C130 Chapter 3 Essential Skills for the Insurance Broker and Agent

C130 - STUDY 3 – Analyzing Risk / Page 1

Facilitating the Risk Analysis        Determining what is at risk and the chance of loss (BI/PD).

Broker > ID’s exposure to risk / recommends program / provides accurate risk information.

RISK MANAGEMENT    Minimizing (at minimum cost) the detrimental effects of risk by:

1) Identifying the risk.    2) Measuring the risk.    3) Controlling the risk.

RISK ANALYSIS        Broker responsible for:

1. Identifying > risk exposure and providing accurate risk information.
2. Predicting > chance of BI/PD loss and it’s potential financial impact on the client.
3. Recommending > limits of insurance needed but client has final decision.
4. Asking ??? > nature, value of physical assets / liability exposures.

1) Physical Property        Material goods – auto / home / contents.

        2) Liability            Legal obligations for actions of self / others.
        3) Client Assessment        Career / lifestyle / hobbies / personal habits.
    Brokers Role

• Assist in identifying likihood of negative effects for your clients
• Arrange insurance coverage to cover their expenses
• Recommencation to purchase highest liability limit
• Use risk control techniques to help prevent or reduce the incidence of loss

Identifying Risk Exposures
1) Subject of Insurance    What is exposed to loss requires different coverages:

1. Property > automobiles / buildings / business, personal.
2. Liability > arising out of things said / done / made.

2) Perils    Events that could cause a loss to the subject of insurance:

1. Named > fire / theft / windstorm / explosion / flood / vandalism.
2. Exclusions > war / nuclear / intentional acts of the insured(s).
3. Exposure Factors > area (high crime ) / type of vehicle (high target - theft).

3) Financial Impact    Cost to indemnify the insured

1. Property > cost of repair / restoration / replacement.
2. Direct Loss > damage to home + detached private structures + contents + ALE.
3. Special Limits > specified maximums – bicycles / business / coins / furs / jewellery.
4. Indirect Loss > consequences of property damage – loss of use (rental income).
5. Factors > replacement cost / rental of equivalent.
6. Liability > legal responsibility for BI/PD caused by insured = highest limit.

HAZARD    Condition that may cause a peril to occur.
4) Physical Hazards    Factor that may influence the outcome of a loss:

1. Increases > chance of peril affecting the insured / damage being more severe.
2. Identified and measured readily.
3. Removed or reduced by preventative measures.

Asssessing a Potential Client    Determining and responding to their attitude toward risk.

1. Tolerance > lifestyle choices reflect comfort level – skydiving v. scuba diving.
2. Impact > coverage needed v. ability to offer the coverage (U/W guidelines).

QUALIFYING THE CLIENT    Are they right for the agency / brokerage / agent?

1. Target Market > based on area / coverages (commercial) / lifestyle / profession.
2. Ask Questions > who they are / lifestyle / how they heard of you / type of dwelling.
3. Habits and Attitudes > high risk tolerance / take chances / coverage v. responsibility.

MORAL HAZARD            Conditions attributable to the human element of risk:

1. Atttitudes and Character > apathy / carelessness /  dishonesty / poor management.

1. Moral Hazard    Characteristics of insured / applicant that increase probability

or severity of loss – poor $$$ history / criminal record - fraud.

DON’T SOLICIT THE BUSINESS!

2. Morale Hazard    Poor attitude of insured / applicant that increase probability

or severity of loss – poor housekeeping / maintenance / staff.

SHOW HOW POOR ATTITUDE = HIGHER PREMIUMS!

The Initial Meeting With a Prospective Client
MEET IN PERSON            Offers opportunities for:

1. Client Preparation > inform of all information / documents required - checklist.
2. Building Rapport > face-to-face contact.
3. Risk Assessment > inspection of premises = acceptability / revealing exposures.
4. Recommendations > enhancements to existing insurance program.
5. Premium Collection > alleviates potential payment problems / less likely to cancel.
6. Broker Preparation > applications / checklists / forms / questionnaires.

REVIEW EXISTING POLICY    Quick way of determining existing coverage:

1. Fewer Discrepancies > what is advised / covered by existing policy / on application.
2. Discuss / Compare > existing coverages with those you offer.
3. Client Opinion > changes in risk / exposures not covered = recommendations.
4. Improve Coverage > up-selling and cross-selling.
5. Avoid Errors > overlook needs / make faulty assumptions / miss exposures, coverages.

