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16 Cards in this Set

  • Front
  • Back
How are brokerages agreements established?
By negotiations between Insurer and Brokerage
Brokers will often enter into agency contracts/agreements with insurers. State two advantages brokers receive when they enter these agreements
1. The right to bind certain coverages

2. The eligibility to participate in profit sharing plans offered by Insurer
8 sections of the Brokerage Agreement
Section 1. Authority - Insurance company provides rules and rates for vaious kinds of insurance offered

Section 2. Ownership of Expirations - When a brokerage obtains ownership of their files and control placement of insurance for those clients.

Section 3. Billing Procedures - How premiums due are reconciled with the insurance company. Agency Bill or Direct Bill.

Section 4. Commissions - Can vary between Insurance Companies and can be individually negotiated.

Section 5. Termination - The ability to terminate for a number of reasons such as lack of sales or producing a poor book of business (With notice periods)

Section 6. Hold Harmless - Protects brokerages from responsibility for the acts of the insurance company. The insurer holds the brokerage harmless when indemnifying.

Section 7. Privacy Act- Agreement to hold all info confidential. Compliance to Privacy Act.

Section 8. EDI Provisions - Who is responsible for electronic data transfer.
Premium remittance by way of:
1) Agency Billing by way of brokerage statement - allows the brokerage to pay the insurer based on their accounting records.

2) Agency Bill by way of insurance company statement - bills the brokerage for amounts die in a specific period of time, usually monthly.

3) Direct Bill - occurs when clients are billed directly by the insurer and commissions are paid
3 disadvantages of Direct Bill
1. Can not earn investment income on premiums collected.

2. Lacks control over documentation preparation.

3. Loses personal contact with client.
Profit Sharing agreements/ Contingent Commissions
are agreements where insurance companies provide incentive compensation for brokerages to do business with them.
6 items considered by brokerages when negotiation profit sharing agreements
1. The amount/volume of business a brokerage is require to write in a specific coverage line over a set period of time.

2. Which lines of business are included/excluded.

3. When is the profit sharing paid to the brokerage-annually or quarterly.

4. What credit is given for growth over profitability

5. What credits are awarded from large audits, or recovered through subrogation.

6. how are the insurance companies expenses determined for profit calculation.
5 factors to be considered before establishing a relationship with insurers.
1. The Marketing Philosophy - Includes the volume of business, the type of product they require the brokerage to sell, compensation and consistency of the company.

2. Financial Stability - It is imperative that the brokerage know if the insurance company is close to becoming insolvent as the PACICC will only pay up to 70% of unearned premiums.

3. Policyholder Services - Including which technology the insurance company uses, support services and procedural matters which include premium finance options and length of time it takes for policy issuance.

4. Underwriting Procedures - Include rate levels, competence/continuity of staff and underwriting guidelines explaining the need for applications, photos and loss reports. Also key is the location of the underwriting decisions.

5. How claims are handled- by the insurer defines both the brokerage and the insurance companies reputations. This process is very important as they have the opportunity to turn an inherently unpleasant experience into a less stressful one.

The number of insurance companies that would be right for them - to do business with. Nothing can be gained from using too many companies selling the same product.
Identify 3 policy holder services that should be considered by brokerages when considering insurers.
1) Procedural Matters

2) Support Services

3) Technology
Identify three sources of financial information available to brokerages to assist in evaluation of financial strength of insurers.
1) Financial Statements

2) Contact Provincial Regulators (Status of license)

3) Track Reports - Industry Reports/Publications
Identify 4 factors to be considered by brokerages when evaluating insurer's underwriting procedures and practices
1) location of underwriting decisions

2) underwriting guidelines

3) rate levels

4) competence and continuity of staff
Identify the advantages to the brokerages that chooses to represent a small group of insurers.
- Greater premium volumes with each which can reduce the effect of a larger loss on overall loss ratio. Stable book of business.

- Can establish a relationship with underwriting if frequent dealings.
Disadvantages when placing too much insurance with a single insurer.
Can put the brokerage in a vulnerable position with too much reliance if the relationship were to deteriorate or become insolvent.

Rewriting an entire client base with a new insurer.
Identify the factors established by insurers to determine the suitability of brokerages
1) Premises - Appearance and location affects first impression.

2) Financial Information - Determine such strength, past and current financial info will be requested.

3) Type and Mix of Business - what lines do they currently write and are they of interest.

4) Other insurers represented - what other companies are being represented because using similar companies can be counter productive.

5) Loss experience - measures severity (size) and frequency (number of losses)

6. HR - Insurance company may want to know backgrounds of key personnel. (Designations, work experience)

7. Business Plan - Plan to indicate areas of growth (where and how) and time frames in which it will be achieved. -VOLUME OF PREMIUM for new and existing clients. - INCREASE RETENTION RATES
- INCREASE GROWTH TARGETS through enhancing relationships with clients.

8. E&O Claims records - statement of all E&O Losses
Identify two channels of communications used by Insurers and brokerages.
Informal Channels - Personal contact between brokers and insurance company personnel can help to foster an appreciation for others point of view. (Golf tournaments, conventions, etc)

Formal Channels - include newsletters containing good news, bulletins consisting of bad news and advisory councils. Brokerage councils meet to discuss policies and how decision making by insurers has affected them. (make a corporate decision/justify already made decisions)
Benefits brokerages receive when participating in Special Insurance Programs.
Put in place by the insurance company; often allow their best brokerages more responsibility, authority and freedom with respect to claim handling and policy issuance