CAIB 4 Ch 5 - Insurance Company Relations PDF

CAIB 4: Chapter 5 Broker – Insurance Company Relations CAIB 4  CAIB 4 Section 1 Insurance Brokerage Agreements  Brokerage Agreements with Insurance Companies BROKERAGES HAVE VARYING THESE AGREEMENTS PR...

CAIB 4: Chapter 5 Broker – Insurance Company Relations CAIB 4  CAIB 4 Section 1 Insurance Brokerage Agreements  Brokerage Agreements with Insurance Companies BROKERAGES HAVE VARYING THESE AGREEMENTS PROVIDE PARTICIPATION IN PROFIT- BROKERS MUST COMPLY WITH AGREEMENTS WITH INSURANCE RIGHTS, SUCH AS THE ABILITY SHARING PLANS IS COMMON. AGREEMENT TERMS TO AVOID COMPANIES. TO BIND COVERAGE. ERRORS AND OMISSIONS RISKS. CAIB 4  Key components of every agreement include: 1. Authority 2. Ownership of Expirations 3. Billing Procedures Major 4. Commissions Sections of a 5. Termination Brokerage 6. Hold Harmless Agreement 7. Privacy Act 8. EDI Provisions 9. Other Provisions CAIB 4 Authority Insurers provide rules, rates, and guidelines on risks. Some risks may be restricted or limited by the insurance company. Limits on certain business classes due to poor loss experience are common. CAIB 4 Ownership of Expirations Brokerage ownership Insurers may claim Expirations are allows control over ownership in certain critical to brokerage client insurance cases, e.g., unpaid operations. placement. premiums. CAIB 4  Billing Procedures TWO MAIN METHODS: AGENCY BILL AND AGENCY BILL INVOLVES THE BROKERAGE DIRECT BILL HAS INSURERS BILLING CLIENTS DIRECT BILL. BILLING CLIENTS AND REMITTING PAYMENTS DIRECTLY, REDUCING ADMINISTRATIVE TASKS TO INSURERS. FOR THE BROKERAGE. CAIB 4 Commissions Commissions typically range from 10%-20%. Rates are negotiable but often tied to brokerage performance. Insurance companies may offer bonus commissions to incentivize specific lines of business. CAIB 4 Termination Agreements often require 90-180 days' notice before termination. Insurance companies can terminate due to poor sales or loss ratios. Rehabilitation clauses allow brokerages to correct issues before termination. CAIB 4 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. CAIB 4 Privacy Act (PIPEDA) Brokerage and insurer must comply with PIPEDA. Both parties agree to protect client information. CAIB 4 EDI Provisions Defines liability for data loss during electronic transmission. Requires brokerages to maintain hard copies of key documents. CAIB 4 Other Provisions Arbitration clauses for dispute Joint promotion programs and resolution. technology sharing. CAIB 4 Profit Sharing Agreements Profit sharing provides incentives for brokerages that meet criteria. Key elements include volume requirements, loss definitions, and profit calculations. CAIB 4 Profit Sharing: Key Considerations Considerations include: Business volume Loss definitions IBNR charges Growth vs. profitability CAIB 4 Conclusion on Profit Sharing PROFIT SHARING IS INFLUENCED BY REGULAR REVIEWS ENSURE MARKET CONDITIONS. AGREEMENTS REMAIN OPTIMAL FOR BOTH BROKERAGES AND INSURERS. CAIB 4  CAIB 4 Section 2 Selecting Insurance Markets Importance of Selecting the Right Insurance Company The decision impacts the brokerage's ability to meet client needs. Compatibility with the insurance company is essential. Mismatches can damage client relationships. CAIB 4 Key Considerations for Selection Marketing Claims Policyholder Philosophy Services Services and Practices Number of Financial Underwriting Insurance Stability Procedures Companies CAIB 4 Marketing Philosophy & Practices The insurance company’s Know the target market and the Aligning philosophies is approach must align with the products required. essential for long-term brokerage’s corporate focus. success. CAIB 4 Factors in Marketing Philosophy TYPE OF INSURANCE VOLUME OF CONSISTENCY AND COMPENSATION PRODUCTS BUSINESS STABILITY CAIB 4  Commissions Profit Sharing Agreements Compensation Rewards CAIB 4  Claims Services CAIB 4 Policyholder Services CAIB 4  Ease of submissions (CSIO forms, online availability). Procedural Matters & Premium financing options, policy issuance timelines, renewal processes, Support and policy change turnaround. Services Risk management services provided by the insurance company. CAIB 4 Technology The role of technology in improving brokerage- company relations. Benefits: Electronic data interchange (EDI), faster turnaround on quotes, quicker policy issuance. Importance of staying current with technology trends. CAIB 4 Financial Stability The importance of selecting financially sound companies. Government monitoring of