Ch 6 Flashcards
1-1: Describe how RC activities help insurers ‘Earn a Profit’?
- Improve UW decisions - provides info for acceptance/pricing
- Improve Premium Volume - move an account from marginal to acceptable
- Encourage Insureds to Improve Risk Control
- Reduce Insureds Losses
- Provide add’l Revenue Source - sell unbundled RC services, supplemental risk control services
- Reduces the Errors & Omissions on Claims
Insurer Risk Control Goals
- Earn a Profit
- Meet Customers’ Needs
- Comply with Legal Requirements
• Some states require RC service to be offered insured
• Some insurers charge a fee for anything above that service - Fulfill a Duty to Society
• Help business/individuals recover from loss
• Humanitarian and ethical benefits to society
How RC Activities Help ‘Meet Customers Needs’
- Accts become more attractive
- Control premiums
- Reduce disruption to operations
- Remain socially responsible
- Comply with Occupational Safety/Health Standards
- Comply with laws
- Improve financial performance
- Insurers who use independent gents to market their products develop relationships with potential accounts.
List RC Legislative Pressures
- Occupational Safety & Health Act
- Consumer Products Safety Act
- Comprehensive Environmental Response
- Compensation & Liability Act
- Threat of Large Liability Judgment
1-2: Describe the benefits an insurer receives by offering RC services through agents in the independent agency system.
- Enhances the relationship with producers staff, and the customers of the independent agency.
- Increases its own market share as well as that of the other agency
- Attracts and retains higher quality accts
- Helps agency and its customers accomplish their goals
Benefits for Physical Surveys to Insured & Underwriters
- UW provides better understanding of LE insured
- Insured gains better understanding of LE insured
- Insured is more confident of recovery post loss; decrease in chance of a coinsurance penalty
2-1: Types of RC Services
- Conduct Physical Surveys
- Collect UW info on LE
- Observe Mgmt commitment to RC & Employee attitudes Re: Safety
- Written recommendations to eliminate/control LE - Perform Risk Analysis & Improvement
- Review loss histories (risk analysis); write recommendations (improvements)
- Rep provides training, info, an counseling to insured
- insurers provide technical info to Insureds
- some risk control departments enter into service contracts to test/maintain fire protection systems
- risk control may also look for assistance when building a new structure. Risk control rep can help them save money and meet underwriting guidelines. - Develop safety management programs
- Review insurance operations
- Helps insured establish risk control goals; select measures; organize resources to implement the measures; establish procedures to monitor the program.
- Insured implements the program, without direct assistance from risk control rep.
- Monitor the program
2-2: Factors Affecting Service Levels
. Line of Insurance
• PL doesn’t’ offer extensive RC services
• Reps are trained/specialized for high-valued property
2. Commercial Insured Size
• Large premiums = economically feasible to provide RC service
• Add’l service is optional w/ fee
3. Type of LE Insured
• Large/complex = need for skilled personnel/equipment
4. Potential Legal Liability
• Threat of being named leads some insurers to not offer service
• Some states protect insurer from liability
• UW requires certain RC as part of quote/ ins. Agreement
Principal Opportunities for RC Cooperation between Departments
- Underwriting
• RC Inspection reports are useful to UW
• RC provides tech support “
• Rehab accts from marginal to acceptable - Marketing & Sales
- Premium auditing
• Auditors visit at the end of policy period / RC at beginning
• Improves documentation and accuracy of RC - Claims
- Producers
3-1: Explain how the RC function provides info to UW that enables them to make better decisions • I
nspection reports provide a clear profile of an applicant’s LE and hazards
• Technical assistance to UW by examining ops/hazards
• Main communication link between insurer and insured
3-2: Principal Opportunities for RC Cooperation between RC & ‘Marketing & Sales’
- Helps move application into the acceptable range - a sales goal
- Shows that ins. co. understands business ops and hazards
- Plays a role in the retention of insured
- RC reps can learn that serves the insured needs or wants
3-3: How can RC visit to the insured at the beginning of a policy period assist a premium auditor
- HELP IMPROVE DOCUMENTATION
- PA visits at end of policy period - deficiency and misunderstandings occur before the end of the policy. The RC rep can improve documentation.
How RC Cooperation helps ‘Claims’ Department
- Claims relies on RC for loss exposure data and background
- Info re: individual WC accidents
- RC has expertise needed in areas claims may be unfamiliar (engineering, mechanical, technological)
- Support claims function by reviewing and emphasizing the importance of thorough loss documentation and proper claim reporting procedurs
Term: Premium Audit
Methodical examination of PH operations, records and books to determine the actual exposure units and premium for insurance coverage.
4-1: Primary Reasons of Audits
- Determine correct premiums
- Collect ratemaking data
- Meeting regulatory requirements
- Deter/Detect Fraud
- Reinforce Confidence of Insured
- Obtain additional info
Term: Exposure Unit
Unit of measure (area, gross, receipts, payroll) used to determine an insurance policy premium
4-2: How does the premium auditing contribute data to the rate making process
Without premium audits, volume and total insured LE cannot be determined w/ certainty.
Primary Reasons of Audits: Determine Correct Premium
• Primary reason for audit
o Appropriate premium=profitability
o Overcharge = loss of business
• Calculations are done at the end of the policy when the exposure units are availability
• Determine the premium base and actual earned premium
• provide with accurate information to determine whether the renewal premium estimate is in line with the audited exposures
Term: Total Loss Costs
The portion of the rate that covers projected claim payments and loss adjusting expenses.
4-3: How does the premium auditing reinforce confidence of insured?
Insureds who observe the audit process will realize that they are being treated according to uniform and equitable standards. A good auditor will explain the process. This leaves a good impression.
Stages of the Premium Auditing Process
- Planning
- Reviewing Operations
- Determining Employment Relationship
- Finding & Evaluation Books/Records
- Auditing Books/Records
- Analyze Premium Related Data
- Report Findings
Premium Auditing Stage: Planning
- Voluntary reports (PH Report) - completed by PH. Insurer chooses to accept; perform 2-yr audit; or immediate field audit.
- Field Audits (physical audit) - examine books and determine… o Anticipate classification
o Approach
o Records to use
o Records location
o Who to contact
o Which questions to ask