Chapter 3 - Analyzing the Risk Flashcards
How do you facilitate the Risk Analysis?
- through risk management (identifying, measuring, and controlling risk)
1) Identify risk exposures - in order to provide accurate risk info to the u/w, you must first identify the insured’s exposure to risk:
i) Property risk - physical property
- refers to any material goods a client may own and would result in a financial loss to client should loss or damage occur
ii) Liability risk - refers to legal obligation
- exist where an ind. has responsibility for safety/property of another
2) assessment of the client
- factors into risk analysis
- client’s career choice, socio-economic bracket, hobbies and personal habits
BROKERS ROLE
- assist in ascertaining the likelihood of something negatively affecting client and potential financial impact that may result (then arranging ins for exposure)
- PD is fairly easy to predict amt of loss, but cost of liab events is impossible to predict
- hence you should recommend purchasing highest liab limit affordable
- once you are aware of clients exposures and disposition toward risk, you can then use risk control techniques to help prevent/reduce incidence of loss
How do you identify risk exposures?
- by looking at clients assets and factors affecting risk of loss
- consider the following 3 aspects:
i) subject matter of ins exposed to loss - house, condo, car, personal property, liability arising out of things said, done, or made
ii) perils that might give rise to loss
- insureds exposure to perils must be taken into account when determining kind of coverage that will be required
iii) estimated financial impact a loss will cause
- cost to restore damaged property
- keeping in mind special limits for certain property which would require specialized ins
- indirect losses should be considered
- all types of financial loss should be taken into account (ex - loss of use on auto)
Explain physical hazards.
- should be taken into account when assessing risk
i) physical hazard - a factor that may influence the outcome of a loss
- increases chance a peril affecting insured or makes damage resulting from peril more severe
- can usually be identified and measured and often completely removed or reduced
- examining physical hazard can give you an idea of which perils are more likely to occur
ii) moral hazard
- refers to conditions attributable to the human element
- grows out of attitudes and depends on the character f insureds and their employees
- can involve outright dishonesty, carelessness and poor management
- could lead to the occurrence of a peril
Can be split into 2 categories:
i) moral hazard
- characteristics of insured that increase probability/severity of loss
ii) morale hazard
- relates to a poor attitude on the part of the insured
ex) poor upkeep of premises, poor maintenance of equipment, “don’t care” outlook
Explain what occurs in the initial meeting with a prospective client.
1) meet in person
- their residence or place of business, or in your office
- inform client of documentation to bring to your meeting which includes:
- VIN, loss info, expiry dates, previous insurers, policy numbers and copies of previous policies
- establishes a one-on-one relationship
- gives you the opportunity to inspect premises as part of your risk assessment (residence/business)
- can then decide if clients risk matches insurers u/w guidelines
- afford opp. to secure a premium deposit (less likely for client to cancel policy)
- you should prepare by organizing any checklists, questionnaires or apps you will need to arrange ins
2) review existing policy
- if time permits review existing policy as an effective shortcut to find what kind of cov client already has
- this can reduce chance of misunderstandings and ensure there are fewer discrepancies between what client advises you, what is covered by existing policy, and what is on the app
- will allow you to discuss existing cov with client and compare it to policies you can offer
- ask about clients opinion about current cov
- ask if anything has changed since policy was first put into force
- advise of any exposures not covered by it and provide recommendations to rectify problem (improve by upselling/cross-selling)
Probing for info to determine how you can assist client will help you avoid which errors?
1) overlooking requirements
2) making faulty assumptions
3) missing exposures or coverages
Why is the investigation process so important?
- your role includes protecting insurers interests and qualifying the client fir your brokerage/insurers you represent
- you should attempt to discover clients reasons for leaving current company
i) customer service issues - record this info in file, so that anyone at your brokerage who may be dealing with this client will understand and can be responsive to clients concerns
- if prior carrier was lax, place a prominent note on file to provide swift and accurate responses to client
ii) claims issues
- may be an indication that client may have uninsured exposures
- may indicate need to explain ins or insurer practices to client
- either way, indicates the need to provide extra care and attention
iii) the client as reason
- may be less likely to volunteer info
- loss history, prior ins, pmt record are all topics that might provide indications of such a situation
iv) prior ins experience
- if prior insurer declined to renew
- could be something undesirable or quite innocent
- prior loss history may assist in your investigation
- if poor loss history coupled with insurer declining to renew, consider whether client will adversely expose either your own office/insurer
v) payment issues
- poor pmt habits can lead to friction between broker, insurer and client regardless of reason
- what client perceives as undue pressure to remit his premiums can cause bad customer relations
- insurer will be concerned that clients possible financial instabilities could lead to a moral hazard
- broker is contractually obligated to remit premium to insurer
- assume client will remit premiums promptly unless you have definite indications to the contrary
- most pmt problems can be averted by full and early disclosure of your expectations with pmts
vi) other investigations
Normally your investigation should be limited to:
- checking prior loss history databases maintained by IBC
- checking MVR maintained by prov gov
- and only if insurer has authorized you to perform this u/w function
Explain risk control.
