Study 3: Who Does What? Broker, Underwriter, and Adjuster Responsibilities

Question 1

Define Broker (2)

Answer 1

• A licensed independent person or firm who acts on behalf of the insured in placing business with insurance companies.
• Is the eyes and ears of the insurer.

Question 2

How can brokers help prevent insurance fraud? (4)

Answer 2

• Public outreach
• Pre-screening and qualifying potential applicants
• Preventing fraud arising from broker operations
• Complying with applicable legislation, codes of conduct, and codes of ethics

Question 3

Why is Public outreach an important technique for brokers to help prevent against fraud? (3)

Answer 3

• Brokers should always take the opportunity to share challenges they face in the industry due to fraud with the public. This helps public understand what fraud is.
• The more aware the public is of fraud, the more action they can take against it.
• Its also important to make public aware of that if they know someone who has committed fraud, and they stay silent, in essence, they are subsidizing the fraudsters by not taking action and reporting it.

Question 4

Describe how a broker can Pre-Screen and qualify potential applicants in order to prevent fraud. (4)

Answer 4

• Pre-screening and qualifying potential applicants before agreeing to provide a quote is an important factor in preventing fraud.
• The broker has to pay attention to the source of the business. (Is it a referral? Who is the contact? Etc.)
• In addition to info on application, more info and public details about applicant can be found on social media, and other online sources. Brokers can take advantage of this info to gather more details of client, such as risk location, demographic details, etc.
• Developing close relationships between brokers and underwriters is paramount to protecting the business of the insurer. By asking right questions and verifying info received, brokers can help protect themselves and the insurers they represent from fraud.

Question 5

What is a book of business? (2)

Answer 5

• The collection of client business (Policies) an agent or broker has placed with insurers. Brokers usually own their own book of business, while the agents book is owned by the insurer.
• Its good practice for the broker to regularly inspect and audit the brokerage’s book of business for fraudulent or irregular activity in order to prevent fraud.

Question 6

Pre-Screening and Qualifying potential applicants:

What can brokers do to prevent fraud related to insurance transactions conducted electronically? (1)

Answer 6

Brokers should follow up for a completed and signed hard copy application after pre-screening a potential client.

Question 7

How can brokers prevent fraud arising from broker operations? (4)

Answer 7

• Fraud can arise during the course of a brokers operations. Lack of experience in handling difficult risk, and fear of sharing info between departments provides a challenge in limiting exchange of fraudulent experiences.
• It is incumbent on the broker and insurer to improve communication and to share all critical info in order to recognize fraud.
• A standard practice to reduce fraud, and fraud claims is to record all communications between employees and other parties. This includes telephone calls, as well as recording conversation by electronic notepad or writing it and filing it.
• Brokers and insurers as well should note that commissions and other incentives for staff may also lead to suspicious activity on part of the staff. Such activity can lead to possibility of E&O claims. Brokers should monitor all staffs activity on regular basis to prevent fraud.

Question 8

What is Errors and Omissions insurance? (1)

Answer 8

An insurance form that protects the insured against liability for committing an error or omission in the performance of professional duties.

Question 9

Describe legislation, codes of conduct, and codes of ethics and how they help combat fraud at the broker level. (3)

Answer 9

• Brokers are bound to follow the law and must uphold the insurance act for the jurisdiction in which they work. These legislative requirements ensure a certain measure of performance, which helps combat fraud.
• Utmost good faith is the foundation of all insurance dealings. This high standard of honesty compels brokers to disclose all info about a risk to insurers, so that risk can be properly underwritten. This in turn, helps combat fraud .
• Brokers are also bound by code of ethics. These codes spell out how brokers are to conduct themselves in their dealings with the public, insurers, etc.

Question 10

What are the common themes that can be found in the Code of Conduct for brokers? (5)

Answer 10

• Integrity - Brokers are to conduct their affairs with integrity
• Competence - Will apply their knowledge and skill in a manner consistent with what is expected of the profession.
• Conscientiousness and Quality of Service - Provide highest level of service to their clients.
• Financial Reliability, Safekeeping, and Preserving clients property - Will safeguard clients money, and property, and take care of property entrusted to them.
• Privacy - Responsible for protection of clients privacy.

Question 11

Define an underwriter. (2)

Answer 11

• The individual within an insurance company whose responsibility is to accept or reject business.
• The insurance company or group that underwrites or insures a particular risk.

