10 Study Notes Monitoring and Modifying the Risk Management Plan
POST-PLACEMENT COMMUNICATION
Maintaining effective, ongoing communication with your client reminds them that you’re working year-round on their behalf.
For some clients meeting might be scheduled every month; for others contract might be on an irregular basis whenever you or your client thinks a meeting is necessary; for others, again, one yearly meeting is sufficient ( unless client notifies you of any changes) plus your regular quarterly newsletter.
Regular contact with your clients enables you to keep up-to-date with changes in their operations, locations or both; changes that they may forget to mention or not realize affects their insurance.
As well as allowing you to react to client changes, regular contact also allows you to be proactive by communicating changes in the insurance business – new coverages; pending wording changes.
Contract Reviews
Encouraging your client to come to you before they sign new contracts or respond to requests for proposals gives you another opportunity to learn about changes in your clients operations they might not otherwise think to mention. You can also review any insurance requirements in the contract before the client signs it. If there are any issues that may seriously increase your client’s insurance costs or affect the availability of coverage, you can point these out explaining how they will impact the client’s insurance and suggest alternative conditions to help the client negotiate on insurance issues with the other party to the contract.
Premises Leases – if the client is planning a new location, you can collect information required to add the new location to the policy. In addition, by reviewing the contract before it is signed, you can identify issues that would benefit further discussion (using a “boilerplate” lease form with insurance clauses that may not apply to your client’s situation) and advising your client so they have the option to negotiate before signing.
Equipment Leases – may indicate that the client has acquired additional or more expensive equipment. You can review the description of leased equipment with the client to update the list of all their equipment, values and where it will be located. Any change in the type of equipment your client uses can indicate a change in operations.
Requests for Proposals – RFP is a set of specifications provided by a potential customer to parties interested in bidding on a specific project. An RFP may be detailed, specifying exactly what products/services are required and how they’re delivered or it may consist of a rough outline, asking bidders to provide details on how they will carry out the work. If a transfer of liability significantly increases your client’s potential liability exposure, your ability to place the account with a standard market. Discuss the potential effect of accepting this liability with your client and recommend they negotiate the removal of clauses that impact their operation.
Mergers and Acquisitions – could give rise to additional liability exposures. If a client is acquiring a manufacturing operation, it could also be acquiring exposures from previous products made by that acquired company. Ask questions to determine the potential exposures arising from the new entity, products made, discontinued products and past claims history. Ideally, your client would have come to you first so you could advise them of the insurance implications.
There is also the possibility your client is branching out into a business they have no experience in increasing the loss potential. If they’re not aware of the types of quality control required, they could be exposed to a products liability hazard that a more knowledgeable operator could avoid. When your client proposes new operations, ask about the experience of the individuals – new or existing – and who will manage the new operation.
Client Requests
Whenever your client has a question or a coverage request, listen to what they are asking and ask questions to ensure you understand their concerns. Asking questions to clarify your client’s concerns not only helps you understand and keep up-to-date on their exposures, but lets them know that you are deeply interested in what they have to say and in the welfare of their business
Insurance Market Changes
Coverage Changes – Keeping up to date with new coverage programs, discounts, extensions and endorsements will be useful to you and your clients. Establishing a reliable way of identifying the individual clients to whom specific developments are most likely to appear to will make this task easier and effective. By offering your clients enhanced coverages as they become available, you not only protect your accounts from attack but you also maintain your reputation as a proficient and proactive broker.
News Items – If you hear of news about an insurer, anticipate your client’s reaction and be prepared to have an explanation. If the news has immediate implications for your client, approach them immediately – don’t wait for the client to contact you!
Wording and Pricing changes – can positively or negatively impact your clients. If wordings are broadened, bring enhancements to the client’s attention explaining how it affects their position. Use premium reductions as an opportunity to sell enhanced coverage.
If changes are less positive, your job is to be an ambassador for the insurance industry while at the same time ensuring your client continues to enjoy the best protection available. Where one insurer announces changes, others follow suit – explain any news to your client in light of overall changes in the insurance market.
