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Questions and Answers
What does profit sharing in insurance typically provide for brokerages?
What does profit sharing in insurance typically provide for brokerages?
Brokerages are exempt from complying with PIPEDA as they deal with insurance matters.
Brokerages are exempt from complying with PIPEDA as they deal with insurance matters.
False
What is one key consideration when selecting an insurance company?
What is one key consideration when selecting an insurance company?
Marketing Philosophy and Practices
The _______ definitions are an important aspect of profit sharing agreements.
The _______ definitions are an important aspect of profit sharing agreements.
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Which of the following is a key element of profit sharing?
Which of the following is a key element of profit sharing?
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All insurance agreements need to have arbitration clauses.
All insurance agreements need to have arbitration clauses.
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What is one consequence of mismatches between brokerages and insurance companies?
What is one consequence of mismatches between brokerages and insurance companies?
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What factor is crucial for a business plan in relation to insurers?
What factor is crucial for a business plan in relation to insurers?
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A brokerage with a poor Errors & Omissions claims record may face increased opportunities for appointments.
A brokerage with a poor Errors & Omissions claims record may face increased opportunities for appointments.
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What key factors enhance client retention and relationships with insurers?
What key factors enhance client retention and relationships with insurers?
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________ programs grant brokers more authority in underwriting and claims.
________ programs grant brokers more authority in underwriting and claims.
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What is a key component of a brokerage agreement with insurance companies?
What is a key component of a brokerage agreement with insurance companies?
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Brokers are allowed to bind coverage without the insurer's authority.
Brokers are allowed to bind coverage without the insurer's authority.
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What are the two main billing methods used in insurance brokerage?
What are the two main billing methods used in insurance brokerage?
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A brokerage agreement may require ______ to prove the brokerage performance before termination occurs.
A brokerage agreement may require ______ to prove the brokerage performance before termination occurs.
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What is the typical commission range for insurance brokers?
What is the typical commission range for insurance brokers?
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Insurance companies can terminate the agreement for poor sales or loss ratios.
Insurance companies can terminate the agreement for poor sales or loss ratios.
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What is typically claimed in cases of unpaid premiums by insurers?
What is typically claimed in cases of unpaid premiums by insurers?
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What is one benefit of using technology in insurance brokerage?
What is one benefit of using technology in insurance brokerage?
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Financial stability is not important when selecting insurance companies.
Financial stability is not important when selecting insurance companies.
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What does EDI stand for in the context of insurance technology?
What does EDI stand for in the context of insurance technology?
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The insurance company provides policyholder services including _____ management services.
The insurance company provides policyholder services including _____ management services.
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Which factor is NOT important for underwriting procedures?
Which factor is NOT important for underwriting procedures?
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Consistency in underwriting guidelines is essential for reliable client information.
Consistency in underwriting guidelines is essential for reliable client information.
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What is PACICC?
What is PACICC?
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What is a critical factor that insurers assess about brokerages?
What is a critical factor that insurers assess about brokerages?
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Insurers prefer brokerages that represent a high number of competing insurers.
Insurers prefer brokerages that represent a high number of competing insurers.
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What should successful brokerages focus on to stand out to insurance companies?
What should successful brokerages focus on to stand out to insurance companies?
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Insurers closely scrutinize a brokerage's _____ practices.
Insurers closely scrutinize a brokerage's _____ practices.
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What do insurers look for regarding the compatibility of a brokerage?
What do insurers look for regarding the compatibility of a brokerage?
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Insurance companies do not take the office image and layout of brokerages into consideration.
Insurance companies do not take the office image and layout of brokerages into consideration.
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What aspect of a brokerage enhances its appeal to insurers?
What aspect of a brokerage enhances its appeal to insurers?
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Study Notes
Brokerage Agreements with Insurance Companies
- Brokerage agreements outline the terms and conditions between brokers and insurance companies.
- Agreements often include provisions for authority, ownership of expirations, billing procedures, commissions, termination, hold harmless clauses, Privacy Act (PIPEDA), EDI provisions, and other clauses.
Authority
- Insurance companies provide brokers with rules, rates, and guidelines for underwriting risks.
- Companies may limit the types of risks brokers can place due to poor historical loss experience.
Ownership of Expirations
- Brokerage ownership of expirations allows them to control client insurance placements.
- Insurance companies may claim ownership in specific cases such as unpaid premiums.
Billing Procedures
- Two main billing methods are agency bill and direct bill.
- Agency billing involves brokerages billing clients and remitting payments to insurers.
- Direct billing allows insurers to bill clients directly, reducing administrative tasks for brokerages.
Commissions
- Commissions typically range from 10% to 20% and are negotiable.
- Rates are often tied to brokerage performance.
- Insurance companies may offer bonus commissions for specific lines of business.
Termination
- Agreements often require 90-180 days’ notice before termination.
- Insurance companies can terminate agreements due to poor sales or loss ratios.
