Chapter 5 - Broker-Insurance Company Regulations Flashcards
3 items regarding authority within a brokerage agreement.
- Limits for each type of risk.
- Types of risks permitted to be bound.
- Risks not permitted to be bound.
Disadvantages of direct billing
- Lack of control over prep/maintenance of policies.
- Loss of personal contact with clients.
- Inaccessibility to insurance company records.
- Mistakes in policy issuance.
- Brokerage deprived of use of premiums.
2 reasons insurance company may wish to terminate brokerage agreement.
- Lack of sales.
2. Producing poor book of business.
Hold harmless
Holds brokerage harmless against all civil liability
-Covers attorney fees, and cost of investigation/defense.
Elements to consider when negotiating profit sharing agreement.
- How much business is the brokerage required to write in what line by what time?
- Lines of business included/excluded.
- How insurance company income computed.
- How losses are defined.
- How profit is calculated.
- When profit sharing is paid to brokerage.
4 important aspects when considering an insurance company’s marketing philosophy and practices.
- Type of insurance product.
- is it compatible? - Volumes of business.
- brokerage must produce the volumes to be worthwhile. - Consistency and stability.
- inconsistency with the insurance company can be detrimental to brokerage relationship with client. - Compensation.
- commission
- profit sharing
- rewards
3 components of compensation
- Commissions.
- Profit sharing agreements.
- Rewards.
3 Policyholder services to consider.
- Procedural matters.
- How easy is it to conduct business. - Support services.
- Risk Management is important part of service provided. - Technology.
- Improves efficiency.
Procedural Matters of insurance company to consider.
- Availability of premium financing plans.
- Length of time to receive a quote.
- Length of time to receive policy.
- How far ahead of expiration are renewals sent.
- Turnaround time.
What does PACICC (Property and Casualty Insurance Compensation Corporation) do?
- Protects policy holders in the event insurance companies become insolvent.
- Pays out covered claims up to $250,000 per claim.
- Pays unearned premium up to 70% or $700.
- Industry funded.
- Contributions depend on amount of business written.
- Automatic coverage.
Underwriting procedures to examine.
- Location of underwriting decisions.
- Underwriting guidelines.
- Rate levels.
- Competence and continuity of staff.
4 areas to consider when trying to decide how many companies a brokerage should represent
- There is no magic number.
1. Types of clients.
2. Needs of clients.
3. Total volume of business handled.
4. Services and rates provided.
Advantages of direct billing.
- Collection costs are reduced.
- Eliminates having to bill client, collect premium, and remit to insurance company.
Why would an insurance company terminate a brokerage agreement?
- Lack of sales.
- Poor book of business.
- Agreement commonly states a notice period of termination, ~90-180 days.
Claims services
- How the claim is handled will define insurance company and brokerage reputation.
- Other than purchasing, this is the only time the client interacts with brokerage.
- Insurance companies constantly try to reduce claims costs.
- Broker should monitor all claims to ensure that the client is satisfied with the service.
How can technology benefit the brokerage and the insurance company?
- Reduce administrative duties.
- Define client relationships.
- Improve efficiency.
- Increase profitability.
What does it mean to be insolvent.
When an insurance company is unable to meet it’s obligations.
Underwriting procedures: What to examine regarding the location of underwriting decisions.
- Can decisions be made at branch office, or only head office?
- Where is the head office?
- Different underwriters for each line?
- Several underwriters on one account?
- Does company practice class underwriting?
Underwriting procedures: Underwriting guidelines.
- How much information is required for underwriting?
- If massive amounts are required, this may not be cost effective for the brokerage.
Underwriting procedure: Why are rate levels important to examine?
- Brokerage must determine if rates charged by insurance company are competitive.
- Must determine if there are any flexibility in rates.
- Rate negotiation is easiest in commercial insurance.
- Insurance company should not be selected based on their rates alone.
Underwriting procedures: Why is competence and continuity of staff important?
- Relationships cannot develop when underwriter turnover is high.
- No relationships develop if broker is constantly being transferred.
How many insurance companies?
- There is no magic number.
- Consumers aren’t concerned about number of insurance companies represented, as long as their needs are met.
Advantages of representing fewer insurance companies.
- Can maintain greater volumes of premium.
- Relationships are better when broker works with the same underwriter often.
Disadvantages of representing fewer insurance companies.
-If the relationship were to deteriorate, insurer became insolvent, be purchased, or withdraw from the province, brokerage is now in a tough position.
Suitability of a brokerage
- Premises
- easily accessible? - Financial Information
- premiums must be handled properly. - Type/Mix of business.
- Other insurers represented.
- Loss experience.
- severity (size of loss)
- frequency (number of losses) - Human Resources.
- staffing - Business plan.
- how does the insurance company fit into the brokerage’s plan. - E & O Claims record.
Insurance Company Relations
- Important to keep communication open between broker and insurance company.
- Frustrations arise with insurance companies when info provided is inadequate, or incorrect.
- Challenge for brokers if policy issued late or incorrectly.
Insurance companies must listen to brokerage’s concerns regarding…
- Pricing
- Compensation
- Degree of underwriting authority
- Volume/Sales requirements
- Turnaround time.
Name & Explain the 2 forms of communication channels.
- Informal channels
- golf games, lunches. - Formal channels
- newsletters, advisory councils
What are advisory councils for?
- Making decisions.
- Justify decisions already made.
What’s the problem with advisory councils?
- Involve selected brokers only.
- To alleviate, insurance companies notify all brokerages of council meeting dates.
Factors to consider when selecting an insurance company.
- Marketing philosophy and practices.
- claims services.
- Policyholder services.
- Financial Stability.
- Underwriting guidelines.
- How many insurance companies?
