C130 Chapter 4 Essential Skills for the Insurance Broker and Agent

C130 - STUDY 4 – Applying for Insurance / Page 1

APPLICATION        a) Written request for insurance = introduction of applicant to insurer.
            b) Identifies > broker of record and insurer coverage is requested from.

APPLICANT        1) New Client > no coverage / quoting on renewal / dissatisfied with broker.
            2) Existing Client > requiring additonal coverage.

PROCESS        1) Insured > knows about own risks / exposures to loss.
            2) Discussions > gather / record data = understanding of risks / exposures.
            3) Recommend > coverage and policies tailored to meet client needs.
            4) Select / Quote > insurer and product that matches client needs.

5) Provide U/W > facts needed to assess risk and calculate premium.

            6) Know Forms > client profile / qualifier / different applications, questions.
            7) Duty of Disclosure     Utmost Good Faith - client <> broker <> insurer:
                a) Atmosphere > putting client at ease = opening up, honest answers.                             b) Utmost Good Faith > misrepresentation = void policy / claim denied.
                c) Misrepresentation > give false information knowing it is false = lying.
                d) Representation > factual statement about risk – express / implied.
                e) Non-Disclosure > breach of condition following a loss.   
            8) Ask Questions > Get client data (5 W’s) = needs analysis + proper cover.
            9) Clarify > checklist questions = client has to answer / accurate data to U/W.

The Application        Method depends on knowledge of client, coverage, insurer’s requirements.        
1) Oral        a) Discuss > over telephone or in person.
        b) Document > signed / dated notes detailing discussion.
        c) Notes     Only records of transaction = minimal misunderstandings later:
            1) Retain and organize.
            2) Identify > client and policy or quote number.
            3) Sign and date notes
            4) File > appropriately - alphabetical / date / numerical order.
            5) Follow Up > written confirmation to both client / insurer.           
2) Written    a) Evidence > accurate documentation / intentions of parties (signature).
        b) Standard Forms > brokerage / insurer / coverage specific (S.A.F. 1). (CSIO forms)
        Centre for Study of Insurance Operations (CSIO)
            1) National Association > P & C insurers / independent brokers.
            2) Goal > achieve e-business solutions - standard forms (electronic / print).
            3) Edata Interchange > personal, commercial lines / web / XML / portal.
            4) Electronic Interface > broker seamlessly transfers applications to insurer.
        c) Consistency > beneficial / familiar / procedural / tailored to unique risks.
        d) Advantages:        1) Consistency > checklist of questions = relevant data.
                    2) Discussion > client - needs / additional coverages.
                    3) Single Record > eliminates errors in transcribing.
                    4) Lessens Risk > overlooking necessary information.
                    5) Improves Service > reduces delay / follow-ups for more data.
                    6) Legal Document > foundation of contract – written / signed.
                    7) Document for Insurer > bond / floater / liability / valued covers.
   
        e) Completion:        1) Routine = easy fulfillment of requirements as needed.
                    2) Thorough > accurately / clearly / full details = understanding.

3) Broker > acting for insurer and client.

                    3) Insurer > advise of all information material to the risk.
                    4) Failure = E & O exposure - liability for losses.

Essential Information        Required for any application regardless of cover requested.
           
1) Named Insured        Any party who has insurable interest in the subject of insurance.

INSURABLE INTEREST   

Applicant stands in such a position to the subject of insurance that he or she could be

financially prejudiced by that property’s loss or damage, and financially benefited by

its continued existence.

The applicant also has an insurable interest in his or her potential capability to pay damages in the event that he or she is found responsible (legally liable) for having caused injuries to others or damage to their property.

1. Business > ID – activities / legal entitities / what each does / relationship to each other.
2. Check Policy Definition > auto - others with consent / property - household members.
3. Legal Entities >  individual / groups of individuals / corporation / operating as.
4. Trade Names > not legal entities unless registered as a limited company.
5. Others > church groups / non-profit clubs / sports teams = directors added to name.
6. Probe Further > property – occupancy (permanent v. temporary) / use.
7. Addresses > physical (subject matter) + contact – email / fax / mail / phone.

           
2) Policy Term        Length of time the insurer and insured agree to.

1. Defined By > effective and expiry dates.
2. Standard > six months (auto) or one year (property).
3. Expiry (X) Date > future  – take details and abeyance file for completion closer to date.
4. Backdating Cover > “NO” unless there is a valid reason – transfer of title.

