Study 3 The Application Process - Narrative Questions

Question 1

What people may be applying for insurance? Describe five (5) possible statuses of potential client’s current insurance coverage. (5 marks)

Answer 1

People applying for insurance (any five of the following)
• May have no coverage at all, such as first-time insureds or those who have had a lapse in coverage

• May be looking for an alternative quote for an expiring policy

• May want to evaluate the services provided by another broker because they are not satisfied with
their current broker

• May have an existing policy but require additional coverage(s)
• May be in a situation that has changed and their current broker can no longer service them

Question 2

What are five (5) key types of information commonly requested on insurance applications and why is each of those pieces of information needed? (5 marks)

Answer 2

Application information (any five of the following)
• Named insured: To be insured, this person must have insurable interest in the property

• Policy term: In theory, an insurance policy can be written for any length of time that an insurer will
agree to or that the insured wants, allowing the policy term to be customized. However, in general
practice, the policy expiry date is usually pre-determined by the insurer—generally, 12 months
after the effective date.

• Subject of insurance: What is to be insured will affect the lines of insurance coverage required
and the limits of such coverage

• Loss payees: The generic term for someone other than the named insured to whom the proceeds
of insurance will be paid

• Loss history: Relevant to underwriters (and therefore relevant to brokers) because it provides a
record of frequency and type of loss

• Prior insurance: This information is used to confirm applicants’ past loss history

• Agent’s and broker’s report: An opportunity for intermediaries to present any additional
information about clients based on their personal knowledge of them

• Signatures: The law requires all automobile applications to be signed; personal insurance
applications are sometimes, but not always, signed; and commercial insurance applications are
only rarely signed.

Question 3

What are the agent’s or broker’s duties and responsibilities to insurers in the application process? (5 marks)

Answer 3

Assisting the insurer (any five of the following)
• Collect information that the insurer will require to quantify and rate the insured’s risks

• Act with utmost good faith in describing the risk to be assumed
• Transmit all relevant information about insureds, their loss history, and their insurance circumstances and needs to the insurer
• Act as the “eyes and ears” of the underwriter when completing applications
• Provide underwriters with a complete risk profile, including all material facts

• May need to perform much of the underwriting function for personal-lines and small commercial
package insurance policies
o In addition to obtaining the application information,
the intermediary enters it into the insurer’s
computer system where it is assessed for risk
acceptability
o If the risk meets the insurer’s guidelines, the
intermediary creates the policy documents then
and there

• Verify applicants’ loss histories
o Check with the previous insurer
o Use an automated database