Caib 4 Chapter 5

Front 1

Advantages of having a brokerage agreement:

Back 1

Right to bind coverages and eligibility to participate in profit sharing

Front 2

Billing procedures:

Back 2

Agency bill: brokerage bills their clients directly and the brokerage pays the insurance company within a specific time period. Advantages: use of premiums for short term investments, control over the preparation and maintenance of policies, more personal contact with clients, accessibility to the insurance company’s records, catch mistakes in policy issuance by broker before they are sent to the insured.

Direct bill: clients are billed directly by the insurance company. Advantages: collection costs are reduced, eliminates brokerage having to bill client, collect premium and remit required amount to insurance company, direct deposit of commissions into brokers bank account.

Front 3

Topics typically contained in a brokerage agreement:

Back 3

1) Authority: guidelines set out by insurance company regarding the types of risks to be bound, the limits of each type, and limitations on certain classes of business.

2) Ownership of expirations: the ownership of expirations is the basis of the independent insurance broker system. Brokerage agreement should clearly state which party owns the expirations of the policies.

3) Billing procedures - covered already.

4) Commissions: vary between companies and lines of business, typically 10-20%. Although not mandatory, the standard practice is 90-180 days notice of change of commission rate.

5) Termination: Agreements may terminate due to: lack of sales, producing a poor book of business. Notice period of termination is 90-180 days.

6) Hold harmless: the brokerage agreement should contain a clause in which the insurance company indemnifies and holds the brokerage harmless against all civil liability. i.e - insurance company act or omission, failure of insured to receive notice of cancellation or non-renewal, failing to follow company instructions or procedures, incomplete/inaccurate documentation, errors or omission in direct bill process.

7) Privacy act: agreement should specify that both parties agree to abide by PIPEDA rules and regulations.

8) EDI Provisions: agreements should be in place on who is responsible for loss of data, or any other loss as a result of sending insurance transactions between the brokerage and insurance company.

9) Other Provisions: how to handle joint promotion programs, shared technology, arbitration for settling disputes, etc.

Front 4

What is profit sharing and what are the considerations when negotiating profit sharing agreement:

Back 4

Profit sharing agreements are incentive compensation programs for brokers. Profit sharing agreements should be constantly reviews and updated by insurers. Considerations include:

1) how much business is brokerage required to write

2) lines of business included and excluded

3) how insurance company income is computed

4) how losses are defined

Front 5

The Key factors in selecting an insurance company:

Back 5

1) Marketing philosophy and practices

2) Claims service - how an insurance company handles a claim will impact your clients customer service experience, which ultimately impacts your brokerage’s business.

3) Policyholder service

4) Financial stability - insurance companies must have a fiduciary responsibility and contractual obligation to insureds. They must be financially sound, they must pay into property and casualty insurance compensation corporation. Financial strength can be checked through resources, such as Canadian Underwriter and AM Best.

5) underwriting procedures

6) How many insurance companies?

Front 6

The importance of aligning marketing philosophy and practices of an insurance company with those of the brokerage:

Back 6

Brokerages should choose insurance companies that can supply the insurance products and services to help your brokerage accomplish its goals.

If the approach of the insurance company is incompatible with the brokerages philosophy, there will be no point in attempting to create a business relationship.

Brokerages should look into: types of insurance products, volume of business, consistency & stability, compensation.

Front 7

The different ways companies compensate the brokerage:

Back 7

1) Commissions

2) Profit sharing agreements

3) Rewards

Front 8

How policyholder services impact the brokerage:

Back 8

Poor service to the brokerage results in poor service to the client. Services to consider are:

a) procedural matters ease of doing business. Consider availability of premium financing plans, length of time to obtain a quoted normal time to get a policy issued, timing of issuance of renewal, turnaround on policy changes, length of time to credit brokerage for cancelled policies.

b) support services risk management services which help reduce costs such as engineering, inspection, other technical services.

c) technology data interchange between company and broker which helps: define client relationships, reduce brokers admin duties, improve client service, increase profitability, produce faster turnaround on quotes, speeds up issuance of policy documents.

Front 9

Areas to consider when examining an insurance company’s underwriting procedures:

Back 9

1) Location of underwriting decisions - ask: can decisions be made at that branch or a head office? Are they’re different underwriters for each line of business or does one underwriter handle several lines? Will your brokers have to deal with several underwriters on a major account? Our applications judged on their individual merits or company practice class underwriting?

2) Underwriting guidelines - review to determine the extent of underwriting information required for both new and renewal business. The amount of work required ties to brokerage cost effectiveness.

3) Rate levels - market conditions affect the rates. In a soft market, flexibility in rates is common. In a hard market, there is little room for negotiation.

4) competence and continuity of staff - an effective working relationship between underwriter and broker are critical to brokerages success. Significant turnover or staff rotations creates barriers in building effective relations.

Front 10

The effect of representing too many, or too few, insurance companies:

(How many insurance company’s)

Back 10

Too few:

1) could leave brokerage vulnerable if relationships with the company deteriorates.

2) if insurance company withdraws from the province, becomes insolvent, or purchased.

Too many:

1) when similar, not efficient to maintain rate manuals and forms

Front 11

8 factors used to determine suitability for attracting an insurance company + How brokerage premises would impact the evaluation by an insurance company:

Back 11

1) Premises - Companies wanting a high volume of new business will want an office that is easily accessible to the public and located in an area conductive to growth. First impressions are extremely important: location, visual attractiveness, accessibility, environment suits clientele.

2) Financial information

3) Type & Mix of business

4) Other insurance companies represented

5) Loss experience

6) Human Resources

7) Business Plan

8) E&O claims record

Front 12

What kinds of financial information an insurance company would be looking for when considering an appointment:

Back 12

Past and present. Providing past and current financial information increases brokerages attractiveness of potential company.

Front 13

How type and mix of business is relevant to insurance companies:

Back 13

If business consist mostly of risks not written by The Insurer, there is little benefit in establishing a working relationship with the brokerage.

Front 14

Why an insurer would want to know how many other insurers a brokerage represents:

Back 14

If insurance companies of similar orientation are already being used, the competition between them could be Counter-productive.

Front 15

How loss experience is measured:

Back 15

The two key loss measures are severity (size of the loss) and frequency (number of losses)

Front 16

Why people are an important asset to the brokerage:

Back 16

Insurance companies will want to know the backgrounds of key personnel: designations, education, work experience

Front 17

The components of a business plan and the impact they would have in attracting an insurance company:

Back 17

Components:

- volume of premium from new clients

- volumes from existing clients

- Targets for growth

Impact:

- Plan will indicate the areas in which the brokerage plants to grow, amount of such growth, and the time frames in which the plan is to be achieved

Front 18

The importance of effective communication between insurance companies and brokerages:

Back 18

- Communication problems can lead to misunderstandings

- when communication lines are not kept open, brokers and support staff open themselves to challenges when information being provided to underwriters is inadequate or incorrect

- Critical to keep lines open so parties can express their concerns and overcome obstacles

Front 19

What informal channels are, and how they benefit brokers:

Back 19

- Channels of communication are created and strengthend through informal relationships. For example: to increase personal interaction, lunches or golf games are scheduled.

Front 20

What formal channels are and how they benefit brokers:

Back 20

Advisory councils, newsletters that deal with “good news” issues and are distributed to each brokerage