Study 4: From Quote to Policy - Narrative Questions

Question 1

Explain possible consequences of erroneous binding or misunderstandings during binding. (5 marks)

Answer 1

Consequences of misunderstandings or erroneous binding
• The agency or brokerage could be held liable for any loss the insured suffers from the date
the intermediary allegedly bound the risk until the insurer confirms it will write the business

• If the insurer agrees to write only a portion of the risk, the intermediary could be held responsible
for any uninsured portion of losses

• If the insurer decides that the risk does not meet its underwriting guidelines and declines it,
the risk is uninsured and the intermediary could be held responsible for any losses

• The insurer could reconsider the agency’s or brokerage’s binding authority. It could withdraw or
revoke it from the individual who accepted the risk or from the entire agency or brokerage

• The agency or brokerage may lose the client due to dissatisfaction with the service

Question 2

Outline five (5) common reasons that can lead to policy documents being delayed. (5 marks)

Answer 2

Policy document delays
• The underwriter may want to investigate the risk more fully to determine the correct rating
o The risk is covered, but the underwriter has not yet
decided on the exact premium

• The insurer is waiting for more information from the insured, such as appraisals or supplementary questionnaires
o Since the risk may not be as completely insured as the client wants, the intermediary will advise him or her of what is needed to expand the coverage, when it is needed, and the consequences of not supplying it or of providing it too slowly.

• The insurer is behind in processing the documents

Question 3

Describe why there may be a discrepancy between the final premium and the premium quoted on the binder. (5 marks)

Answer 3

Premium discrepancies (any five of the following)
• The policy premium differs slightly from the one the intermediary calculated, because of either computational error or rounding.

• Information was keyed incorrectly into the rating engine or company portal by the intermediary
and was then corrected on the company end. This could result in increases or decreases in the
final premium.

• Credit scoring was incomplete or incorrect. As this is done through a third-party vendor and is extremely confidential, if the intermediary was unable to obtain the credit score but the insurer was, there could be a premium difference.
• Payment plan charges can produce a difference in the deposit premium and the monthly withdrawals.
• An amendment in coverage may have been requested causing a change in premium.
• Investigation could have made the insurer aware that the risk differs from the application, resulting in re-rating.
• A global rate change may have come into effect since the original quote. For instance, if the policy was quoted in January for a May start date, and the rates were adjusted in February, the premium would be increased to the new rate schedule.