Chapter 4 - New Business Flashcards
What is the difference between a broker and agent?
Broker would work with multiple companies while an agent would work with one company, either independent or as a direct writer
What are the four obligations that agents and brokers are generally responsible for?
- Make inquiries into nature of the risks to be insured
- Communicate the info assembled to the insurer
- Liaise between insurer and insured
- Respect the terms of any contract made with insurer
Define producer
A general term used to identify a broker or agent who is licensed to sell insurance
What three reasons might a producer seek to reduce insurance fraud?
- Leads to unacceptably high loss ratios
- Cause loss of premium income
- Tarnish their image and reputation
What are the five basic functions of selling insurance?
- Getting to know the client
- Determining the insurance needs
- Giving advice on insurance protection
- Obtaining instructions from the client
- Providing quotes on insurance policies to the client
What are the three basic functions of a broker?
- Negotiating coverage with insurers
- Should a claim occur, facilitate the claim process
- Choosing the right insurer for the client’s needs
What three things does the RIBO Act indicate registered insurance brokers must do?
- Pass the applicable exams
- Be otherwise qualified under this act
- Have received a certificate to this effect
What are the three general areas to be considered when evaluating new customers?
- Business practices
- Professional standards/interpersonal skills
- Being aware of how frauds occur
What three strategies can be applied when dealing with new customers?
1) Adopt business practices to develop effective work processes and develop/maintain technical competencies
2) Develop/maintain professional standards of conduct
3) Identify factors that characterize those who are committing fraud, a checklist of red flags
What can be established by a broker meeting with a potential client?
- Applicant’s requirements in detail
- Gain knowledge of applicant’s background
- Explain why certain info is required
- Explain that misinformation/omissions can jeopardize coverage
- Evaluate physical hazards
- Build rapport
What common questions appear on an application?
- Where does the applicant live?
- Why is there only a PO Box address?
- Any address changes recently? Why?
- Why is there no phone?
- Is the applicant unable to get a phone?
- Why does the applicant not have a drivers license?
- Who is the principle driver?
- Are there any underage drivers who can be POs?
Why may a specialized niche market be better equipped to handle insurance fraud?
- Properly underwrite certain high risk insureds
- Make the best recommendations
- Impose the right conditions
- Provide the right type of policy contract
Define moral hazard
Refers to character, business dealings and financial condition of a potential insured
Define morale hazard
Refers to attitude toward their own belongings, could no longer care because items are now insured
What are some examples of financial documents that may be reviewed?
- Business credit info
- Financial statements
- Payment records
- Public filings: law suits, liens, judgments and similar events
- Historical info: on owners, current management and the company
- Receiverships or fines
Define binder
A written or oral agreement given by an insurer to insure a risk, pending the issuance of a formal policy. A binder is deemed to be the policy and must be cancelled in the same manner
What authority does a broker or agent have with binders?
They may have authority to issue a binder; subject to a dollar or time limit (usually 30 days) while the broker arranges permanent coverage
During this time, the insurer may not have the opportunity to review the entire risk
Why may inspections be useful in preventing fraud?
They can verify the information in the application
Define phantom vehicle
A vehicle that does not exist or is already wrecked
What are four common types of automobile fraud?
- Phantom vehicles
- Non existent equipment and accessories
- Preexisting damage, salvage schemes
- Import/export frauds
What are three considerations for premium?
1) Did the insured make a cash payment for the minimum amount required?
2) Did the applicant appear to be unconcerned about the cost of insurance?
3) Was the premium payment late?
What are four reasons we may utilize appraisals to schedule items?
- Expensive to replace
- Subject to low limits of insurance
- Insured for limited perils
- Completely excluded
What three basic facts must be established to insure an item?
The item:
- Exists
- Has been fairly/accurately valued
- Belongs to the insured
Define hallmark
An official mark present on jewellery. It is a mark of assurance and provides a clear indication of the quality of metal, having been tested at one of the country’s assay offices
Define named peril policy
A policy which the perils insured against are listed
Define all risk policy
A policy which covers each and every loss except those that are excluded
Define replacement cost coverage
A provision generally in property insurance to provide a substitute of the damaged or loss property with something similiar
Define actual cash value
The fair market value of property, taking into account factors that might augment or reduce the value
Define market value
The current selling prices for comparable items in the same area
Define valued policy
A policy that provides a special amount shall be paid in the event of the total loss of the property
Define floater policy
Additional coverage for moveable items, like jewellery or antiques, beyond what’s included in the basic homeowners. Also called a “rider” or “endorsement
What is the usage of a wreckage value endorsement?
The cost of repairs or replacement would be covered as long as work is completed within 12 months of the loss, on the same site with like kind/quality materials and for same type of occupancy
List some background red flags
- Has no prior carrier
- Is new to the broker
- Is new to the area
- Is “walk in” business
- Not known to anyone at the brokerage, agency or insurer’s office
- Asks too many questions about claims
- Is very knowledgeable about insurance terms or procedures
List some contact pattern red flags
- Is never available to meet; only by telephone
- Comes in at noon, at end of day or on Friday when staff might be rushed
- Is in a hurry to complete the application/interview
- Has never been insured before
List some application red flags
- Does not live or work nearby
- Has an address that is not consistent w/ employment or income
- Records a post office box number as an address
- Lived at the stated address for less than 6 months
- Only has a cell number
- Does not have drivers license or other ID
- Requires high limits of coverage not consistent with income or lifestyle
List some financial red flags
- Deeply in debt
- Trend of decreasing sales
- Trend of decreasing profits
- Prior bankruptcy
List some property inspection red flags
- Housekeeping and cleanliness
- Storage and disposal of waste
- Storage of combustible material
- Obstructions on staircases and corridors
- Security systems
- Business operating from a home
List some location red flags
- Has newer more attractive retail space available
- Isolated
- Not located close to a fire station
- Served by volunteer / part time fire dept
List some business operation red flags
- Less than fully active
- Seasonal operations
- Areas that are open to traffic but should be closed to public
- High rate of turnover
- Involved in employee disputes over working conditions
List some appraiser red flags
- Signed by an appraiser?
- Is letterhead as expected?
- Qualifications mentioned?
- Positive statement regarding conflict of interest?
List some appraisal red flags
- Fee was calculated base on valuation amount
- Limiting conditions and basic assumptions not stated
- Appraiser did not physically view or inspect
- Valuation procedure not described
- Valuation method is not stated (rc, acv, etc)
- Effective date not stated
- Purpose of statement not stated
List some automobile red flags
- Income not compatible with value of vehicle
- Not owned vehicle for significant amount of time
- Age of applicant suggests prior ownership of vehicle
- No previous insurance carrier/proof of coverage
- Full coverage on older vehicle
- No lien on expensive vehicle
- Older vehicle with no reported damage
