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C70 Gateway to Commercial Insurance > Study 5 - Applying for Coverage > Flashcards

Study 5 - Applying for Coverage Flashcards

1
Q

What questions could be useful in determining the objectives of a stakeholder?

A

How would the stakeholder describe themself?
What makes the stakeholder unique?
What are the stakeholders larger business objectives?
What are the stakeholders objectives for insurance?
What does the stakeholder expect from insurance?
How much risk is the stakeholder willing to take?
What factors might change how much risk the stakeholder is willing to take?

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2
Q

What are some challenges a stakeholder may face?

A

What might prevent the stakeholder from meeting his or her objectives?
What relevant info could the stakeholder be withholding? What could be the stakeholder’s motivation for withholding this information?
What could happen to change existing circumstances that would impact the stakeholder?

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3
Q

When placing coverage, what three areas need to be negotiated and reviewed?

A

Policy types
Insurance markets
Alternative insurance solutions

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4
Q

What are the three different policy types?

A

Monoline policies
Package policies
Personalized packages

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5
Q

What are the two purposes of a monoline policy?

A
  • Provide client with simplest coverage needed to maintain business operations
  • Cover exposures that cannot be covered by a package policy
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6
Q

What are the advantages of monoline policies?

A
  • Allow insurers to accept risks limiting their exposure while maintaining profitability
  • Allow clients to cover only what they want or need covered
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7
Q

What are the disadvantages of monoline policies?

A
  • Can be more expensive to separate coverages or lines into multiple monoline policies with different insurers
  • Expose clients to potential gaps in insurance coverage
  • Claims process may be more complex if multiple monoline policies are in force
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8
Q

What type of risks do most business package policies apply to?

A
  • Small to medium size businesses (ie retail operations)
  • Contractors
  • Motels & hotels
  • Offices
  • Apartments
  • Condominiums
  • Wholesalers
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9
Q

Which risks are typically too diverse to incorporate into a package policy?

A
  • Manufacturers
  • Large risks
  • Unusual exposures or operations
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10
Q

What are the advantages of package policies?

A
  • Brokers can be given binding authority
  • Standardization of coverage for similar risks
  • Underwriting/claims training is easier with package policies
  • Renewals can be automated
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11
Q

What are the disadvantages of package policies?

A
  • Restrict an underwriters ability to deviate from a standard rate or provide concessions
  • Automation of renewals could mean some policies are not reviewed at all or often enough
  • Changes to the packages, rates or wordings is labour intensive and affects a large book of business
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12
Q

When is a personalized package typically used?

A

When it does not qualify for a package policy but is still acceptable within underwriting guidelines

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13
Q

What are the advantages of personalized packages?

A
  • Underwriters have greater freedom to tailor a policy to business needs
  • Allow for more flexibility in pricing
  • Give underwriters the ability to exclude exposures that should be placed in specialty markets
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14
Q

What are the disadvantages of personalized packages?

A
  • Labour intensive application process, difficult to automate
  • More expensive than package policies, more difficult to sell
  • Cannot be delivered by brokers binding authority
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15
Q

Who are some of the main players in the insurance marketplace?

A
  • Insurers
  • Wholesalers
  • Lloyds
  • Captives
  • Reciprocal insurance exchanges
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16
Q

What are the advantages of insurers?

A
  • When brokers build relationships with companies, they become an expert on the insurers products
  • Large insurers can provide brokers with many solutions
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17
Q

What are the disadvantages of insurers?

A
  • Small insurers may not be able to offer specialized coverage for high risk exposures
  • Large insurers may have more strict underwriting guidelines
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18
Q

Define wholesale broker

A

Broker who acts as an intermediary between a retail agent or broker an an insurer, often possessing specialized expertise in a particular line of coverage

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19
Q

What are the advantages of wholesale brokers?

A
  • If capacity is required above own present standard market, broker may use a wholesale broker
  • May be used to protect normal markets and profit sharing arrangements by using them to place risks with high loss frequency
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20
Q

What are the disadvantages of wholesale brokers?

A
  • Do not have binding authority from the insurer

- Increased cost of policies and reduce commissions received from brokers

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21
Q

What are some examples of the unique specialty classes of insurance that Lloyds may insure?

A
  • Kidnap and ransom
  • Fine art
  • Aviation war
  • Bloodstock
22
Q

What are the advantages of Lloyds?

A
  • Increase in the types of risks it can write
  • Streamlined risk placement processes (sped up service)
  • Higher commissions to brokers
23
Q

What are the disadvantages of Lloyds?

A
  • Only Lloyds brokers can place risks in market
  • Brokers need people to process applications, underwrite & price risks, issue policies and maintain statistical data
24
Q

Define captive insurance company

A

A company that provides insurance to and is controlled by its owners

25
Q

Define reciprocal insurance exchange

A

Insurance whereby each subscriber appoints a central underwriter as attorney-in-fact for the purpose of sharing insurance costs with other insureds in the same group

26
Q

What are the advantages of captives?