Question 12

How can an underwriter help combat fraud? (2)

Answer 12

• There are many audit or scoring tools that will identify certain info (Ex: in auto insurance, the conviction history can be randomly verified) These tools help prevent fraud.
• Can also validate how often coverage is added versus losses occurring by portfolio. it is important to watch for commonalities that are usual to the exposure and what is irregular.

Question 13

Spotlighting Underwriting fraud:

What is Underwriting fraud? (2)

Answer 13

• Underwriting fraud occurs when someone intentionally conceals or misrepresents info at any stage of the policy life cycle when obtaining insurance coverage.
• As fraudsters are becoming more sophisticated, the need to be more proactive and identify fraud before the policy is issued has never been more critical.

Question 14

Why is application fraud so common? (1)

Answer 14

-Competition and mobility have resulted in insurance companies implementing “straight through underwriting processing” projects that limit the amount of due diligence undertaken, and fraudsters take advantage of this vulnerability, clearly aware that insurers do not check all applications fully.

Question 15

How can applicants commit application fraud? (1) and what are some typical rate falsification techniques that applicants tend to use? (3)

Answer 15

-Applicants can withhold or misrepresent personal info such as SIN, Maiden names, prior addresses, etc. to prevent effective searching for previous claims or credit histories.

Typical Rate Falsification Techniques include:

• Fronting - Where parent states they are primary driver, instead of child to reduce premium.
• Garage flipping - Changing address where vehicle is most used, to a more rural address.
• Manipulation - Changing rating factors such as miles driven, age of primary driver, etc to reduce premium.

Question 16

How can underwriters (insurers) address the problem with application fraud? (2)

Answer 16

• Are using application pre-fill tools and analytics to model fraudulent behavior.
• With as little info as a phone number, these tools can populate policy level data about a potential applicant.

Question 17

What is the most common type of underwriting fraud? (1) and how can underwriters help deter and prevent it? (3)

Answer 17

• Rate Evasion or Data Misrepresentation - Defined as deliberate hiding or falsification of a material fact. Is also most undetected type of fraud.
• To Deter rate evasion, it is critical to address issue in real time throughout quotation process. Insurers must ensure that info is correct at Point of sale and continue to update info through life of policy.
• Accurate info and data is key, as it is basis for finding transactions that indicate rate evasion.
• To Combat rate evasion, insurers are using advanced analytics to create a premium leakage predictive model that instantly scores applications for relative risk to predict likelihood of fraud.

Question 18

How can telematics help prevent fraud? (1)

Answer 18

Date from these wireless devices will provide a strong platform to help eliminate misrepresentation - providing insurers with real data on annual mileage, vehicle location, etc.

Question 19

What is a ghost broker? (2) and how can underwriters help prevent fraud caused by ghost brokers? (1)

Answer 19

• A Ghost broker will offer significantly cheaper insurance rates than a legitimate insurance broker, by changing key details of the policy to ensure the insured pays lower premiums.
• They operate through small ads or websites and offer cheap insurance. They often target people who think its hard to get insurance, such as those with tight budgets, students, etc.
• Data Analytics is used to look at triggers and characteristics of an application that suggest ghost brokering is taking place. (cross reference info such as DOB, drivers license info, etc)

Question 20

How can underwriters spot red flags? (2)

Answer 20

• To ensure rating integrity and spot red flags, insurers need to implement analytics technologies and conduct sophisticated data analysis in real time.
• To prevent fraud, capturing customer data in real time, using predictive modelling, creating Special investigation units, and integrating insurance data warehouses need to be among the techniques deployed

Question 21

Define adjuster. (1) What are some typical names adjusters are called(1) and what does that depend on? (4)

Answer 21

• Adjuster is one who investigates insurance claims, makes recommendations regarding the payment of benefits from insurance policies, and negotiations payment and settlements.
• May be called a loss adjuster, claims adjuster, claims rep, or some other term unique to company or region.

Choice of term depends on:

• Corporate environment
• Local usage
• Legislation
• Specific licensing regulations

Question 22

How do adjusters help combat fraud? (2)

Answer 22

They are key figures for combating fraud in the following ways:

• Proper investigation and settlement of claims
• Gathering evidence of fraud or potential fraud

Question 23

Proper Investigation and Settlement of claims: What are the specific duties that impact how adjusters work? (4)

Answer 23

The adjusters duties to the insured are the following:

• Properly identify yourself, your principal, and your role as an adjuster.
• Adjust claims promptly and fairly
• Protect insureds confidential info
• Fully disclose all info material to insureds policy coverage

By fulfilling duties, adjuster can ensure that losses are investigated fairly, and this can act as deterrent for fraud

Question 24

How must adjusters distribute money related to settlements? (3)

Answer 24

• Must act responsibly when distributing insurers funds.
• If to little is paid or settlement is delayed, the company risks damaging reputation.