Remember that pricing changes are not necessarily a reason to remarket an account. Lower premiums are attractive to clients however, they may enjoy enhanced insurance protection you might not be able to arrange elsewhere at the lower price.
Insurer Solvency – can be a very serious concern for clients. If they see reports which cause them to suspect the financial stability of their insurer, they can become anxious about their insurance protection and whether or not claims will be paid, or if pre-paid premiums will be reimbursed in the event the insurer goes out of business.
For most brokerages, changes in insurers’ financial rates are monitored by management using Best’s reports and other rating guides. Ensure your information is most up to date so you can contact your clients and explain any changes, relive any apprehension and forestall a competing broker approaching them with information about an “unstable” insurer, undermining your credibility.
Advise your client of the potential affects of a rating change and acknowledge that this is only one rating services and only one way to determine whether an insurer will be able to meet its obligations
Risk Management
During the policy period, meet with your client to review the risk management programs initiated at inception. Review any new loss control measures implemented during and find out what progress has been made to comply with any recommendations resulting from the premises inspections.
Some risk management aspects could be out of your area of expertise and if so, consult with people at your brokerage, at the insurance company and outside experts for advice.
Meeting your client to review their risk management programs provides another opportunity to ask about changes to their business operations and locations. Incorporating questions into your discussions will help you become alert to any indications of new exposures.
- Hiring practices of drivers – recent hires – more frequent or longer trips
- Drivers and trips – vehicles insured – changes in types of vehicles
- Upgrading a burglar alarm system – other locations
- Bank deposits – size of deposits – frequency – changes in patterns
CERTIFICATES OF INSURANCE
Proof of insurance – a certificate of insurance is a document that provides evidence to the party to whom it is issued that certain general types of coverages and limits are being provide by the named insurance companies for the period stipulated
Requests for Certificates
Demand for certificates is especially high among contractors who require them for the project owner or general contractor on each job undertaken. Other clients also require them, such as:
- Condominium associations requiring certificates for u nit owners, mortgagees, loss payees
- Manufacturers requiring proof of insurance from distributors or retailers
- Retailers can require proof of insurance from manufacturers
- Commercial building tenants providing proof of insurance to their landlords
- Mortgagees require proof the property securing the loan is insured
- Lessors of equipment usually require proof the leased property is insured
- Commercial automobile operators of all types
- A municipality may require a certificate of liability insurance from a restaurant that has a sidewalk cafe on public property
- Businesses that apply pesticides or weed killer to gardens are usually required to provide a certificate of liability and environmental insurance to the licensing authority
Since it is frequently one of the last things to be arranged when completing a contractual agreement, there is some urgency to the certificate request. Be prepared to issue certificates speedily to enable the client to begin or continue work without delay.
Requests can come from the client or directly from the party requiring proof of insurance. As a broker, you act for your clients – not third parties – so if the request comes from anyone other than your client, confirm with your client that the request is to be honoured.
Privacy Issues
When conferring with your client, explain that you wish to protect their privacy. At times, clients will tell the certificate requesters to contact my broker directly to speed up the issuing process. You can only accept instructions from the client.
Federal and Provincial privacy legislation may limit information you can share with third parties without the client’s express permission. Make sure you have a clear understanding of the specific information the client is willing to release – always use caution when confirming information – confirming coverage exists – especially when talking to third parties over the phone.
If written permission must be obtained before information can be shared with third parties, make sure your client understands the nature of the request and that they’ve granted permission to release particular information.
Make sure also that the third party who receives the information offers privacy protection similar to yours.
Broker’s Authority
Confirm your brokerage has authority to issue certificates. Sometimes, authority is vested in particular individuals in the brokerage, some insurers allow anyone in a brokerage to issue certificates; others require a request be submitted to the insurer to issue the certificates each time.
When insurers permit brokers to issue certificates, they may only allow them to do so on standard forms (CSIO or other pre-approved forms) If any non-standard form is used or if the wording is to be amended, insurers may require brokers to submit a request to the underwriter.