- involved suggesting safety precautions for the identified loss exposures that can help prevent perils from occurring
- or that can help reduce the extent of loss arising from a particular peril
LOSS PREVENTION/REDUCTION
- loss prevention involves taking measures to prevent losses from occurring
- loss reduction involves minimizing the extent of damage (therefore minimizing financial consequences of losses that do occur)
EFFECTS OF RISK CONTROL
- using risk control techniques will reduce the amt of money that insurers pay in claims, which improves the financial results of the insurers and reduces insurance costs to consumers
PREVENTION REDUCES INCONVENENCE
- clients often do not consider how much trouble a peril will cause them
- some safety precautions may immediately reduce premium for client
ex) discounts may be offered for burglar alarms/snow tires - your client may then realize the benefits of decreasing their possibility of losses and decrease the cost of ins at the same time
Explain loss control/prevention.
- an informed client better appreciates brokers role in the ins process and can actively assist in the loss prevention/reduction component of risk management
- when you strive to inform and educate the public, you are helping to dispel common misconceptions about ins
- also, clients will recognize you as an info resource, which will encourage them to approach you with ins. related questions
What are some loss prevention tips regarding fire?
1) smoke alarms
- many municipals have by-laws outlning min requirement for # and placement of fire alarms/ smoke detectors
- while installation is required by law, so is maintenance (batteries/system tested regularly)
- rechargable batteries are not recommended
2) fire extinguishers
i) Type A
- is used for ordinary combustibles such as wood, paper, plastic
ii) Type B
- for flammable liquids such as gas, grease, oil paint and flammable gas
iii) Type C
- for live electrical wiring and electrical devices
- when appropriate extinguisher is not available, household grease fires can be smothered with baking soda/salt which will starve fire of oxygen
- do not use water on grease fire as it will spread flames
3) electricity
- if a fuse blows or a circuit breaker trips frequently, your client should investigate as this may signal a potential fire hazard
- fuses and breakers are rated for a certain capacity and should not be used beyond intended level
- respecting bulb wattage will help avoid accidents
- frayed wires should be replaces as they may spark and start a fire
4) lightning
- lightning protector system should be used in geographical areas where there is an increased incidence of lightning storms
- this system is made up of 3 parts:
i) an air terminal
- elevated rod affixed to highest point of building
ii) a ground terminal
- metal plate in contact with earth or underground water main
iii) metal rod conductor system
- that connects the air and ground terminals
5) flammable materials
- fuels, solvents, cleaning products should be stored in approved, correctly marked containers
- gas should be stored in a container that will tolerate pressure of expansion as temp changes
- all fuels well away from heat source
- oily rags sealed in metal containers or safely disposed of
6) heating and cooking
- ensure all cooking devices are turned off when not in use
- when frying with oil, use a temp-controlled appliance equipped with a lid
- keep curtains and towels well away from gas flames or hot stove
7) smoking
- careless smoking is leading cause of dwelling fires
- deep ashtrays
- may provide credit for non-smokers
What are some loss prevention tips regarding security?
ADDED SECURITY RISK
- assess level of security of a prop against theft will help identify weak areas (cops may be able to provide service)
1) points of entry
- (door & window protection)
- quality exterior doors, reinforced frames and properly installed locks with deadbolts
- windows with latches, pins, burlgar-resitant glazing and burglar bars
- check to see if patio doors are secured to resist being lifted out of the tracks
2) landscaping and lighting
- bushes and trees may be used as an effective screen allowing burglars to work undetected
- additional exterior lighting (motion sensor)
3) property maintenance
- how often and long prop is left vacant/unoccupied
- have someone perform regular prop maintenance during absense (if it looks unkempt, thieves will realize its unsupervised)
- have someone enter dwelling regularly ro confirm interior conditions
4) records
- keep written records, photos, video to document valuables owned, or a detailed inventory
5) crime prevention programs
- neighbourhood watch helps prevent criminals from targeting a home
Burglary vs. theft.
Burglary
- is defined as the unlawful taking of insured prop from within the premises by a person unlawfully entering or leaving the premises as evidenced by marks of forcible entry or exit
Theft
- much broader term
- the taking of prop without owners consent
Vacant vs. unoccupied.
Vacant
- has historically meant that the house is devoid of contents and people
Unoccupied
- has meant that the insured is absent but there is furniture in the house
note: recently policy wordings have come to use the term vacant to encompass both situations
What are some loss prevention tips regarding liability?
1) host liquor
- monitor liquor consumption
- provide non-alc beverages and snacks
- encourage guests to have DD and offer overnight accomodation/alternative transportation
2) swimming pools
- source of danger
- most municipalties have by-laws governing fencing and security required for pools
- confirm client is aware of these laws
3) pets
- can present danger
- supervision of pets will reduce probability of attacks
- post warning signs of animal presence
What are some loss prevention tips regarding autos?
1) distractions Three worst distractions while driving: - reaching for something - adjusting audio/enviro controls - eating/drinking - use of cellphones
2) weather and road conditions
- common hazards drivers face
- recommend client heed weather reports and refrain from driving under poor conditions if possible
- if they must drive regularly in poor conditions, suggest they attend a safety course
3) driving experience
- insurance companies provide discounts for attending accredited driving schools
What are the use of newsletters for?
- can contain loss control tips
- will help fulfill your role as ins advisor by alerting you in ways in which your client can minimize exposure to loss
- some may adapt info to a newsletter or pamphlet format
- can discuss current ins issues and incorporate themed loss prevention and safety tips
- they try to anticipate areas that might be controversial and provide positive analysis on those issues
