UK: Evolution Or Revolution? Survival In A Changing Market

Last Updated: 4 December 2008
Article by Joanne E Staphnill

Contract Certainty and Contract Quality

In June 2007 the FSA published its new Code of Practice on Contract Certainty ('the Code'). The Market Reform Contract ('MRC') has also been published, the guidance notes to which provide further practical illustrations of how the Contract Certainty guidelines are intended to operate.

The Code consolidates the contract certainty work that has taken place over the past two years. Therefore, the Code should not require brokers to undertake any really major changes. However, it does require some changes of practice. For example, contracts now have to comply with the contract certainty requirements from the time of entry into the contract, rather than inception. Accordingly, contract certainty procedures must be followed even if there is to be retroactive inception. Further, all post-contract changes, endorsements and side-letters have to comply with the Code. This increases the scope of the broker's duty to ensure that the protections of contract certainty are in place for the client.

There is another significant change in the provisions relating to signing down. Postinception signing down is now to be avoided. Also, the only signing instructions an insurer can give is 'line to stand' or nothing at all. However, the Code also sets out that the client's instructions should be taken at an early stage as to whether the non-'line to stand' lines should be signed down in equal proportions or disproportionately. The requirement to include signing-down provisions in the contract, before any lines are written, emphasised that even participation proportions need to be as certain as possible. The requirement to take client instructions at an early stage places even more pressure on the broker to plan the placing of the risk to ensure that contract certainty can be achieved. In many ways, traditionally 'back room' skills of contract drafting are now needed even during the placing of the risk.

In other areas, there are no substantial changes to practice, but a new emphasis is emerging. The guidelines on the drafting of subjectivities have not been changed, but an example of a compliant subjectivity has been provided by the FSA. This is seven paragraphs long, so it is clear that the FSA requires a strict approach to the drafting of subjectivities, if their use cannot be avoided. This certainly highlights the difficulty that a time-pressured broker will face to ensure that any subjectivities are compliant. Further, there is a greater emphasis on ensuring that the terms used are 'clear' as well as certain. This complements the explicit references to contract 'quality' in the MRC guidelines. The FSA has explicitly stated that its next focus will be on ensuring that all contracts achieve the requirement of 'quality' as well as certainty. The FSA wishes to ensure that contracts no longer contain inconsistent or contradictory terms, and that in general the contracts are clear in their effect.

Accordingly, it seems inevitable that brokers will soon be required to ensure that only 'quality' contracts are concluded. It will be difficult for the FSA to find ways to improve the drafting quality of the huge volume of contracts that are agreed each year. Therefore the FSA may have to act radically to tackle its new challenge. It remains to be seen to what extent the FSA intends to 'revolutionise' existing practices.

At present however, only contract certainty is required, but the Code contains provisions requiring brokers to 'demonstrate' that it is being achieved. The FSA permits brokers to use whatever method or combination of methods is most appropriate for their business. Unlike the previous guidelines which required adherence to inflexible checklists, the new Code permits brokers to develop their own compliance system. The job of demonstrating compliance can be outsourced. However, the opportunity to create a tailored, flexible compliance system has an inherent risk. If a compliance system is created that is not adequate, all the contracts that are checked using the system could themselves fall short of the requirements. Accordingly, great care is needed when developing the compliance system, or it could potentially leave the broker open to claims.

The publication of the new Code and the guidance in the MRC represent an important stage in the development of the market and a broker's role within it. The Code formalises the need for a broker to plan for, and help to ensure, contract certainty even from the earliest stages in the creation of a contract. From every perspective (not least an Errors and Omissions one), there has never been more pressure on a broker. In the near future, an even greater burden will be placed on brokers as the contract quality project gathers pace. Every broker needs to start considering what potential changes need to be made to prepare for the FSA's contract quality campaign, at the same time as ensuring that the current contract certainty Code is complied with.

Electronic Trading

The MRC preamble states that it is designed to ensure it can be used in electronic trading, by making the information compatible with existing electronic platforms such as the Acord systems. The fact that the MRC is designed in this way reflects the increasing use and importance of electronic placing and electronic claims files in the market.

Electronic placing and claims files have clear benefits for the market, and commentators have noted the increase in efficiency that the new methods will bring. It seems inevitable that the market will continue to embrace the new technology as part of its continuing evolution. Electronic trading will probably increase significantly and may become the usual way of trading in the future. However, the implications for the broker's role have not been fully explored, including ways to avoid the potential pitfalls of electronic trading.

Electronic placing and claims platforms provide an integrated method to share and store placing or claims-related documents. A traditional paper file is retained by the broker, and accordingly the insurer does not have legal control over the documents. The Goshawk -v- Tyser (2006) case held that there is an implied term that insurers can see all documents previously shown to them. However, obtaining documents can still present difficulty and delay, and tends to highlight the fact that the insurer is potentially considering legal action. By contrast, with electronic systems, the documents are stored electronically and centrally. Anyone involved in the risk can see them at any time. Therefore, the need to request documents should be greatly reduced in the future, as any insurer would have all the information regarding the documents that were shown easily to hand.

There are dangers inherent in such a system for brokers, however. For example, it will be easier to mistakenly make confidential or privileged documents available to the whole market. If the incorrect 'permissions' are set on a confidential document, then the whole market will be able to see the document as many times as it wishes. The consequences of a simple slip could therefore be large.

Further, most electronic placing or claims platforms reduce or eliminate the need for any oral broke. If an insurer has questions or comments, they can be typed into the appropriate comments box and are usually visible to everyone involved in the risk. The broker will be expected to respond in the same way, by typing the answers or uploading the appropriate document. The response may potentially also be seen by the whole market. This signals a significant change in the way brokers will be expected to do business. Traditionally, the skills and experience needed to present a risk orally have formed an important part of a broker's role. However, those skills now need to be translated into an ability to get precisely the right message across in writing as part of the electronic process.

The importance of this cannot be underestimated. The information that is written on the electronic system will be a permanent record of what comments and information was provided. The market will be able to refer back to it at any time. If a dispute arises, there can be no doubt about what the broker said. The only question will be whether the comments or information presented was inaccurate, unclear or misleading in any way.

In the future, therefore, claims against brokers may not turn on oral evidence of what exactly was said, as many do now. The comments and information actually provided will be carefully analysed to determine the dispute.

Summary of Implications for Brokers

There is a clear trend towards the writing and drafting skills of a broker becoming extremely important. Whereas previously, contracts were drafted without too much time pressure by specialist contract drafters in the 'back office', those skills will now need to be deployed during the placing stage and under a great deal of time pressure. Further, brokers will soon have to ensure the 'quality' of a contract which will itself add to the amount of work that is needed to produce the contract. For electronic trading, brokers need to carefully consider the dangers of having to provide written answers where previously a face-to-face discussion would have taken place. Will there be a temptation to rush out a written answer just because it is an electronic format rather than an oral presentation? Are the brokers clear on what words and phrases will get the right message across accurately, or will there be a tendency to use broad-brush language that lacks precision? Are brokers being sufficiently trained to adapt to the developments in the market?

The market is rapidly changing and evolving. Brokers must carefully analyse the new risks that it presents, and ensure that they adapt effectively to survive and compete in the future.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions