Chapter 5

Question 1

What are the common sections of a broker contract?

Answer 1

Binding Authority
Ownership of Expirations
Commissions
Billing Procedures
Hold Harmless Agreements
Termination
Privacy Act
EDI Provisions

Question 2

Explain what items would be included under the “Binding Authority” section of a broker contract.

Answer 2

Guidelines regarding the types of risks permitted to be bound and the limits for each type. May include restrictions to certain products or classes.

Question 3

Explain what items would be included under the “Ownership of Expirations” section of a broker contract.

Answer 3

Who will retain the client if the agreement is dissolved. May outline when the insurance company may contact the brokers client directly.

Question 4

Explain what items would be included under the “Commissions” section of a broker contract.

Answer 4

Commission rates per product/line of business. May include incentives for moving a book of business.

Question 5

Explain what items would be included under the “Billing Procedures” section of a broker contract.

Answer 5

Agency Bill - Brokerage bills client and remits premium less commission to the insurance company.
Direct Bill - Insurance company bills client directly and remits commissions to the broker.

Question 6

Explain what items would be included under the “Hold Harmless Agreements” section of a broker contract.

Answer 6

Protect brokerage from the acts of the insurance company; failure of insured to receive notice of cancellation, failure to follow procedure, error or omission in direct bill process.

Question 7

Explain what items would be included under the “Termination” section of a broker contract.

Answer 7

Insurance company may cancel for a poor book or lack of sales, brokerage will need reassurance they will not be cancelled unfairly. May outline what will be paid to the brokerage for business that is retained by the company when the broker cannot place elsewhere.

Question 8

Explain what items would be included under the “Privacy Act” section of a broker contract.

Answer 8

Personal Information Protection and Electronic Documents Act (PIPEDA). Contract should outline that both parties agree to comply with privacy laws.

Question 9

Explain what items would be included under the “EDI Provisions” section of a broker contract.

Answer 9

Clearly outline who is liable for direct or indirect damages for loss of data as a result of sending insurance transactions via Electronic Data Interface.

Question 10

What is profit sharing?

Answer 10

Incentive compensation for brokerages that meet or exceed established criteria.

Question 11

What are six considerations when selecting a market?

Answer 11

Marketing Philosophy & Practices 
Claims Service
Policyholder Services
Financial Stability
Underwriting Procedures
How Many Insurance Companies?

Question 12

What are the four ways to assess marketing philosophy & practices?

Answer 12

Type of Insurance Product: Must address the needs of the broker.
Volume of Business: Volume thresholds must be met.
Consistency & Stability: Consistency in acceptance of risk and premium levels must be considered.
Compensation: Commissions, Profit Sharing, Rewards

Question 13

Why is claims service an important consideration when assessing an insurers marketing philosophy & practices?

Answer 13

The only time a client interacts with the insurance company is during a claim. The handling of a claim can turn an unpleasant and emotional time for the client into a less stressful situation. Obtain information from the company itself, other industry contacts, or previous claimants.

Question 14

Why are policy holder services an important consideration when assessing an insurers marketing philosophy & practices?

Answer 14

Procedural Matters - Availability of premium finance options, length of time to obtain a quote, time to get a policy issued, how far ahead of expiration date renewals are issued, turnaround on policy changes.
Support Services - Risk management services, inspection costs.
Technology - Paperless policy documents, EDI, payment options. May lead to reduced administrative duties & increased profitability.

Question 15

Why is financial stability an important consideration when assessing an insurers marketing philosophy & practices?

Answer 15

Premiums must be properly handled and claims paid in accordance with the insurance contract. The PACICC plan (Property and Casualty Insurance Compensation Corporation, makes sure that in the case of insolvency, there is some funds set aside for the claimant. Any overages may be held against the brokerage to pay.

Question 16

Why are underwriting procedures an important consideration when assessing an insurers marketing philosophy & practices?

Answer 16

Location - Are submissions sent to a local branch, or are they referred to head office (slowing down the process), do multiple underwriters have to be consulted on one account?
Guidelines - Application forms and guidelines for classes written should be reviewed to determine the extent of information required for new & renewal business.
Rate Levels - Must be competitive with the marketplace. Is there any opportunity to negotiate?
Competence & Continuity - Building trust and effective relationships cannot be done when turnover is high or personnel are frequently transfered.

Question 17

How many insurance companies should you represent?

Answer 17

No right number. If too much business is placed with one insurer, the brokerage may be vulnerable if the relationship with the insurer deteriorates. If not enough is placed, the insurer may withdraw due to low premium volumes.

Question 18

List eight ways to attract an insurance company.

Answer 18

Premises
Financial Information
Product Type & Mix of Business
Other Insurers Represented
Loss Experience
Human Resources
Business Plan
Errors & Omissions Claims Record

Question 19

Why would a location attract or dissuade an insurer from beginning a relationship?

Answer 19

Location (urban/rural) will attract different types of insurers. The impression created by the interior will be important (neat & organized).
Example an office located in a high rise downtown in a large city may not be attractive to a company who specializes in farm insurance.

Question 20

Why would financial information attract or dissuade an insurer from beginning a relationship?

Answer 20

Insurance companies expect that premiums will be handled properly. The look to brokerages with a profitable history. Collection practices will be examined.

Question 21

Why would a brokerages product type & mix attract or dissuade an insurer from beginning a relationship?

Answer 21

If the brokerage consists of mostly business not written by the insurer, there will be little benefit in establishing a relationship with the brokerage.

Question 22

Why would other insurers represented attract or dissuade an insurer from beginning a relationship?

Answer 22

If the other insurers represented by the broker are too similar, the competition between them may be counter productive. Too many insurers mean they may not be able to maintain the premium volume required.

Question 23

Why would a loss experience attract or dissuade an insurer from beginning a relationship?

Answer 23

Company will request loss experience by insurer and line of business. High loss ratios resulting from one significant loss may be acceptable, however when they are a result of a series of small losses, poor screening or underwriting practices of the producer may be to blame.

Question 24

Why would a human resources attract or dissuade an insurer from beginning a relationship?

Answer 24

The company will want to know the background of key personnel, including professional designations, education, and work experience.

Question 25

Why would a business plan attract or dissuade an insurer from beginning a relationship?

Answer 25

The insurer may expect that a predetermined amount of business be placed with them each year. The plan should indicate where the brokerage plans to grow, and time frames when these goals should be achieved.

Question 26

Why would an errors & omissions record attract or dissuade an insurer from beginning a relationship?

Answer 26

E&O coverage is a requirement. A poor history can raise concerns about the brokerage and the employees within it.

Question 27

Identify the channels of communication between broker & insurer

Answer 27

Informal Channels - Lunches, golf games, cocktail parties, open houses.
Formal Channels - Newsletters, bulletins, personal visits, advisory councils.