FOI - Chapter 4

Insurance Process Overview

• Insurance must be applied for and can be denied; it's not universally needed or obtainable.
• Cost of insurance varies widely based on multiple applicant-specific factors.

Role of Agents and Brokers

• Agents: Represent a single insurance company, focusing on insurer’s interests.
• Brokers: Represent clients, ensuring they receive suitable insurance advice and coverage, potentially from multiple insurers.
• Brokers must exercise reasonable skill and care, facing potential E&O Claims if they fail to meet these standards.

Errors and Omissions Exposure

• Most common E&O Claims come from inadequate coverage errors (50% of claims).
• Other claims can involve misrepresentation, cancellation errors, policy change mistakes, and brokerage agreement violations.
• Some provinces mandate brokers to maintain insurance against E&O claims for consumer protection.

Underwriters

• Underwriters are employees of insurance companies who assess risk but do not sell insurance directly.
• They evaluate applications and loss data to select profitable risks for the insurer.
• Inspection reports may be requested to verify application information.

Types of Hazards

• Physical Hazards: Observable conditions of premises that could lead to perils, such as construction type and general cleanliness.
• Moral Hazards: Subjective applicant traits that may increase risk, including financial condition and past loss behavior.

Underwriting Decisions

• Underwriting decisions involve accepting, rejecting, or modifying risks based on evaluation.
• Insurers provide brokers with rate manuals for common insurance products, while complex commercial risk rates are determined by underwriters.

Claims Adjuster Responsibilities

• Insured parties expect prompt and efficient claims handling.
• The claims process begins with the insured reporting the claim to the brokerage.
• Brokers monitor claims and may appoint independent adjusters to handle specialized claims.

Types of Claims Adjusters

• Insurance Company Adjusters: Staff members of the insurance company who settle most claims.
• Independent Adjusters: Hired for additional expertise or when internal adjustments are insufficient, often appointed by the brokerage.

Importance of Underwriter Relationships

• A cooperative relationship with underwriters can facilitate faster processing and improved service for policyholder needs, including policy changes and renewals.