Firm order
The instruction by which the insured, through its broker, asks underwriters to commit on the quoted terms, turning a quote into a contract and marking the point of no return in the placement.
A placement unfolds in two steps. First the quote, by which the underwriter indicates on what terms it would accept the risk, without committing. Then the firm order, by which the broker, on its client's instruction, asks the underwriter to commit on those terms from a given date. The firm order moves the negotiation into a contract: the underwriter that responds by scratching its line is bound, within the limits of its subjectivities. The distinction has considerable practical consequences. Between quote and firm order, the underwriter can withdraw or change its offer if the risk changes, a loss occurs or the market turns; afterward, it cannot. The broker must therefore make sure the order is given before inception, and that all the lines needed to reach one hundred percent are secured, otherwise the insured remains partly uncovered. In tight markets, underwriters limit the validity of their quotes, sometimes to a few days, precisely to avoid being bound by a firm order received after the context has changed.
On February 20, 2022, a political risk underwriter quotes cover for assets in Ukraine, valid for thirty days. The February 24 invasion allows it to withdraw the quote before any firm order; had the broker sent the order on the 21st, the underwriter would have been bound on prewar terms.
Follow the research
One letter a week. First, the week's underwriting note, when one is published: a dated, argued decision, signed by Paul Bernardski. Then what the observatory published on cyber risk, political risk and insurance. No account, no tracking.
No spam, one-click unsubscribe, no data ever sold.