C130 Chapter 1 Essential Skills for the Insurance Broker and Agent

C130 - STUDY 1 - The Insurance Intermediary / Page 1

Defining Insurance

1. Insurance is based on risk.

RISK        Possibility of loss or damage to property, or chance of incurring liability.

2. Individuals > transfer their risk to insurers by paying premium in exchange for protection.

POLICY    Contract in which insurer reimburses insured for specified losses.

CATEGORIES OF INSURANCE
    1) Social        Governments insure residents:    Employment        Health care   

Pensions            Worker’s Comp.

    2) Life / Health    Insurers insure policyholders:    Accident Sickness        Life
                            Disability           Pensions   

    3) P & C (General)    Insurers insure policyholders:   

Automobile        Aviation        Boiler & Machinery        Fidelity        Liability   

Marine        Property        Surety Bonds            Transportation

a) Personal        Property damage by insured perils, incur liability – auto / home.

b) Commercial        Property damage by insured perils, incur liability – business.

The Insurance Intermediary

1. Links insurers with consumers.
2. Identifies consumers needs, matches with available products, facilitates contracts.
3. Uses experience and knowledge in response to client claims, questions and service needs.
4. Licensed authority for individual product lines > AB – Accident & Sickness / General / Life.
5. Refers needs outside authority to other licensed professionals.

COMPARING AGENTS AND BROKERS
    Similarities:    1) Bring insured and insurer together under contract.
            2) Facilitate purchase of contract and service of account > changes / advice.
            3) Owe a duty of care to consumers and insurers they represent.

    Agents:        1) Sell / service for insurer who supports administration / product / training.
            2) Direct writers > agent employees / salary / insurer administers, owns book.

        3) Agency > independents / commissions / pay expenses / insurer owns book.

Brokers:        1) Sell and service for multiple insurers for salary and/or commission.

        2) Work for brokerages > corporation / partnership / proprietorship.

        3) Broker / brokerage owns book of business and client list.

        4) Power to cancel insurer contract / move book of business to other insurers.

    General Agents:        1) Manage single insurer’s business within specified territory.
                2) Authorized to appoint other agents, settle claims.
                3) May administer all of insurer’s business in one or more provinces.
                4) Referred to as provincial agency / manager.

    Wholesale Brokers:        1) Specialize in non-standard risks (golf courses/hotels/pro liability).
                2) Negotiate broad contract with insurer(s) with capacity to cover risk.
                3) Underwrite, issue policies, pay claims.
                4) Attract volume of business through experience and expertise.
                5) Maintain facility market for non-standard risks (nature / value).
                6) Insurer accepting risk confirms binding.
                7) Some provinces do not license or regulate.

NON-STANDARD RISKS            a) Tough to place due to claims history or exposure (fine arts).
                    b) Standard markets unable or unwilling to accept.
                    c) Higher degree of UW expertise required.
                    d) Higher capacity required = multiple insurers sharing risk.
           
Principal and Agent Relationship

1. Common Law:        AGENT    Employee or independent business person authorized to act on

behalf of principal in securing contracts or in contractual matters.

2. Defined under Civil Code:

MANDATARY    Employee or independent business person authorized to act on behalf of mandator in securing contracts or in contractual matters.

3. Intermediary > agent / broker / CSR / producer, at various stages in the contract, acts for:    

Insured  ID needs, recommend coverages, service.    Insurer  Applications /coverages.

4. Insurer > legally bound to obligations under insurance contract (promise to pay).

5. Agency/brokerage contract:        i) Written authority (binding / claims / policy issue / service).

ii) Identifies parties / outlines obligations, rights and duties.

iii) Regulated by Superintendent of Insurance (Insurance Act).

iv) Broker may have several, agent usually has one.

DUTY OF CARE

1. Legal obligation to consumers established under Common Law, Civil Code and statute.
2. Reasonable competent agent > average, responsible, well-informed and professional.
3. Stringent duty > established by precedent (Fines Flowers / Ridgewood Farms).
4. Agent objectives – identify insured’s needs, recommend best solution(s).
5. Shifts from insured to insurer at different points in the insurance process.
6. Affects what agent says, does and to what extent clients can rely on statements made.
7. Exercise utmost good faith, high ethical standards, act within agency/licensing authority.

Day-to-Day Responsibilities

1. Prospect for potential clients.        Identify and contact sources for new business:
1. Target marketing:        Sales strategy targets specific group.
2. Market segmentation:        Identify potential insureds to approach.
3. Advertising:            Choose most effective medium.
4. Cold-calling:            Phoning or knocking on doors to introduce self / services.
5. Referrals:            Existing clients recommend friends or family members.

Plan your approach > identify, research, recommend, provide service.

2. Qualify the client.        Prepare, research and meet with them:
1. Are they a part of the target market?
2. Can you, and do you want to, assist with their insurance needs?
3. Ask questions, probe for more information or clarification.
4. Respecting confidentiality (PIPEDA) earns client trust > more personal data.