If to much is paid, financial resources can be depleted, and the companies ability to offer reasonable premium rates may be affected.

Question 25

Gathering Evidence of Fraud or Potential fraud: What are some sources that adjusters can gather info from? (3)

Answer 25

They can gather info from many sources including:

• interviewing claimants and witnesses
• Inspecting accident scenes
• Assessing independent reports

*Loss adjusters must assess and evaluate the amount of damage and than apply the terms of the insurance policy to determine whether a loss is covered

Question 26

What are the different types of loss adjusters? (3)

Answer 26

• Some loss adjusters operate as salaried employees of an insurance company.
• Others operate as independent professionals hired on assignment bases.
• A public adjuster, is someone who represents an insured in the claim settlement process, where as salaried and independent adjusters represent the insurer.

Question 27

The Company Adjuster: What are some of the roles and rules that company adjusters must follow? (5)

Answer 27

Need to ensure that they understand what the scope of their role is and how to deal with following issues:

• Understanding the limits to their authority in settling claims.
• Ensuring they carry suitable proof of identity.
• Providing reason to claimant as to why claim is denied.
• Advising Third party claimants in auto claims of the name of the insured, the insurer represented, policy number, etc.
• Observing federal and provincial laws and regulations relating to unfair and deceptive acts and practices.

Question 28

The Company Adjuster: What does the claims agreement say about what adjusters can and cannot do? (9)

Answer 28

The claims agreement mentions that adjusters shall:

• Diligently seek to exercise skill and care, refusing to be influenced by others.
• Promptly report policy violations and cases of fraud to company
• Cooperate appropriately with opposing adjusters.

The agreement also says that adjusters shall not:

• Seek secret profit or acquire financial interest in matters entrusted to them.
• Offer inducement to public officials or employees to obtain a benefit for themselves or their company.
• Exceed their authority as conferred by company.
• Advise claimant to refrain from seeking legal counsel.
• Deal directly with claimant known to be represented by legal counsel expect with permission from counsel.
• Offer claimants counsel an increased allowance for costs in return for a reduced premium.

Question 29

Independent Adjusters: What guidelines does the Canadian independent Adjusters Association (CIAA) code of ethics provide for its members? (With respect to policyholders and claimants) (7)

Answer 29

A) with respect to policyholders and claimants:

• Are entitled to receive fair, courteous, and objective treatment at all times.
• Are entitled to receive prompt and knowledgeable service
• any policyholder, claimant, etc, who has given a written statement may request to obtain a copy without charge.
• Shall not be given legal advice by an adjuster.
• Will be given explanations with respect their coverage.
• Medical info or records shall not be obtained without written consent of individual.
• An adjuster will identify himself as an insurance adjuster in his dealings with policyholder or claimant

Question 30

Independent Adjusters: What guidelines does the Canadian independent Adjusters Association (CIAA) code of ethics provide for its members? (with respect to insurers and self insurers) (6)

Answer 30

B) With respect to insurers and self insurers:

• All important facts about claim shall be disclosed to insurers.
• Adjuster shall only represent one interest and shall immediately inform his principal of any conflict.
• Adjuster shall have no financial interest in any adjustment, nor shall he acquire any interest either.
• Adjuster shall not accept any form of consideration, other than from his principals.
• All info received should be treated confidentially and shall not be disclosed with any person except as authorized by his principals or required by law.
• Adjusters should not act together for purpose of setting prices or wages.

Question 31

What is the purpose of the Canadian Independent Adjusters Association (CIAA)? (5)

Answer 31

Purpose of this association is to promote and represent common business interests of licensed independent adjusters within the insurance industry. To this end, the association:

• Promotes uniform standard of conduct in adjustment of claims.
• Promotes insurance education among members.
• Distributes publications and programs to enhance professional development of its members.
• Communicates with and explains to provincial governing bodies, the insurance industry, and the public, the ramifications of matters of direct interest to its members in their conduct of the adjustment business.
• In general, promotes and encourages understanding, cooperation, and good relations amongst its members, the insurance industry, and the public