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Head of Employment at EC3 Legal Marina Garston gives an overview of the issues faced when moving broking and underwriting teams.

Over the years, the London and UK insurance market has witnessed the movement of many broking and underwriting teams. Like heavyweights in the ring, the disputes of the bigger brokers are slugged out in court to protect their “goodwill”. However, a time is coming very soon when these disputes will be viewed by the Courts and the Regulators in a completely different way. The days of “it is my client, and it is my choice how I deal with their business” will no longer apply. The client not the broker or underwriter will have to come first.

Disputes ultimately focus on customer retention but there is rarely a “customer impact assessment”. “The senior team has left – no worries - I will place them with a junior team. [that don’t have the same knowledge or connections]”. How does that protect the client? How is that in their best interests?

It is like replacing your World Champion heavyweight with a novice amateur boxer. He may be in the same sport, but he will never give the same performance.

Client facing directors never consider this alongside their P&L, since profit is understandably their only business driver. But with Financial Conduct Authority (FCA) regulation becoming more invasive, it will not be long before the compliance officer receives a gentle tap on the shoulder asking for a copy of the assessment that has been undertaken of the effect on the customer.

The FCA will not want to be involved in commercial disputes. They know that there are two sides to every argument but the power of the employee to “whistleblow” should not be underestimated either. It is a collateral issue that can no longer be ignored.

Further, there should be no illusions about these kinds of disputes:

  • They are very costly – in legal cost and management time. The costs often exceed the benefit by many multiples. There are no Queensberry rules here. It is bare knuckle fighting.
  • They have a propensity to reflect badly on both current and new employer, and the team;
  • Emotions run high, egos get in the way of commercial sense, and there are rarely any winners (other than the lawyers!). One may win the battle, but often one loses the war;
  • Reputational effect is usually overlooked and relationships with clients always damaged- no client will want to be involved; and
  • They are stressful - the effect on other employees, in each organisation, and upon the families of the team members involved is often under-estimated.

It needs to be recognised early on by all parties that once a job offer has been accepted by the team, and notice tendered to the existing employer, the relationship is often irreversibly damaged. You don’t make friends usually with someone who has just punched you. All parties need to work together to ensure that the clients do not simply walk away, taking their business with them. And, of course, if the clients complain, there is an obligation on the compliance team to investigate.

If carefully handled, most disputes can be avoided. Indeed, once the current employer receives the team member’s resignation notices and reviews matters in the cold light, it may consider their decision to move as a catalyst for rationalisation. This may prompt them to seek a business sale to the new employer for good consideration, whilst passing over the run-off of the past account.

It should be noted that the regulatory aspect of run-off is also often ignored. If the team aren’t there, how are the client’s interests properly dealt with? How are complaints and PI claims addressed? How are the client’s best interests dealt with?

This in itself then leads to different considerations – if the new employer agrees to take the renewals and the run-off, is this a TUPE transfer of other employees who worked on that account? He may take over far more than he bargained for, and needs to ensure that there are no surprises.

The problem for all is recognising that it is the strength of the team’s personal relationship with the relevant client that will often count most, together with the team’s ability to deal with their business within an appropriate home. If this relationship is not strong, then the existing employer may have the chance of retaining the business. However, if the team has dealt with that account for many years without real input from the current employer, then that bond is unlikely to be upset, and this should be recognised early as such.

The existing employer, the team and the proposed employer must deal with how to balance the various “bargaining chips”. Moreover, the nature of the account involved will be significant since it will often dictate where and how it can be serviced properly from the client’s point of view, something the team need to be certain about. Similarly, the age and expectations of the team, and as said above, the individual nature of the client relationship will be highly material.

The tension between protecting “goodwill”, and looking after the customer is there. It is an issue that no doubt will lead to FCA consideration in due course and perhaps even one that becomes argued in front of the court. We live in changing times. It is just a case of when and not if the referee steps in to separate boxers and stop them from knocking each other senseless, while the rest of us watch on.

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Birketts and EC3 Legal announce merger

David Coupe, Senior Partner at EC3 Legal, said of the union: “The focus of EC3 Legal has always been on serving our clients' businesses. Following the merger with Birketts, I am confident that our clients will continue to be the biggest beneficiaries, as the two practices will be able to expand and develop the range of services on offer to new and existing clients.”


Posted 1 May 2020

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