FOI - Chapter 4

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Questions and Answers

What is the primary duty of a broker towards their clients?

To minimize insurance costs for clients

To handle claims processing exclusively

To ensure clients receive correct insurance advice and coverage (correct)

To solely represent the interests of the insurer

Why may an application for insurance be denied?

If the applicant has insufficient financial resources (correct)

If the insurer has no records of the applicant

If the applicant does not need insurance

If the applicant has not submitted a claim in the past

What is meant by 'Errors and Omissions Exposure' in the context of brokers?

The risk of clients not understanding their coverage

The possibility of brokers making mistakes that lead to client losses (correct)

The requirement for brokers to charge fees for services

The need for brokers to underwrite client insurance policies

What is a common cause of Errors and Omissions claims against brokers?

Providing incorrect information about coverage options Signup and view all the answers

How do brokers differ from agents in their representation?

Brokers represent the client, whereas agents represent the insurer Signup and view all the answers

What is a key expectation insurers have of brokers?

To provide accurate information about the risks being submitted Signup and view all the answers

Which of the following is NOT a factor that affects the cost of insurance?

The agent's personal preference Signup and view all the answers

What is the role of brokers in the insurance application process?

To evaluate and ensure compliance with underwriting guidelines Signup and view all the answers

What aspect of a building does not typically contribute to physical hazards?

Surrounding vegetation Signup and view all the answers

Which of the following is an example of a moral hazard?

An applicant's financial difficulty indicating a risk of fraud Signup and view all the answers

What is one possible action an underwriter might take when faced with risk?

Reject the risk entirely Signup and view all the answers

Which statement about moral hazards is true?

They involve subjective characteristics of applicants. Signup and view all the answers

What information do insurers typically provide to brokerages?

Rate manuals for personal property insurance Signup and view all the answers

Which of the following is part of the service provided by underwriters to policyholders?

Preparing cancellation notices if needed Signup and view all the answers

Underwriters aim to develop what kind of relationship with brokers?

Positive and cooperative Signup and view all the answers

What is a potential consequence of an applicant showing indifference to losses?

A higher likelihood of insurance fraud Signup and view all the answers

What is one primary role of an underwriter in the insurance process?

To select risks that will be most profitable to the insurer Signup and view all the answers

Which of the following is NOT a common error that brokers may make, leading to E&O claims?

Client relationship management Signup and view all the answers

What must some provinces require brokers to purchase to protect against E&O claims?

Errors and omissions insurance Signup and view all the answers

How can brokers assist underwriters during the risk assessment process?

By offering personal and business reputational information Signup and view all the answers

What type of report may underwriters request to evaluate commercial insurance applications?

Inspection report from an independent firm Signup and view all the answers

Which of the following statements about underwriters is true?

Underwriters work for insurance companies but do not sell insurance directly Signup and view all the answers

Which factor is NOT used by underwriters when selecting risks?

Applicant's financial history Signup and view all the answers

What may be a consequence of brokers making errors in insurance processes?

Consumers may incur financial harm Signup and view all the answers

What is the first step in the claims process after a loss occurs?

Insured reports the claim to the brokerage Signup and view all the answers

Which of the following statements is true regarding independent adjusters?

Independent adjusters are used when expertise is needed beyond staff adjusters Signup and view all the answers

Who is responsible for monitoring the progress of a claim?

The brokerage Signup and view all the answers

What defines an insurance company adjuster?

They are employed by the insurance company for settling most claims Signup and view all the answers

What action does the brokerage take when a potential claim is identified?

They advise the insurer about the possible coverage Signup and view all the answers

Study Notes

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.

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Description

Reflect on the key concepts from Chapter 4 about the insurance process. In this exercise, you will identify three major ideas that illustrate the unique aspects of insurance, including application requirements and cost factors. Consider if your understanding has evolved since last week, keeping in mind the Forgetting Curve.