Chapter 4 - Insurance Process Flashcards
State the role of the broker in the insurance process.
To serve as an intermediary between client and insurer
State the primary duty owed by brokers to clients.
The brokers primary duty to the client is to ensure they receive the right insurance advice and coverage. The law requires that insurance brokers exercise “reasonable skill, care & diligence” in their affairs.
State the primary duty owed by brokers to insurers.
Insurers have the right to expect that brokers will:
1. Tell the truth about the risks they submit; and
2. Will not withhold important information
Identify the most common cause of errors and omissions claims.
Inadequate coverage coverage is the most common cause of E&O, accounts for 50% of all E&O.
Examples:
1. Failure to advise clients of exclusions.
2. Failure to place coverage or placing it too late.
3.Providing the incorrect coverage
4. Incorrect advice as to availability of coverages
Who are underwriters?
Underwriters are employees of the insurance companies. They are not involved in selling insurance directly to consumers & are not required to be licensed.
State the primary role of an underwriter.
The primary role of an underwriter is to select those risks likely to be most profitable for the insurer.
Identify three sources of information used by underwriters when making a decision regarding the suitability of a risk.
- The application
- The broker
- Loss experience data
- Inspection reports
Define “Physical Hazard” & provide an example.
Conditions relating to the premises which may cause a peril to occur.
I.e.:
- Type of building construction
- The use or occupancy of the property
- Housekeeping (the general state of the premises)
Define “Moral Hazard” & provide an example.
Moral hazards are subjective characteristics of the applicant that could cause a peril to occur.
Conditions indicating the presence of moral hazard include:
- Financial condition
- Moral character
- Indifference to loss
When a loss occurs, insureds expect prompt, efficient handling of their claim. Identify the two steps normally taken when a loss occurs.
- Insured reports claim to brokerage.
- Brokerage reports claim to Insurer.
Explain the difference between “company” adjusters & “independent” adjusters. Two ways claims usually adjusted.
- Most insurance companies have their own staff adjusters who handle the bulk of their claim settlements.
- When staff adjusters are not available, or if the loss adjustment requires a specific expertise, the insurance company may contract the services of an independent adjustment firm. Sometimes , insurers will allow the brokerage to appoint independent adjusters on their behalf.
Role of direct writers.
To serve as the intermediary between the client and the insurer.
Direct Writers are insurance companies that sell their own insurance products, and only their own insurance products.
Role of agents.
To serve as the intermediary between the client and the insurer.
Insurance agents work with only one insurance company. They are basically a reseller of that company’s insurance products, and no others.
Agents represent client’s interests.
Role of brokers.
The broker’s primary duty is to ensure that clients receive the right insurance advice and coverages.
The law requires that insurance brokers exercise reasonable skill, care & diligence in their affairs.
What underwriters do - rating and rate making
Most insurers have developed special policies for smaller businesses. The application for these policies includes a rating sheet which can be easily completed by the broker.
On the more complex commercial risks, all rating is done by the underwriter.
