C130 Chapter 5 Essential Skills for the Insurance Broker and Agent

C130 - STUDY 5 – From Quote to Policy / Page 1

Selecting Coverage

1. Risk Review > exposures and adequacy of current coverage.
2. Process > complete application / choose market / choose product.
3. Coverage Availability > type and extent based on market conditions and industry climate.
4. Market Access > Broker – shops risk to several markets v. Agent – writes for one market.

1. Match Client Needs     With appropriate coverages and insurers:

Personal Lines        1) Check U/W Guidelines – underwriting manual provided to brokerage.

            2) Analyze / Compare > insurer’s products – property policy forms.

            3) Select Policy > based on analysis of client needs / policies available.

Commercial Lines        1) Apply Product Knowledge > analyze needs / current cover adequate.

            2) Apply Insurer Knowledge > accepted classes of business / products.

            3) Consult Colleagues > opinion on most appropriate market(s).

2. Provide Quotes         Agent/broker – personal lines / Insurer – commercial lines.
3. Explain Pricing        Deductibles / Scope of Coverage – limitations and exclusions.
4. Client Choice            Accept / Modify / Reject recommendation for coverage.
5. Bind Cover            Confirm with U/W, issue binder as confirmation.

Temporary Coverage

BINDING AUTHORITY    Agent / broker capacity to confirm applicant has coverage for certain losses without first submitting application to insurer.

Broker Agreement         a) Contract > negotiated between insurer and principals of brokerage.

            b) Provides > certain, specified amount of binding authority.

            c) Controls > individual brokers and brokerage’s binding powers.

            d) Coverage > personal lines and smaller commercial lines.

            e) Degree > based on experience – liability / property value / class.

            f) Wholesale Brokers > bind only pre-arranged insurance programs.

            g) Management > advises each broker of authority and it’s limits.

Terms of Binding Authority            1) Specific to nature and scope of markets written.

2) Classes of risk / limits of insurance per class.

                    3) U/W Approval > hazardous / special U/W.

                    4) Reporting Requirements > time to notify insurer.

                    5) Fail to Meet Terms > un(der)insured loss = E&O claim.

                    6) Uncertainty > submit unbound, don’t commit until OK.

FRAUD        Agents/brokers as intermediaries play important role in fraud prevention:

1. Avoid Backdating > exposes insurer to prior losses client hasn’t disclosed.
2. Automobile > add Section C on car without visual inspection, then a claim soon occurs.
3. Warning Signs > ask to backdate / bind without proper data or review / in a hurry to bind.
4. ID Legitimate Requests > quicker binding of risk already quoted / same day purchase.

The Binder    Can be oral, but written confirmation of coverage bound is preferred.

1. Legal Status > same as the insurance policy issued.
2. Proper Documentation > invaluable to broker defending potential E & O problem.
3. Memorandum > insured / insurer advised of what is covered / terms / perils insured.
4. Cover Note > broker issues / turns into binder when insurer signs, returns to broker.
5. Temporary Cover > period (30 days) between broker request and insurer issuing policy.
6. Advantage > physical record of intent of parties – conditions / subject / limits / terms.
7. Full Details > subject of insurance and coverage terms.
8. Forms > standard template used by brokerage / insurer – auto = temporary pink card.

BINDER FORMAT     Standard = fewer discrepancies binder v. policy issued:

1) Insured > name(s) / address(es).

2) Loss Payees > name(s) / mailing address(es).

3) Term > effective / expiry dates.

4) Risk > location / type.

5) Coverage Details > limits / policy forms - numbers / riders / endorsements.

6) Clause > coverage subject to all terms, conditions (Statutory) usual to policy form.

7) Limit / Broaden > conditions / deductibles / warranties / wordings.

8) Clause > “This policy contains a clause that may limit the amount payable.”

9) Provisional Premium > subject to change = invoice correction.

10) Insurer > name(s) and address(es).

11) Binder Expires > time and date (business day) = maximum period (30 days).

12) Issuing Broker > name / address / signature.

13) Disclaimer > “Until replaced by policy documents”.

1. Cover Letter > cover arranged / recommended but client declined / premium invoice.
2. Copies > insured / insurer / brokerage / others – record where, by whom, to whom.

BINDER HANDLING PROCEDURES         Standard = more efficient tracking and follow-up:

1. Abeyance to Insurer > one week before expiry = follow-up.
2. Issue Extension > if required, with insurer’s written permission.
3. Delay > more U/W investigation / pending information from insured – appraisals.
4. Advise Insured > what is needed / when it is needed / results of not providing.
5. Abeyance to Insured > reasonable interval = follow-up for documents requested.
6. Cancel Binder > when replaced by policy = endorsement to all parties.

