Guest blog: Offer to sell?

He was understandably upset because a heavyweight, industrial account in one of the energy-rich countries he had been vying for had been auctioned off online.

A broker actually stuck an insurance programme onto an online auction website to entertain bids from insurers. Quoting the underwriter, by the end of the bidding session the account went for about 40% of the originally presented premium terms.

Without digging deeper into the details of the story, there are perhaps two prime considerations to take into account; first what value is the broker adding to the transaction and, second, what are the possible adverse legal implications for insurers bidding for such business?

One of my mantras is that, as a rule, retail insurance markets in Middle East are aggressive, but not really competitive. Reinsurers are vicariously competitive through their respective cedants, but retail insurers aren't really. What value to the customer - if it can be classified as a value in the long run - is the broker adding by propagating a price undercutting practice?

Generally auctions impinge upon offer and acceptance rules, and there is ample case-law on this. If the negotiation process is stripped down to a naked online bid can it legally be construed that underwriters are accepting risks ‘tale quale'? In other words, if certain information that may otherwise be deemed as material is missing isn't the buyer being exculpated of his duty of utmost good faith the moment an insurer quotes online?

The above assertion may be speculative on the basis that the legal dos and don'ts of e-business are still largely being developed. But this serves to strengthen the argument that if we are in the business of risk should we be adding to the variables, speculation or risk in addition to what we already assuming as underwriters? Shouldn't innovation evolve out of tried and tested ground rules rather than at a tangent to them?

James Portelli is a chartered insurance practitioner, a fellow of the Chartered Insurance Institute and of the Institute of Risk Management and the regional coordinator of the Middle East IRM regional groups.