Chapter 4 - Applying for Insurance Flashcards
Explain the application process.
- an app is a request for insurance that introduces the applicant to the insurer
- it also identifies your brokerage as the broker of record
THE APP PROCESS
- prospective insured knows more than you and insurer about his/her risks and exposures to loss
- you gather and record sufficient info to develop understanding of risks/exposures
- this enables you to recommend appropriate policies tailored to meet clients needs
- also enables you to provide u/w with facts to assess risk and calculate premium
- this process may require multiple forms including forms for introductory client profile and actual cov apps
- to select appropriate forms, broker requires knowledge of all questions included in each app for used
- comm skills are key to app process
- your ability to put client at ease and to assist them in recalling all necessary details is a vital skill
- ask questions (the 5 W’s - who, what, where, why, when)
What is the duty of disclosure?
- fundamental to principle of UGF that underlies all ins transactions
- misrep can have serious consequences
- can cause losses to be denied or insurance policy to be voided
Misrep vs. representation.
Misrep - is giving false info to an underwriter knowing it is false (telling a lie)
Rep - is a factual statement about the risk, either express or implied, that needs to be communicated to the u/w so that the risk may be properly assessed
- a failure to disclose a fact that seemed unimportant at the time of applying for ins could turn out to be a serious breach of this condition following a loss
Who is an applicant?
1) someone who has no coverage at all
2) someone who is looking for an alternative quote for whatever policy is currently expiring
3) someone who wants to evaluate the services provided by another broker because they are not satisfied with their present broker
Explain the 2 kinds of apps.
1) oral app
- when you and client discuss ins needs other the phone or in person, and you document convo in signed, dated notes
- note taking becomes critical in this process as your notes are only record of transaction
To minimize misunderstandings at a later date:
1) retain and organize your notes
2) identify which client and/or policy they belong to
3) sign and date notes
4) file them appropriately
5) follow them up with written confirmation to client and insurer
2) written app
- can be invaluable as source of evidence
- provided accurate documentation of what was requested
- indicates intentions of parties at the time of app
- signature attests to accuracy of info
- reduces risk risk of info being overlooked
- mains resource for app forms is the CSIO
- can get these forms from their website or they can be ordered in paper format
- there are many diff apps in use
- brokers will use an app they are familiar with and that they have found beneficial in the past or forms that are specific to cov required
- it is a brokers duty to advise insurer of all info material to risk
- any failure to fulfill this duty could result in being deemed liab for any losses that might occur
- so be sure app is completed fully and clearly
What is CSIO?
- centre for study of insurance operations
- national asso of prop and casualty insurers and independent ins brokers
- working together to achieve electronic business solutions for insurance industry
What are the benefits of a written app?
- allows you to be consistent in how you obtain relevant info about risk to be insured
- will more likely be consistent in questions you ask, and less likely to overlook pertinent info
- serves as a checklist for you to follow while asking questions
- prompts you to consider coverages not commonly sold
Other advantages:
1) you record info only once, eliminating tisk of making errors while transcribing info
2) lessens risk of overlooking necessary info
3) reduces delay and improves customer service
4) you have doc for those cases where the law requires it as part of the policy - both auto & life apps must be in writing and be signed by applicant
- life actually forms part of the policy
5) you have doc where the insurer requires one - even though the law does not insist on written app for coverages such as bonds, valued covers, personal floaters, liab ins
What are the 7 app questions discussed in this study?
1) named insured
2) policy term
3) subject of insurance
4) loss payees
5) loss history
6) prior insurance
7) brokers report
Describe named insured.