INVESTIGATION        Determine / respond to client’s reasons for leaving current broker:

1. Qualify Client > acceptable to agent / brokerage / insurer.
2. Service Issues > bad experiences – broker / insurer / claims handling / timely response.
3. Claims Issues > probe for details – denial = uninsured exposures / misunderstanding.
4. Insurance Experience > lapsed / terminated – no longer writing / payment / claims.
5. Payment Issues > financial instability = moral hazard / premiums must go to insurer.
6. Expectations Communicated > full disclosure / prompt payment.
7. Other Investigations > claims tracking databases – IAO / IBC / ICPB / MVR.

Risk Control    Prevent loss or perils from occurring / minimize extent of damage.

1. Loss Prevention > upgrading locks / removing flammable materials / updating old wiring.
2. Loss Reduction > alarm systems (burglary / smoke / fire).
3. Results > insurers pay less claims = improved financial results and lower premiums.
4. Prevention > reduces inconvenience – sense of violation / loss of use.

LOSS CONTROL/PREVENTION        Educated client assists with the process:

1. Questions > fire prevention / security of possessions / issues with insurer, industry.
2. Informing > dispels common misconceptions about insurance = ID you as resource.

LOSS PREVENTION CHECKLIST - PROPERTY

1) Fire            a) Smoke Alarms > local laws - approved installation and maintenance.

            b) Fire Extinguishers > match combustible materials / place / maintain.

2) Electrical        a) Investigate > frequent fuse blowing / breaker tripping.

            b) Lighting > maxiumum wattage recommended for fixtures.

            c) Wiring > frayed / multiple extension cords (fire or tripping hazard).

3) Lightning        a) Discharges > through building or electrical devices or appliances.

            b) Protection System > air terminal + ground terminal + conductor.

            c) Surge Arrestors > protect electronic and telephone equipment.

            d) Unplug Appliances > during lightning storm.

4) Flammables        a) Storage > approved (pressure) and marked (warning) containers.

            b) Location > away from heat source – stove or furnace.

            c) Oily Rags > stored in sealed metal containers / safely disposed of.

5) Heating/Cooking    a) Devices > turn off after use – stove / deep fryer / curling iron.

            b) Appliance > temperature-controlled.

            c) Other Items > keep curtains and towels away from flames or heat.

6) Smoking        a) Careless smoking / extinguishing of materials.

b) Receptacles > inside – deep ashtrays / outside – sand wells.

c) Non-Smokers > advise of eligibility for discounts.

7) Security        a) Reduces Risk > less time for thieves = seeking another target.

            b) Assessment > level of security – local police may provide.

8) Points of Entry        a) Resistance > doors / locks / openings / windows = diligence.

            b) Burglary > unlawful taking of inside property with forced entry / exit.

            c) Theft > taking of property without owner’s consent.

9) Landscaping        a) Location > prune brnaches that provide potential screen for burglar.

10) Lighting        a) Exterior > illuminates premises at night.

            b) Motion Sensors > give impressions dwelling is occupied.

11) Maintenance        a) Vacant > no contents, people / Unoccupancy – no people.

            b) Absence > ask neighbour to shovel snow / cut lawn / get mail.

            c) Inspection > regular intervals during heating season (freezing).

12) Records        Mark Valuable Items > inscribe numbers / inventory / photos.

13) Crime Prevention Programs    Neighbourhood Watch > prevent targeting home.

LOSS PREVENTION CHECKLIST - LIABILITY

1) Host Liquor    a) Monitor Consumption > professional bartender / snacks + soft drinks.

            b) Alternatives > designated driver / overnight accommodation / taxis.

2) Swimming Pools        a) Attractive Nuisance > draws children in.

            b) By-Laws > fencing / security / supervision (no alcohol).

3) Pets            a) Supervision > reduces probability of attacks.

            b) Post Warnings > signs advising of dangerous animal.

4) Automobile        a) Distractions > reach / adjust controls / cell phone / eat / drink.

            b) Weather / Road Conditions > don’t drive / defensive driving course.

            c) Driving Experience > professional driving instruction v. mom / dad.

NEWSLETTERS        Regular publications distributed free to clients:

1. Issues > loss prevention / premiums / regulations / seasonal safety tips.
2. Resources > provincial broker associations and the Insurance Bureau of Canada (IBC):
1. Home > insurance explained / security audit guide / fire prevention
2. Questions > ask an insurance representative about car / home insurance.
3. Information > Atlantic Canadians on domestic oil spills.
4. Driving in Canada > car insurance tips for visitors.
5. FAQ’s > automobile insurance in Ontario.
6. Small business insurance.
7. Facts > general insurance industry in Canada (statistics / current issues).