Fundamentals Chapter 4.pptx

 Three Big Things Students have three minutes to write down three of the biggest or most important concepts (we did this last week!). After studying this past week, have these three big things changed? Remember the Forgetting Curve!  CHAPTER 4 - The Insurance Process Introduction Insura...

 Three Big Things Students have three minutes to write down three of the biggest or most important concepts (we did this last week!). After studying this past week, have these three big things changed? Remember the Forgetting Curve!  CHAPTER 4 - The Insurance Process Introduction Insurance isn’t a commodity ○ Needs an application - not everyone needs to or CAN buy insurance - application for insurance can be denied ○ Cost not the same for all - cost is based on multitude of factors that vary immensely between applicants Overview ○ Determine rate, inspection, application submitted, processing of application  CHAPTER 4 - The Insurance Process 1. The Agent or Broker DEFINITIONS Agents ○ Represent insurer (interests) ○ Represent ONE insurance company Broker ○ Represent client (interests) ○ May represent one or various insurance companies NOTE: “Broker” used when referring to producers OR sales staff  CHAPTER 4 - The Insurance Process 1. The Agent or Broker PRIMARY DUTY TO CLIENTS Broker makes sure that clients receive the correct insurance advice AND coverage Brokers must show “reasonable skill, care, and diligence” and if a client suffers financial loss due to the broker failing to perform to this legal standard, then an E&O Claim is filed against broker AND brokerage PRIMARY DUTY TO INSURERS Insurers EXPECT that brokers ○ Are truthful about the risks they submit ○ Won’t conceal or withold important information Brokers → AKA First line underwriters ○ The first ones to assess a client’s risk to see if they meet the eligibility requirements  CHAPTER 4 - The Insurance Process 1. The Agent or Broker ERRORS AND OMISSIONS EXPOSURE - Brokers DO MAKE MISTAKES Inadequate Coverage - most common E&O Claim (50% of all claims) ○ Failure to advise of exclusions ○ Failure to place coverage OR placing too late ○ Providing incorrect coverage ○ Incorrect advice on availability of coverage  CHAPTER 4 - The Insurance Process 1. The Agent or Broker ERRORS AND OMISSIONS EXPOSURE - Brokers DO MAKE MISTAKES Other E&O Claims ○ Misrepresentation AND errors when describing risk insured ○ Cancellation and renewal errors ○ Policy change errors ○ Processing Delays ○ Brokerage Agreement Violations Some provinces require brokers to purchase insurance against potential E&O claims ○ Makes sure that consumers aren’t hurt financial when brokers make mistakes ○ Covers everyone working in the brokerage  CHAPTER 4 - The Insurance Process 2. The Underwriter WHO IS AN UNDERWRITER Employees of insurance companies Don’t sell insurance directly to consumers Don’t have to be licensed RELATIONSHIP UNDERWRITER - BROKER Broker submits application/requests a rate quote/negotiates renewal of policy → underwriter makes the decision  CHAPTER 4 - The Insurance Process 2. The Underwriter - WHAT DO UNDERWRITERS DO - RISK SELECTION Primary role Select risks that will be the most profitable to the insurer based on: The application ○ Gives a first positive or negative indication on the company: A welding business operating from a 30 year old wood frame building = not a good idea The broker ○ Underwriter may need more info than what is on the application LIKE personal and business reputations. Broker can provide this info to the underwriter  CHAPTER 4 - The Insurance Process 2. The Underwriter - WHAT DO UNDERWRITERS DO - RISK SELECTION Primary role Select risks that will be the most profitable to the insurer based on: Loss experience data ○ Underwriter will try to determine the insurer’s loss experience for the type of risks presented ○ Look at the current data on the same risks and businesses  CHAPTER 4 - The Insurance Process Inspection reports Field representatives → usually for sales and service support, also verify information in the application form and perform physical inspections of properties Commercial Insurance → underwriter may ask for an inspection report from an independent firm that is also engaged in that business: The Insurers’ Advisory Organization (IAO)  TWO KINDS OF HAZARDS 1. PHYSICAL HAZARDS Conditions relating to the PREMISES that might cause a peril to occur Type of building construction ○ Ability to withstand fire, loss, earthquake Occupancy ○ EXAMPLE: A welding shop in a separate building = more hazard THAN a bookstore in a separate building Housekeeping ○ General state of cleanliness and maintenance ○ EXAMPLE: uplifted carpeting, accumulation of waste Usually observable and can be reduced (cleaning)  TWO KINDS OF HAZARDS 2. MORAL HAZARDS Subjective characteristics of applicants that may cause a peril to occur Financial Condition ○ People/businesses experiencing financial difficulty may be close to committing fraud Moral Character ○ Conversation with applicant or others may indicate business ethics and honesty ○ Checking previous losses → were they questionable? Indifference to Loss ○ Carelessness or indifference to loss because they have insurance ○ Applicant’s personality → are they working to avoid or reduce losses? May not be observable  MAKING AN UNDERWRITING DECISION Underwriters can never be 100% sure they have all the facts and there are NO GUARANTEES on risks selected Underwriters want to make the best decision TO: ○ Reject the risk ○ Accept the risk on basis provided ○ Accept the risk and increase the rate ○ Accept the risk and increase the deductible ○ Accept the risk SUBJECT TO specific conditions  MAKING AN UNDERWRITING DECISION WHAT UNDERWRITERS DO - RATING AND RATE MAKING Insurers usually give brokerages rate manuals for personal property insurance products ○ Homeowners, tenants, condo unit owners’ insurance There are usually special policies for smaller businesses Complex commercial risk rating is done by underwriters ○ Brokers rely on insurance company underwriters to determine the correct rate OR premium to charge ○ Brokers usually ask for a quote from two (or more) insurers ○ Broker receives quotes and will see which best address the needs of the client(s)  WHAT UNDERWRITERS DO - POLICYHOLDER’S SERVICE Usually, the underwriter who gives the quote or prepares the original policy will be responsible for ALL POLICYHOLDER SERVICE for that policy INCLUDING ○ Changes to policy ○ Preparing cancellation notice (if needed) ○ Preparing renewal certificate Advantages of a positive relationship with your underwriter ○ More co-operative ○ Can help to speed up the underwriting process and help brokers place accounts if there is a short deadline ○ Underwriters are knowledgeable and are usually willing to share that knowledge  3. The Claims Adjuster WHEN THERE IS A LOSS ○ Insureds expect prompt, efficient handling of claim CLAIM PROCESS ○ i) Insured Reports Claim To Brokerage Insured reports a claim to broker OR other broker personnel If it seems the claim MAY be covered by the policy → brokerage advises insurer  3. The Claims Adjuster CLAIM PROCESS ii) Brokerage Reports Claim to Insurer ○ When insurer is sure a possible claim exists, THEN arranges to settle or adjust the claim ○ Claims adjuster settles the claim ○ Adjuster can be an employee of the insurance company OR may be a part of an independent adjusting form  3. The Claims Adjuster DEFINITIONS Insurance company adjusters ○ Insurance companies → have staff adjusters for most claim settlements Independent adjusters ○ If no staff adjusters OR lost adjustment needs expertise, THEN can contract services of an independent adjustment firm Insurers may let the brokerage appoint independent adjusters for them Broker must continuously monitor the claim’s progress and should check in with insured regularly to determine the claim status  What Jumped Out At You? Students have two minutes to write down the topic or fact that resonates or sticks in your head the most, from today’s class. No concept is too small! Remember the Forgetting Curve!