Compendium of Insurance Law
8
INSURANCE INTERMEDIARIES
CLASSES OF INSURANCE INTERMEDIARY
8.1 There are a number of different classes of intermediary operating in the UK insurance market. These may be classified as follows:- (a) Insurance brokers. Brokers are wholly independent of insurers, and act as agents for their client assured. A good deal of broking business is carried out under binding authorities (binders) issued by an insurer to a broker, authorising the broker to accept risks of a given description and within given financial limits on behalf of the insurer. The agency relationship between the broker and the other parties is somewhat difficult to ascertain in the operation of a binder, but it is strongly arguable that the broker acts as agent of the insurers when allocating risks to the binder. Brokers must, by the EU Mediation Directive, European Parliament and Council Directive 2002/92/EC, as implemented into UK law by regulations and rules made under the Financial Services and Markets Act 2000 (the 2000 Act), be authorised to carry on broking activities in the UK. The Directive and Act also impose various obligations on brokers in the conduct of their business. Authorisation operates as a single European licence for a broker to become established or to provide services directly in any other EU member state. Equally, brokers authorised elsewhere in the EU may become established in the UK or provide services in the UK without authorisation under the 2000 Act.
- (b) Lloyd’s brokers. Lloyd’s brokers are independent brokers authorised to operate on the Lloyd’s market and dealing directly with Lloyd’s underwriters. A broker who is not so authorised can place insurance at Lloyd’s only by using a Lloyd’s broker either as a “front” or as a sub-agent. Lloyd’s brokers are subject to regulation by Lloyd’s in addition to having to comply with the authorisation and other requirements of the 2000 Act.
- (c) Agents of insurers. Agents of insurers are either employed by insurers, or are tied to one or more insurers by contract. Such agents do not have to be authorised under the 2000 Act. Instead, an “appointed representative” working under a contract with an insurer which requires the appointed representative to act for the insurer does not require authorisation as long as the insurer has accepted responsibility in writing for the appointed representative’s activities (s 39).
- (d) Underwriting agents. An underwriting agent is an intermediary used by one or more insurers to underwrite risks on their behalf. London underwriting agents are commonly used by overseas insurers as an alternative to establishing a permanent presence in the UK. Underwriting agents act very much like insurers, in that they accept risks and pay losses, but they do so as agents for insurers and do not carry on insurance business in their own right. Accordingly, underwriting agents do not need to be authorised to carry on insurance business in the UK (D R Insurance v. Seguros America Banamex , confirmed by the Court of Appeal in Re Great Western Insurance Co Ltd ) but they will be required to be authorised as agents in their own right for the purposes of their mediation activity.
- (e) Miscellaneous intermediaries. Many commercial contractual relationships oblige one party to insure as agent on behalf of another: in such a case, the principal is a party to the contract as long as the policy contemplates that this is possible (National Oilwell Ltd v. Davy Offshore (UK) Ltd , as modified by Talbot Underwriting Ltd v.Nausch Hogan & Murray Inc ). In other situations, a person carrying on an unrelated business may be authorised by an insurance company to forward related insurance applications for clients: lending banks, building societies, solicitors and garages are clear examples of this class of intermediary. The incidence of agency in this situation is unclear, and all will depend upon the precise authority given to the intermediary. Most such ad hoc agents do not require authorisation as intermediaries under the Mediation Directive and the UK’s implementing rules.
INTERMEDIARIES AND THE COMMON LAW
AUTHORITY