fact that commonly, indemnities are excluded from cover under PI insurance. It is not acceptable that a GI Broker be expected to provide an indemnity given the insurance market generally views claims which arise out of these as not insurable. It would be in the interest of GI Brokers that there be included a financial limitation on a GI Broker’s liability to an insurer in the event of a breach of the agreement, ideally commensurate with the limit of indemnity on the standard broker’s PI policy. Our aim if possible is to ensure that the GI Broker’s potential financial liability to an insurer for breach of an agency agreement would be covered by the GI Broker’s PI insurance, in default of which GI Brokers are not in a position properly to evaluate the commercial risks to their businesses and the adequacy of any steps taken to mitigate.

Brokers Ireland has reviewed numerous general insurance agency agreements and TOBAs in recent months, those of large general insurers, as well as other product producers, in order to press on behalf of our members for the changes we believe to be in our members’ interests.   An unacceptable feature of some contracts which GI Brokers in Ireland are expected to enter into is that UK legislation and UK conduct of business rules are referred to, with the GI Broker expected to agree to abide by these and that the courts of England and Wales will have jurisdiction of disputes should any arise. Straightforward poor drafting is another frequently encountered problem with the documents we have reviewed for our members. An absence of recitals (which set out the context of an agreement, give background information about the parties and an introduction to the agreement) and a lack of definitions section are surprisingly common, resulting in contracts which lack clarity and are uncertain in their meaning and intent. It is of course preferable, as a minimum, that a contract be clear and certain, as only then can the GI Broker carry out a meaningful assessment of the merits of entering into the agreement.

Should our GI Broker Members have any concerns in relation to their legal obligations under an agency agreement, Brokers Ireland are always happy to review these and to engage with insurers where appropriate. Our view is that a united approach on behalf of our Members ultimately can have an impact in changing practices in the market, to the benefit of our members, including much needed change in relation to agency agreements.  Our expectation is that making an impact will not be a short-term exercise, but it is one which must be undertaken, as it is essential to ensuring that GI Brokers continue to thrive in the years ahead.

Cathie Shannon

Director of General Insurance