3. Advise the client.        Using knowledge of process and products:
1. Review and compare current policies, use questionnaires or surveys.
2. Risk analysis > ID exposures / likelihood / adequacy existing cover / improvements.
3. Review options, explain extent of coverage, recommend and provide reasons.
4. Explain quotation or estimate subject to change if information is incorrect or missing.
5. Ethical duties > inform of all coverages/markets, if not available refer elsewhere.
6. Risk management > loss control and prevention advice, risk transfer strategies.

4. Facilitate the application for insurance.    Documents and forms:
1. Having available / fully and properly competing / promptly submitting.
2. Clarify what information is requested and why.
3. Emphasize importance of full disclosure.

5. Obtain instructions from the client.    Recommend, let the client decide:
1. Service > issue, amend/change, renew or cancel policies.
2. Method > in person, email, fax, phone or in writing (cancel/reduce/delete cover).
3. Maintain regular contact to stay current with client’s changing needs.

6. Negotiate insurance.    Terms and conditions with insurer:
1. New policies / endorsements / renewals.
2. Pre-qualify > review portfolio / match client’s needs <> insurer’s UW rules, guidelines.
3. Stay within binding authority outlined in agency/brokerage contract.
4. Review portfolio, gather data

7. Facilitate the claims process.    You are the first point of contact when loss occurs:
1. Reassure client you are there to help and counsel.
2. Avoid confirming (estoppel) or denying coverage.
3. Outline basic claims process and advise client of what to expect (documentation).
4. Advise client immediately if loss is obviously not covered, or that insurer will assess.
5. Notify insurer promptly.
6. Monitor progress of claim > update client.
7. Help adjuster / insured / insurer as requested.

Licensing and Regulatory Authorities

1. Agencies/brokerages subject to business laws > consumer / corporate / employment / tax.
2. Licensing qualification/requirements ensure consumers protected:

i) Testing / examination = minimum standards of industry / regulatory knowledge.

ii) Recommended course of study / Quebec > # of study hours required.

iii) Restricted license > transact business in specific classes only (General v. Life).

iv) Levels (1/2/3) > advancement based on education, experience, examination.

v) AB > annual renewals and mandatory continuing education requirements.

3. Regulatory authorities:

i) Sup’t of Insurance > AB Insurance Act and Regulations.

ii) Alberta Insurance Council (AIC) > licensing and continuing education requirements.

iii) AIC > Adjusters / General / Life – industry volunteers.

iv) Ontario > licensed through FSCO (agents) and RIBO (brokers).

Professionalism in Insurance

1. High standards in all disciplines instill trust and confidence in consumers.
2. Well-informed, comply with law and rules of insurance, maintain utmost good faith.
3. Understand duties, perform them effectively, ensure needs of insured and insurer are met.
4. Education and knowledge:

i) Insurance products, concepts, general industry, markets.

ii) Insurers > business tenure / $ stability / products / service / compare to competitors.

iii) Continuing education (AB-mandatory) keeps you current with trends and information.

iv) Media > trade publications / news services.

v) Membership in professional association = information and networking.

1. Ethics (AB - Code of Conduct) and client care:

i) Comply with provisions of Insurance Act and regulations.

ii) Act competently, be trustworthy, avoid deceit, fraud or misrepresentation.

iii) Pay premiums collected to insurer as per agency/brokerage agreements.

iv) Comply with legislation relating to placing insurance with unlicensed insurers.

1. Agent and broker duties:

i) Provide coverage best suited to client needs without influence of $ gain (commissions).

ii) Not take advantage of client’s lack of knowledge or inexperience.

iii) Hold information in strictest confidence.

iv) Competently perform services undertaken by being well-educated.

v) Insurers > honest, trustworthy, in agency/brokerage agreement, disclose material facts.

2. Utmost good faith:

i) Insurance professionals legally obligated to honesty, integrity and high ethical standards.

ii) Full disclosure to insurer of material facts > knowledge of agent = knowledge of insurer.

MATERIAL FACT    Any information that could affect the contract of insurance to the extent that, if it were disclosed, it would change the agreement between the insurer and insured.

iii) Emphasize importance of full disclosure to client, consequences of not doing so.

3. Privacy laws:

i) Federal > Personal Information Protections and Electronic Documents Act (PIPEDA).

ii) Information > relevant, held in strictest confidence, client must authorize release.

4. Errors and Omissions (E & O):

i) Agent acts or fails to act = loss not covered / insurer paying unintended loss.

ii) Document > write, sign detailed notes about all contacts – date / time / subject / action.

iii) Communicate > promptly and clearly in writing with insurers and clients.

iv) Fulfill obligations > act within authority and experience, defer to experts as needed.

v) Coverage unavailable > advise client ASAP, explain why, offer alternatives.

vi) Major causes of E & O claims is failure to:

1. Provide cover for exposures

+ ensure understanding of the nature of the risk.

2. explain effects of exclusions, exemptions and restrictions.

+ Highlight existence and effects of same, confirm discussions in writing.

3. place cover at all > not pursued / not available / estoppel / lost file.

+ Know coverages / marketplace, file management , consistent procedures.

4. provide correct cover > client requests one form, agent/broker arranges another.

+ Requests > careful transcribing,  confirm policy documents match.

5. provide cover in time > loss occurs between application and binding.

+ Forward all documents to insurer promptly, within required time.