Giving into temptation

Over the last year, the broking community has been dogged by lawsuits around covenants that have resulted in millions of pounds in settlements, both in and out of court, a trend that looks set to continue due to the close nature of the client-broker relationship.

The temptation for brokers to speak to ex-clients is huge, especially when bonuses are at stake and the pressure is on to win quick business. Those working in insurance are natural risk takers and meeting up with former clients may seem a risk worth taking.

Clients often follow people rather then companies and the previously longstanding relationship and built-up trust will often be enough to persuade them to change broker - although in the mind of the client they are staying with the same one - there is just a different company name on the business card. The danger is that even going for lunch with a customer as a social occasion could be conceived as breaking a covenant and therefore the best way to avoid any dispute is not to meet them at all.

An expert lawyer in this area speaks of a court order in the morning not to speak to former clients, followed by lunch with one of them; the lawyer had to advise that the next meeting was going to be with some cold bars in jail. The lawyer adds, unsurprisingly, that there is still a high level of "ignorance" and "stupidity" out there.

Another growing trend is for the employer to indemnify its new team, suggesting that the practice of approaching the former clients before the covenant period ends is encouraged or at least recognised as a likely outcome. As teams continue to be poached, lawyers will still be watching in disbelief as brokers break their covenants; the only way to stop this is for a cultural shift to occur or for brokers to give incentives to new staff members to not break them.