COMPARING THE BINDER TO THE POLICY    Check carefully for accuracy / common errors:

1. Keyboarding > contact insurer / request correction / confirm in writing / abeyance.
2. Premium Discrepancy        Send revised invoice / written explanation to insured:
1. Computer generated is slightly different.
2. Broker error in calculation.
3. Payplan charges increase deposit / monthly withdrawals.
4. Insured requested amendment to coverage (+/-).
5. Insurer re-rated for added risk not described in application = higher premium.
6. Global rate change since original quote – government increases auto rates.

3. Coverage Discrepancy        Confirm with U/W - send written explanation to insured:
1. Insurer’s standard policy wording may change – terrorism exclusion.
2. Insurer discovers greater risk than described in application – occupancy.
3. Client Declines > option of other markets that quote or advise to try elsewhere.
4. Client Accepts > no objection to written terms = accepted as issued.

The Policy    Provincial legislation regulates conditions / content / forms / interpretation.

1. Terms > must be shown in full on the policy.
2. Contra Proferentem > ambiguities are read for the insured / against the insurers (offerors).

AUTOMOBILE        1) Insurance Act = statutory forms and/or content.

2) Alberta > S.A.F. / S.P.F. / S.E.F., Statutory Conditions.

3) Options > added cover – Section C / deductibles / limits – Section A.

PROPERTY        1) Insurance Act = statutory content - perils / exclusions / conditions.
            2) Insurers > add whatever other perils they are willing to insure.
            3) “This policy contains a clause that may limit the amount payable.”
            4) Quebec > Civil Code = General Conditions / don’t have to be printed.

LIABILITY / CRIME    1) No Standard Wordings > vary considerably among insurers.
            2) Careful Comparison > reveals subtle differences in wording / coverage.
            3) Crime > insurers use IBC Commercial Crime Form / riders.
           
PARTS OF A POLICY    Familiarity with each insurer’s wording = offering best solution to client needs.

1) Declarations            a) ID Parties > names and addresses of insured / insurer.
                b) Term > effective and expiry dates – 12:01 a.m.
                c) Loss Payees / Mortgagees > names and addresses.
                d) Total Premium.
                e) Amount Insured > limits.

2) Insuring Agreements        a) Coverages Applicable.
                b) Term > if not shown in Declarations.
                c) Perils Insured > definitions / limitations.
                d) Exclusions > what is not covered = client needing other cover.
                e) Loss Payment > circumstances under which insured is paid for claim.

3) Conditions            a) Statutory / General > prescribed by Insurance Act.
                b) Define > action required of insured / insurer in certain circumstances.
                c) Failure to Comply = Breach of Contract.

    VOID        Insurer treats policy as if it never existed – denies claim.

    VOIDABLE    Insurer can affirm (pay claim) or reject (deny claim) policy at their option.

                d) Insured > may force insurer to pay claim or seek financial damages.

4) Warranties            a) Insured Promises > state of affairs will exist during term - alarm.
                b) Failure = insurer denying claim / reducing benefits.
                c) Wording > condition - failure = void v. warranty - promise to maintain.
                d) Advise Insured > actions and duties required to maintain coverage.

5) Signature Clause        a) Contract Law > signing = compliance and intent of parties.
                b) Insurer > CEO’s preprinted / countersigned by agent or broker.

DEDUCTIBLES    Amount of a loss the insured must pay.

1. Insurer > deducts specified amount from total amount of loss.
2. Insured > incentive to protect their property from damage.
3. Higher = lower premiums for insured / less risk for insurer (no small claims).
4. Appropriateness > insured - comfort in self-insuring / insurer - minimum deductible.
5. Let Client Decide > offer choices / let client choose / document choice.
6. Liability > per claim or per occurrence? applied per party? applied to defence costs?

Delivering Documents        Check for accuracy and completeness before giving to insured.

COVER LETTER    Summary of documents / elements accompanying new policy:

1. Coverage Placed > outline.
2. Restrictions > clauses / warranties and effect they have on coverage.
3. Quebec > explain all policy exclusions (Act – Distribution of $ Products and Services).
4. Coverage Unable to Obtain > if any, and proposal to rectify if possible
5. Cover Declined by Insured > repeat concerns / offer examples of benefits if obtained.
6. Client Review > check for accuracy & read wordings / advise promptly of any changes required.
7. Reminder to keep documents in a safe place.
8. Claim Procedures > what to do and whom to contact in event of a loss.
9. Thank Client > for their business.
10. Service Reminder > you are available to discuss their insurance needs or concerns.
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