A
  • Allows owners to better control costs associated with insurance
  • Tax benefits, including deductions for the parent company on the premium paid to the captive and gift and estate tax savings
  • Access to lower cost reinsurers
27
Q

What are the disadvantages of captives?

A
  • Will not benefit from the spread of risk as much as standard markets do
28
Q

Define retrospective rating

A

Procedure that determines the final rate at the expiration of the policy when the claims experience is known

29
Q

What are the advantages of reciprocal insurance exchanges?

A

They can be used to maintain coverage for difficult or unisurable risks

30
Q

What are the disadvantages of reciprocal insurance exchanges?

A

May only cover a portion of a client’s insurance requirements

31
Q

What are some alternative insurance solutions?

A

Retrospective insurance
Self-insurance
Layered programs
Subscription policies

32
Q

What are the advantages of retrospective insurance?

A
  • Premium reductions experienced immediately, based on current loss position
  • Good loss experience & predictable claims will be rewarded with low premiums
  • Business with large cat loss in history may find it beneficial if current situation is minimal or low risk
33
Q

What are the disadvantages of retrospective insurance?

A
  • If claims take a downward turn, business pays higher premiums when adjustments occur
  • It can have large deductibles
34
Q

What are the advantages of self insurance?

A
  • Improves operating profits by reducing premium costs

- Does not have to include profit margins or cost of business through broker/insurer

35
Q

What are the disadvantages of self insurance?

A
  • Chance of loss still exists and failure to maintain appropriate funds could be catastrophic to budget
  • Will not have same resources as insurance company
36
Q

Define layered program

A

Series of policies written by two or more insurers, each policy in excess of lower limits on other policies

37
Q

What are the advantages of layered programs?

A
  • Increased limits may be available for smaller premiums than under a primary policy
  • Excess/layered programs offer insulation against rising litigation costs and jury awards
38
Q

What are the disadvantages of layered programs?

A
  • Insufficient coverage is still possible if limits & liability are not assessed or reviewed regularly
  • More parties are involved in a claim, since excess insurer will need to be included were their policies may be triggered
39
Q

What are the advantages of subscription policies?

A
  • Allow multiple insurers to share the risk and gain premium volume without assuming entire risk
40
Q

What are the disadvantages of subscription policies?

A
  • Lead company has control over rate, policy declarations and wordings
41
Q

What does the application include?

A 
Applicant information
Limits & deductibles
Effective & expiry dates
Loss history
Previous insurer info
Description of exposures
Broker information
42
Q

What are some questions to consider regarding the applicant?

A
  • Are the people running the business experienced in the industry?
  • Is it a numbered company? If so..
    • What is the company, who is involved?
    • What does it do?
    • Why show both a company & personal name?
  • Does anyone have a criminal record?
  • Licensed to operate in other jurisdictions?
  • All appropriate tickets & licenses?
  • If multiple parties, any separate ownership?
43
Q

What are three parties outside the ‘named insured’ that could be insured?

A
  • Additional named insureds
  • Additional insureds
  • Unnamed insureds
44
Q

What is the difference between ‘additional insured’ and ‘additional named insured’?

A

Additional named insured can add, remove, make changes or cancel the policy

45
Q

Who is included under a legal entity?

A
  • An individual
  • A group of individuals
  • An incorporated business
46
Q

What are some questions to consider regarding business operations?

A
  • Where are revenues derived?
  • Is anything imported from other countries?
  • How much work is subcontracted?
  • How many employees are there?
  • How long has the company been in business?
  • How much experience does the company have in the trade?
  • What are the physical attributes of the risk location? Does the applicant own or rent the business location?
47
Q

What does an ideal loss history include?

A
  • The date of the loss
  • When the loss was reported
  • The details of the loss
  • The circumstance of a loss
  • Whether the claim is closed or still open
  • The payout to date
48
Q

What are some potential reasons a previous insurer may have canceled a client?

A
  • No longer wished to write class of business
  • Client may “jump carriers”
  • May be a moral hazard
  • Operations have changed or evolved
  • Only maintained insurance when required by contract
49
Q

What are some things an underwriter may consider regarding the broker?

A
  • How did the broker make contact with this client?
  • What is the broker’s relationship to the client?
  • Does the broker’s relationship to the risk or client create any conflict of interest?
  • Number of brokers who have handled the client’s portfolio or business before the current application
  • Extent of the applications
50
Q

Why may a Canadian insurer need to utilize a United States insurer even if they are able to insure the business?

A
  • Some states require a state-admitted insurer for mandatory insurance, but not optional coverage
  • If it is required to be countersigned, may also be required to be placed by an agent/broker licensed in the state

C70 Gateway to Commercial Insurance (10 decks)

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