Chapter 8 Flashcards
Key Term: A broker who acts as an intermediary between a retail agent or broker and an insurer, often possessing specialized expertise in a particular line of coverage.
Wholesale Broker
Key Term: An agreement that allows one party to protect another party against any future losses or claims that may result from a particular activity. Also known as an indemnity agreement
Hold-Harmless Agreement
Key Term: An insurance company that provides insurance to and is controlled by its owners
Captive Insurance Company
Key Term: An insurance company that insures only the risks of the owner and the owner’s subsidiary operations
Single-Owned (Single-Parent) Captive
Key Term: An insurance company that insures the risks of the multiple non-related organizations that own it
Group (Multi-Parent) Captive
Key Term: An insurance company owned or sponsored by a group of organizations belonging to a common industry or service that insures the risks of the group
Association Captive
Key Term: An insurance company owned by insurance agencies, brokerage, or insurers and formed to insure the risks of its owners clients
Agency Captive
Key Term: An insurance company established by organizations unrelated to the companies that use the captive and made available for a fee.
Rent-A-Captive
Key Term: A means of insurance whereby each subscriber appoints a central underwriter as attorney-in-fact to share insurance costs with other insureds in the same group
Reciprocal Insurance Exchange
Key Term: To cede a part of a risk to another insurer or reinsurer.
Retrocede (Retrocession)
List items that are included in a business continuity plan.
Risks to continuity: This includes threats to employees, business processes, equipment and suppliers, facilities and technology infrastructure, and documents and data
Loss analysis: Analysis of maximum probable and maximum possible losses
Risk management: Plans to safeguard operations
How to test risk management: Strategies to test risk management plans
Plan review timelines: Agreed timelines to review and update business continuity plans
Describe FIVE (5) types of captive insurance companies.
Single-owner (single-parent) captives: Insure only the risks of the owner or the owner’s subsidiary operations; captives of this sort are also known as pure captives
Group (multi-parent) captives: Insure the risks of the group of companies (usually operating similar businesses) that own them
Association captives: Group captives that are sponsored by an association; many organizations consider the opportunity to obtain insurance through an association captive as one of the benefits of being a member of the association
Agency captives: Owned by insurance brokerages or agencies and formed to insure the risks of the clients of insurance agencies and brokerages
Rent-a-captives: Established by organizations unrelated to the companies that use the captives; these organizations make their captives available for a fee to allow other organizations to enjoy the benefits of insuring their risks through captives without having to spend the time or money it would take them to establish their own captives
Identify some circumstances when a brokerage may approach a wholesaler.
Placing insurance for substandard risks (such as a boarding house)
Placing insurance when there is US exposure
Placing insurance when there are unusual exposures to be insured (such as vacant buildings, transportation of hazardous chemicals, or professional liability)
Placing insurance when they require additional capacity over and above that provided by their regular markets
Application Question
Terry is the owner of a small brokerage in the middle of an expansion. They have an excellent word-of-mouth reputation and many prospective referrals to reach out to. Terry has added two more experienced sales brokers to their staff, but they are also looking to expand their brokerage’s stable of insurers. Terry has set up interviews with three different insurers and is now preparing to discuss business with them.
Question 1
Why is it important to have a good match between insurer and broker?
Underwriter knowledge of business increases: Underwriters understand the type of business being written.
Underwriter ability to accommodate increases: Underwriters are better able to accommodate brokers’ requests.
Power to negotiate premiums and coverages: The brokerage can use its relationship with the insurer to negotiate lower premiums and/or broader coverage to compete where needed.
Enhanced communication: There is open communication between underwriters and brokers.
Long-term relationship potential: Both insurer and brokerage work toward a trusting, long-term, mutually profitable relationship.
Application Question
Terry is the owner of a small brokerage in the middle of an expansion. They have an excellent word-of-mouth reputation and many prospective referrals to reach out to. Terry has added two more experienced sales brokers to their staff, but they are also looking to expand their brokerage’s stable of insurers. Terry has set up interviews with three different insurers and is now preparing to discuss business with them.
What criteria might Terry look at when analyzing an insurer?
Reputation and solvency
- Underwriting rules and flexibility: The lines or type of business written, product offering, pricing/competitiveness; uniqueness to the industry or the brokerage; filling a gap within the brokerage’s markets
- Technological and digital capabilities: Online interactions: how easy is it to use the insurer’s portal, upload data to the insurer, and report claims online?
- Insurer business model impacts: Does the insurer own a direct-writing company? Is it committed to the broker force? How does the direct-writing business affect the brokerage? Is it effectively creating its own competition?
Claims service - Involvement in brokerage research and development: To what degree is the insurer willing to share anonymized market data? Is the insurer willing to collaborate with the brokerage as either party develops and tests new technology?
Application Question
Terry is the owner of a small brokerage in the middle of an expansion. They have an excellent word-of-mouth reputation and many prospective referrals to reach out to. Terry has added two more experienced sales brokers to their staff, but they are also looking to expand their brokerage’s stable of insurers. Terry has set up interviews with three different insurers and is now preparing to discuss business with them.
What are some questions Terry can ask to gain information about the quality of the prospective insurer’s claims service?
How quickly does the insurer respond to first notices of claim?
Are adjusters and other claims staff empathetic with claimants?
Does the insurer use staff or independent adjusters?
Does it use drive-in claim facilities and material damage estimators to save the insured the inconvenience of obtaining bids?
Are the claim offices nearby and easily accessible to the insured? Is there online service with easy access for the insured?
What is the insurer’s reputation for settling first-party and third-party claims?
Does the brokerage have the right to assign a loss to an adjuster directly?
How much claim authority and responsibility does the insurer give or impose upon the brokerage?
How high is the draft authority allowed, and must the brokerage exercise this authority if it exists? (Draft authority is the permission from the insurer to settle small, uncomplicated, usually first-party claims on the insurer’s behalf up to a contractually specified amount.)
Is there additional compensation from the insurer when a brokerage settles claims?
How easy is it for a broker to find out the status of a claim?
What is the insurer’s policy on disclosing reserve amounts?