solvency. Example of failures in the Canadian insurance industry. CAIB 4  Impact of Insolvency Effect on unearned premiums and PACICC coverage. Broker responsibility for potential client losses. Ensuring a thorough review of financial strength through available reports and publications. CAIB 4 Underwriting Procedures Location of Underwriting Rate Levels Competence and Underwriting Guidelines Continuity of Staff Decisions CAIB 4 Location & Guidelines Where underwriting decisions are made matters (branch vs. head office). Consistency in underwriting guidelines ensures the broker can provide reliable information to clients. CAIB 4 Rate Levels & Flexibility Competitive rates in the marketplace. Flexibility to negotiate rates, especially in commercial insurance. CAIB 4  The importance of developing relationships with competent Competence underwriters. & Continuity of Staff Staff turnover can negatively impact efficiency and decision-making. CAIB 4 How Many Insurance Companies to Represent? No set number of Focus on meeting client companies – depends Too many insurers can needs, not representing on the brokerage’s lead to inefficiency. the most companies. client base. CAIB 4  CAIB 4 Section 3 Attracting an Insurance Company Appointment  Brokerages often initiate contracts with insurers. Insurance Company Insurance companies evaluate brokerages against set criteria. Selection Process Successful brokerages stand out with strong presentations. CAIB 4  Insurance companies look for brokerages with complementary business goals. Factors Influencing Successful brokerages Insurance understand what insurers seek. Company Appointments Company orientation shapes brokerage selection criteria. CAIB 4 Key Factors: Premises Accessibility and location impact insurer perception. Office image and layout matter. Balance professionalism without being overly luxurious. CAIB 4 Key Factors: Financial Information Insurers expect sound financial management from brokerages. Profitability and consistent operations are critical. Collection practices are closely scrutinized. CAIB 4 Key Factors: Type and Mix of Business Insurers review the types of Compatibility with the The brokerage’s business mix risks brokerages cover. insurer’s book of business is affects the likelihood of an vital. appointment. CAIB 4  Insurers assess brokerages' current insurer relationships. Key Factors: Too much competition among Other represented insurers is Insurers counterproductive. Represented A balanced portfolio of insurers is key. CAIB 4 Key Factors: Loss experience is a critical consideration for insurers. Loss Insurers focus on severity and frequency of claims. Experience High loss ratios require detailed explanations. CAIB 4  Key Factors: Human Resources Personnel expertise is a major factor in insurer evaluations. Insurers review designations, education, and work experience. The right staff enhances a brokerage’s appeal. CAIB 4  Insurers want a clear, well- structured business plan. Premium growth, retention, and client relationship Key Factors: enhancement are key. Business Plan The business plan must align with the insurer’s premium expectations. CAIB 4  Insurers review the brokerage’s E&O claims history. Key Factors: Errors & A poor E&O record could raise concerns. Omissions Claims E&O insurance is typically Record purchased through provincial broker associations. CAIB 4 Presenting the Brokerage Presentations should be well-organized and tailored. Highlight key strengths and alignment with insurer goals. A well-prepared prospectus enhances appointment chances. CAIB 4  CAIB 4 Section 4 Broker – Insurance Company Relations  Brokerages view themselves as independent, but are part of a complex relationship. The Complex Goal: Provide insurance products Broker- to consumers. Insurance Relationship Harmonious relations benefit all parties, especially the public. CAIB 4 Importance of Open Communication Miscommunication leads to relationship breakdowns. Brokers face challenges with inadequate or incorrect info to underwriters. Insurers face criticism when policies are late or inaccurate. CAIB 4  Informal Channels of Communication CAIB 4  Newsletters: "good news" updates for brokerages. Formal "Bad news" communicated via Channels of reps, letters, or bulletins. Communication Advisory councils provide a forum for broker input. CAIB 4 Special Programs & Enhanced Authority Special programs grant brokers Increased responsibilities in Respect and trust are key more authority. underwriting, claims, and policy outcomes. issuance. CAIB 4