- Rehabilitation clauses allow brokerages to correct issues before termination.
Hold Harmless Clause
- Protects brokerages from liability for acts of the insurance company.
- Indemnifies against issues like failure to follow procedures or errors in billing.
Privacy Act (PIPEDA)
- Brokerages and insurers must comply with the Personal Information Protection and Electronic Documents Act (PIPEDA).
- Both parties agree to protect client information.
EDI Provisions
- Define liability for data loss during electronic transmission.
- Require brokerages to maintain hard copies of key documents.
Other Provisions
- Common other provisions include arbitration clauses for dispute resolution and joint promotion programs and technology sharing.
Profit Sharing Agreements
- Offer incentives for brokerages that meet specific criteria.
- Key elements include volume requirements, loss definitions, and profit calculations.
Profit Sharing: Key Considerations
- Key considerations for profit sharing agreements are:
- Business volume: The volume of business generated with the insurer
- Loss definitions: How losses are defined and calculated for profit sharing purposes
- IBNR charges: How incurred but not reported (IBNR) claims are factored into the profit sharing calculation
- Growth vs. profitability: Whether the agreement prioritizes growth or profitability
Selecting Insurance Markets
- Selecting the right insurance company is critical for broker success.
- Compatibility with the insurance company is essential.
- Mismatches can damage client relationships.
Key Considerations for Selecting an Insurance Company
- Key considerations for selecting insurance companies are:
- Marketing Philosophy and Practices: The company's approach to marketing should align with the broker’s.
- Claims Services: The efficiency and effectiveness of the insurance company's claims handling process.
- Policyholder Services: The quality and range of services provided to policyholders.
- Financial Stability: The insurer’s financial strength, based on factors like reserves and solvency ratings.
- Underwriting Procedures: The consistency and efficiency of the insurer's underwriting processes.
- Technology: The insurer's adoption of technology to facilitate business and ensure efficient communication and online interaction.
Marketing Philosophy and Practices
- The insurer's approach to marketing should align with the broker's corporate focus.
- Clear goals for volume of business, consistency in quality, and compensation models are important.
Claims Services
- The quality and efficiency of claims handling are important.
- Brokers and insurers should have a process for addressing disputes and streamlining the claims experience.
Policyholder Services
- Effective policyholder services include:
- Ease of policy submissions
- Premium financing options
- Efficient policy issuance and renewal processes
- Clear communication regarding policy changes
- Excellent customer support and risk management services
Technology
- The role of technology in improving brokerage-company relations is increasing.
- Electronic data interchange (EDI) can improve efficiency, and staying current with technology trends is vital.
Financial Stability
- Selecting financially sound companies is crucial.
- Government monitoring of solvency provides insight into the insurer's financial position.
- Brokerages need to review financial strength reports and publications.
Underwriting Procedures
- The location of underwriting decisions, consistency in underwriting guidelines, competitive rate levels, and the competency of underwriting staff are critical.
The Number of Insurance Companies to Represent
- There is no set number of insurance companies brokers should represent.
- The goal is to meet client needs and avoid representing too many companies and achieving efficiency.
Attracting an Insurance Company Appointment
- Brokerages often initiate contracts with insurers.
- Insurance companies evaluate brokerages against specific criteria.
- Strong presentations and differentiation are crucial for success.
Factors Influencing Insurance Company Appointments
- Factors affecting insurance company appointments include:
- Premises: The location, accessibility, and image of the brokerage's physical premises.
- Financial Information: The brokerage's financial health, profitability, and collection practices.
- Type and Mix of Business: The types of risks covered by the brokerage and its compatibility with the insurer's book of business.
- Other Insurers: The brokerage’s relationships with other insurers and the balance of its insurer portfolio.
- Loss Experience: The brokerage’s claims history and loss ratios.
- Human Resources: The expertise, education, and experience of the brokerage's staff.
- Business Plan: The brokerage's strategy for growth, retention, and client development.
- Errors & Omissions Claims Record: The number and severity of errors and omissions claims filed against the brokerage.
Presenting the Brokerage
- Brokerage presentations should be well-organized, tailored to the insurer, and highlight key strengths.
- A well-prepared prospectus enhances appointment chances.
Broker-Insurance Company Relations
- Achieving harmonious relations between brokers and insurers is crucial for providing insurance products to consumers.
- Open communication is critical, and brokers face challenges when insurers provide incomplete or inaccurate underwriting information.
Channels of Communication
- Informal Channels of Communication: Personal interaction with insurer reps or informal correspondence.
- Formal Channels of Communication: Newsletters, bulletins, and advisory councils facilitate communication.
Special Programs & Enhanced Authority
- Special programs grant brokers more authority in underwriting, claims, and policy issuance.
- Increased responsibilities foster a stronger relationship based on trust and respect.
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Description
This quiz explores the essential elements of brokerage agreements with insurance companies. Topics include authority, ownership of expirations, billing procedures, and other key clauses that define the relationship between brokers and insurers.
