An insurance broker occupies a position of trust. The client — a solicitor's practice, an architect's studio, an accountancy partnership or a manufacturing SME — appoints the broker to act on their behalf. That appointment carries a common-law duty of undivided loyalty, an FCA regulatory duty to manage conflicts, and a contractual duty through the terms of business. When a broker sits between two principals whose interests may diverge, or is remunerated by more than one party on the same placement, a conflict of interest can arise. If it is not identified, mitigated and disclosed properly, the broker may be exposed to a professional indemnity claim.
The common-law starting point is that an agent owes an undivided duty to the principal. The rule is old — Bird v Brown [1850] 4 Exch 786 remains a foundational statement — and it has been applied consistently to insurance intermediaries. An agent cannot serve two masters where their interests conflict without the informed consent of both. In broking practice, dual-agency questions arise in several familiar shapes.
The first is the classical scenario: the same broker acts for the insurer (typically as a placing agent under a delegated or binding authority) and for the insured. The second is where the broker represents two clients whose risks touch the same market — for example, two competing bidders on the same construction project seeking cover for the same works. The third arises in structured or layered risks where the broker sits between multiple insureds — a group parent and its subsidiaries, or joint venture parties with distinct legal interests.
The regulatory perimeter tightens the common-law position. Under SYSC 10, firms must take all appropriate steps to identify, prevent or manage conflicts of interest between themselves and their clients, and between clients. That obligation demands a written conflicts policy, a register of identified conflicts, and organisational arrangements sufficient to prevent conflicts from adversely affecting clients' interests.
ICOBS 4.4 requires the broker to disclose, before conclusion of the contract, the nature and basis of its remuneration — whether by fee from the customer, commission from the insurer, some other economic benefit, or a combination. ICOBS 4.5 goes further for commercial customers: on request, the broker must disclose the amount of commission received in relation to the contract. The Insurance Distribution Directive reinforces this. Under Article 20 of the IDD, the intermediary must provide the customer with objective information about the product and about the intermediary itself, in a form appropriate to the complexity of the insurance and the type of customer.
Together, these rules mean disclosure is not a matter of drafting once and forgetting. Each placement requires the broker to consider what remuneration streams are in play, whether they might reasonably be seen to influence the advice, and whether the customer has been told enough to make an informed decision.
Dual agency is not prohibited outright. A broker can act for both sides where each principal, in full knowledge of the material facts, gives informed consent. The practical bar is high: consent must be genuine, specific, recorded, and revisitable if circumstances change. Blanket consent buried in a terms-of-business agreement is unlikely to satisfy the test where the conflict is material.
Where a conflict is not properly managed and the client suffers loss — an inferior placement, a mispriced premium, a coverage gap — the broker is exposed to a claim for breach of fiduciary duty, breach of contract, and negligence. The broker's PI policy will ordinarily respond to defence costs and damages, subject to policy terms. Brokers should check their wording for any exclusion or limitation relating to fraud, deliberate acts, or profit-share and contingent-commission arrangements, which some markets treat differently.
Worked example: a broker places a commercial combined policy for a mid-sized manufacturer. The broker earns a placing commission from the insurer of 15%, charges the insured a £2,500 arrangement fee, and is party to a portfolio profit-share with the insurer which pays additional remuneration if the underwriter's loss ratio stays below a threshold. The broker discloses the commission and the fee but not the profit share. The manufacturer suffers a significant escape-of-water loss and, on investigation, alleges the sum insured had been set on a basis suggesting the broker leaned towards a cheaper premium to protect the profit share. The tribunal accepts the argument on breach of undivided loyalty and awards £150,000 in damages plus costs. The broker notifies its PI insurer; cover responds, subject to the policy limit and to any specific exclusions for undisclosed contingent-commission arrangements.
Maintain a live conflicts-of-interest register. Disclose the basis of remuneration in the client engagement letter and again at renewal. Where a profit share, override, volume incentive or contingent commission is in play, disclose it — do not leave it to inference. Document consent where dual agency is unavoidable. Review the PI policy annually to confirm that the conflict-management architecture is consistent with the cover the broker relies on.
Related reading on the insurance broker duty of care to the client. For professions where these questions come up most often, see the solicitors PI insurance guide, the architects PI insurance guide, the accountants PI insurance guide and the IFAs PI insurance guide.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.