- this person must have insurable interest
- an insured can be a lone applicant or two or more ppl, or an individual group or group of inds operating as a business
POLICY DEFINITION
- policy definition will also affect whom you name as insured
- the definition “persons insured” can be far more extensive than just the ind/company shown as named insured
- check the wording to determine who is included
LEGAL ENTITY - insured must be a legal person
- since an ins policy is a legal contract, the entity named as insured is required to be a legal entity (someone to be considered a person under the law), otherwise there is no contract. This includes:
1) an ind
2) a group of inds
3) an incorporated business (usually ltd or inc)
4) any of the above operating as a business ( leah cassidy o/a leah loves cats) - trade names are not legal entities unless registered as a ltd company
- other names to check include non-profit clubs, church groups, sports teams
UNDERWRITING CONSIDERATIONS
- if applicant seeking home ins reveals that the names insured is a ltd company, question what the dwelling will be used for
- intended use of dwelling may affect terms and conditions of coverage available
- obtain mailing address, email, contact phone number
Describe the policy term.
- the effective and expiry dates of a policy define its term
- in general practice, policy expiry date is usually predetermined by insurer and is usually 6 or 12 months after effective date
- if date client wants ins is too far in advance, you should record basic details of risk in abeyance this file
- if eff date client wants has already passed, further investigation will be needed to uncover why the client wants cov for a period that has already elapsed
- could be caused by contractual obligations such transfer of title deed by sale or indicative of fraud
- client could be trying to obtain cov for loss that has already occurred
Describe subject matter of insurance.
- thing that is being insured
1) property - something tangible
- you will need to know:
1) what it is
2) where it is (location)
3) what it is used for (dwelling,business)
4) what amount it is valued at
2) liability
- something intangible
- client is insuring his/her legal responsibility for damages araising out of BI or PD to others
- can be responsible for what client owns, does, says, or makes
3) auto
- something tangible and intangible
- vehicle is tangible & liability is intangible
- info required is:
1) description of vehicle
2) what it will be used for
3) where it is used
4) who uses it
- depending on what you are insuring, consider the limit of ins required
- you can assist client in determining appropriate amt of ins, but final decision is clients
Describe loss payees.
- someone other than the named insured to whom the proceeds of insurance will be paid
- loss payee has insurable interest in prop and is entitled to reimbursement if loss occurs
- any losses to prop where loss payee is shown as having interest are paid jointly to them and insured
- a mortgagee is a special class of loss payee
- they have registered interest on real prop offered as security for money that they have loaned prop owner
- mortgagees interests are protected by a separate insuring clause granting additional protection
CLIENT QUALIFICATION CONSIDERATIONS
- you use loss payee info as one more resource to qualify client
- clients who have loss payees may become an A/R problem (but is not always the case
Why do multiple loss payees concern underwriters?
1) the presence of many loss payees could indicate the insured is suffering financial hardship (could be in debt)
2) when cash flow is poor, the result could be poor/delayed maintenance and a prop that is not well cared for
3) too much debt might tempt an unscrupulous insured to alleviate his problems by staging a loss
- most insurers u/w criteria require that u/w investigate further when theres a large number of loss payees
- all u/w concerns relate to possible financial instability and moral hazards that could arise
- will usually investigate applicants financial status in more detail
Describe loss history.
- is relevant to an u/w because it provides a record of frequency and type of loss
- they analyze losses to determine risk acceptability, cov term and policy conditions to offer
- if client is loss free within last 5 years, it is best to write “none” on the app instead of nothing
- reporting period varies between ind u/w guidelines and which line of insurance
ex) auto ins - usually want 5 yrs experience as min, but others may want more - client must disclose all losses, even if loss didn’t arise in a claim
Why do you analyze a client’s loss history?
1) qualify the client
- determine whether you can or want to assist client in terms of brokerage and ins market targets
- moral hazard could be a factor
- if so, will they need a high risk market? is the brokerage able to arrange for this type of client?
2) select appropriate coverage from appropriate insurer
- offer enhanced coverage when applicable
3) determine where clients have unusual hazards and/or require loss prevention advice
- assist clients in controlling hazards
- if client has suffered a loss that could have been prevented/controlled, offer tips to prevent occurrence
4) suggest ded levels which may reduce premium charged
- in situations where u/w wants to surcharge/decline cover, you may be able to provide a better risk profile and enhance availability of cov
- with a client with unusual hazards, suggest a higher ded with a reasonable premium (opposed to just a high premium)