Through a wholesale or specialty broker, all requests for certificates are usually directed to the wholesale broker who may issue the certificate on behalf of the insurer or may request is be issued by the insurer. In these cases, it may take extra time to issue.
Certificate Content
Intended to be a true representation of the policy, the information in the certificate is constrained by the terms and conditions of the policy including limits, deductibles, cancellation terms and other limitations or warranties. Typically the information required on a certificate includes:
- Name of insurer
- Name of insured (client)
- Name and address of party requesting the certificate (certificate holder)
- Reason for the request
- Insurance policy number and type of policy
- Effective and expiry dates of the insurance policy
- Coverage provided by the policy, including form numbers and limits of insurance
- Any special provision, conditions, or limitations to coverage
- Cancellation notice to the certificate holder (generally 15 days)
- Date of issue and signature of insurer’s authorized representative
Read each certificate request closely to determine what is required. If it applies to coverage in effect, and the client has authorized release of the information, either request the certificate from the insurer or issue it depending on your normal procedures. If the request doesn’t match the policy provisions, advise client of their options ad determine if the client wants the coverage amended.
Generally requests for certificates that differ from policy fall into two broad categories:
- Those that require an endorsement to the policy
- Those that can be issued without reference to the insurer but will require special handling
Policy Changes Required
- Addition of mortgagees or loss payees
- Addition of additional insured’s
- Changes in policy limits
- Changes in policy coverage or conditions
Mortgagees and Loss payees – provides security to lenders. Normally this is accomplished by placing insurance on the property that secures the loan or lease. Frequently the mortgagor or lessor is required to carry insurance to value and show that loss is payable to the mortgage or lessee jointly with the named insured.
Additional insured’s – Additional security beyond just being shown as loss payee or mortgagee on the policy. Insurers generally will make this change readily. If the client wishes to proceed, have the policy endorsed appropriately and issue a certificate of insurance including the phrase “.... is added as an additional insured but only with respect to liability arising out of the operations of the named insured”.
Remember to add “up” not “down” when adding additional insured’s, bear in mind your goal is to protect the interests of the named insured. This means that you can add entities above the client (landlord) but not those below (tenant).
By adding a landlord, there is no real increase in exposure as they are only added with respect to the operations of the named insured and the majority of losses will arise out of the operations within the premises. If a tenant were to be added, the insurer could be providing coverage for operations for which they had not charged a premium or anticipated an exposure on.
Wrap-up liability is an exception to this rule because you add insured’s “up” and “down”. General contractors arrange wrap policies with owners, architects, engineers, the general contract and all sub-trades as insured’s. The owner and architect and engineers are “above” and all others are “below”. However, the insurer is fully aware of the exposure and has calculated the premium based on all entities being insured.
If there are a large number of additional insured’s, to avoid multiple endorsements on the policy, request underwriters issue a blanket endorsement for all additional insured’s named on certificates. Not all insurers will agree to do this – some provide coverage as part of their standard CGL, others endorse additional insured’s on the policy individually.
If requesters, especially government agencies, ask to be added to the policy as additional named insured’s, try to avoid, if possible this request because it puts the certificate holder in the same position as the insured will full protection under the policy for all of the certificate holder’s operations. Also, the actions of the certificate holder can affect the client’s loss history. Best to add parties requesting a certificate as a named insured added as additional insured’s only.
Federally, some government contracts specify that the Queen be added in respect of the particular government department. If the insurer agrees, this is done by a separate endorsement referring to the specific contract involved and restricting the rights of the additional named insured.
Policy Limits – if request is to show limits higher than the client carries, consult with your client to see if they want the policy changed to conform to the request and also determine the reason for the request. It could mean a change in operations; acquiring of a new location; more equipment. Any of these would mean the insurance program requires adjustment.
Policy coverage and conditions – the request may specify coverage types/conditions that differ from the client’s policy (request for all risk cover on a named perils form) Advise client of the request and explain the implications for the client’s insurance and ask for their instructions. If client approves the change, bind the enhanced cover with the insurer and issue the certificate. If the client refuses, advise them that you can’t issue the certificate.