           
3) Subject of Insurance    Tangible (car or home) or intangible (incurring a liability).

1. Auto > what (car) / where (territory) / who (drivers) / use (pleasure, business) / value.
2. Property > what (house) / where (location) / use (dwelling, business) / value.
3. Liability > legal responsibility for bodily injury / property damage suffered by others.
4. Limits > recommend than leave client to make final decision.       

4) Loss Payees        Someone other than named insured to whom insurance $$$ is paid.

1. Noted on Policy = insurable interest and entitlement to reimbursement – ATIMA.
2. Joint Settlement > co-payable – named insured(s) + loss payee(s).
3. Mortgagee > registered interest on collateral property = separate insuring agreement.
4. Multiple > normal on different types of property – building / equipment / machinery.
5. U/W Concerns > financial hardship  = lack of maintenance / temptation to stage a loss.
6. Financial Status > tactfully explain reasons insurer needs disclosure / authorization.

           
5) Loss History        U/W relevance = risk acceptability / coverage terms / policy conditions.

1. Claim Free > indicate on application otherwise U/W will wonder if you asked about it.
2. Reporting Period > insurer requirements vary - auto 6 years / property 3 or 5 years.
3. Disclose All Losses > insurable claims + uninsurable claims (excluded / retained).
4. Using Loss History         1) Qualifying Client > prior claims = market / declining outright.

2) Appropriate Cover > jewellery claim above limits = sell PAF.

3) Loss Prevention Advice > changed habits = improved risk.

4) Suggest Deductibles > high = acceptable risk / less premium.

5. Verifying > prior insurer(s) / databases – IBC (Autoplus / HITS / CTS).
6. Broker as U/W > confirmation = quote / submit with details or place in high-risk market.

           
6) Prior Insurance        Details – insurer / policy number(s) / expiry date lead to asking about:

1. Unexplained Gaps in Coverage > why was alternate coverage not obtained?
2. Declined / Denied / Refused > moral hazard / prior insurer stopped writing class?

7) Broker’s Report        Other information obtained from broker’s relationship with client:

1. Details > new account / how long client known / personally saw property / know driver.
2. Client Advocacy > emphasize virtues / explain circumstances / request consideration.
3. Insurer Support > alert U/W to parts of risk that require restrictions or special terms.
4. Material Information > if unsurer, ask a senior colleague or underwriters.

Signatures    Practices vary with coverage line and legal requirements.    

1. Type > Auto - all must be signed / Personal - sometimes, but not always / Commercial > rarely.
2. Reasons to Sign > applicant declares statements accurate and true / forms basis of contract.
3. Answers > legal responsibility of applicant even though you complete application.
4. Process > complete, let applicant review, initial changes/declined coverage, verify accuracy.
5. Disputes > possibilities is reduced – misunderstanding / challenges.
6. Client Signs > signing application on their behalf = invalidation as evidence of intentions.
7. Internet / Phone > quicker processing but authority to get information in question (PIPEDA).
8. Solution > complete transactions / email/fax/mail application for signature(s) / follow-up.
9. Privacy Act > not yet a body of jurisprudence on signature / authorization issues.

Assisting your Client

• When completing the application – dependant on if they are an existing client or new
• Exisiting client – application  = assess information you have, evaluate new info, update existing information.
• New client – application = full questionnaire, gather information, assess needs, assist client with completing the application

Understanding the Insurer’s Role    Why Insurer > accepts/declines risk, needs information, is better than another?
           
UNDERWRITING    Use application, and the insured’s authorization, for independent verification:

1. Applicant > legally resonsible for complete and accurate facts about risk.
2. Underwriter > Accepts – meets U/W guidelines, with conditions or limits / Rejects.
3. Further U/W Analysis > need more data / class not written / needs more investigation.
4. Broker Duty Met > risk meets guidelines and insurer willing to accept = business placed.

           
MODIFYING POLICY TERMS AND CONDITIONS    Used if risk of loss is higher than average:

1. Surcharge > auto – % added to premium if at-fault claims / convictions / young drivers.
2. Limitations > property – deficiencies in older home = standard v. comprehensive policy.
3. Deductibles > small losses (glass repair) over short period = high deductible / exclusion.