The cancellation clause is a policy condition that parties requesting a certificate frequently want amended, generally asking for a longer cancellation notice period (90 days instead of 30) If client prefers to leave their policy unchanged but agrees to increase the cancellation period for this particular request, you can obtain underwriters agreement to provide this one certificate with an extended notice of cancellation.
If the request specifies a notice period less than the policy (15 days instead of 30), usually you can proceed without obtaining the underwriters permission because the notice period falls within the policy conditions.
Special Handling – Some requests require special handling or care:
- Period requested spans two or more policy terms – issue the certificate with the original expiry and on renewal of the policy reissue the certificate for the new term
- Policy has already expired – issue the certificate including the wording “this certificate applies to a policy that has already expired”
- More than one insurance policy and/or insurers insuring the risk – Coordinate the certificate issuance with each insurer and amend all policies for additional insured’s
- Certificate requester wants coverage in American dollars – clearly state the coverage is in Canadian currency. If requester wants funds converted to US currency, include a statement on the certificate that the limit of insurance is expressed on the certificate my fluctuate depending on the exchange rate of the Canadian dollar
- Certificate requester stipulates specific terms or conditions – refer any such requests to the underwriter for approval before issuing the certificate.
Terms you may encounter that are ambiguous or meaningless should be avoided (ex: coverage applies as per contract between insured and certificate holder) – you don’t want to be certifying coverages that not only do not appear on the policy, but also are not even available.
Similarly the terms “full insurable value” or full replacement” are meaningless from the standpoint of the policy. The certificate should specify that the policy wording insures on a replacement cost or an actual cash value basis subject to deductibles and a coinsurance clause that could reduce the amount payable.
Requests to add amend or delete certificate conditions should also be avoided, if possible.
Bind Changes – when a certificate request results in the need to change the client’s insurance, always ensure you have bound coverage before you issue the certificate. Information on the certificate does not automatically amend the coverage on the policy.
Where a change in coverage is unavailable advise the client before proceeding. If client wants the certificate issued for the existing coverage, bring the differences between the request and the certificate to both parties attention in writing.
Brokers’ Duty
Brokers have a duty to follow their client’s instructions. If the client doesn’t want all policy information be divulged to the certificate holder, comply so long as compliance is not deceptive or misleading. Limiting information on the certificate doesn’t reduce the insurance provided nor does it deceive the certificate holder.
Brokers also have a duty to advise their clients, most especially if special requests require special handling of the certificate.
Certificate Administration
Keep a record of all certificates you issue and date they were issued. Number the certificates to make sure all are accounted for. Note that endorsement changes cannot be used as a certificate record because not all certificates result in a policy change.
Some insurers require copies of all certificates issued by a broker; some only want certificates when a policy amendment is involved; and others prefer a list of certificates issued detailing to whom they were issued. These advise the insurer with notice of who has an interest in the policy so they can notify certificate holders if the policy is cancelled.
A copy of all certificates should also be forwarded to the client to confirm issuance and to keep the client aware of policy activity.
For accounts that require a high volume of certificates, consider carefully whether the account is economically viable as your costs (staff time; paper; mailing; faxing) servicing the account represents a substantial portion of the commission income. One solution is to write it on a fee basis – charging the client a negotiated fee instead of, or in addition to, commission received from the insurer to compensate for the added costs incurred in servicing the account.
Monitoring Changes
Certificate requests present you with another opportunity to update information about the client’s operations. When asked for certificates, ask if it is required because of changes in the client’s business
Since many requests for certificates are received by telephone, have a pre-printed set of questions readily available to prompt you to obtain all the information needed to issue the certificate and to clarify why the certificate is required.
CLAIMS HANDLING
The way claims are handled greatly impact the opinions of your client’s toward you and their insurers. While your role is somewhat restricted in the claims adjustment process, your clients will still rely on you for information and assistance.
When you first write the account, advise your client of the claims reporting procedures; the services you will provide; and what to expect during the claims process.
Confirm the client is aware of the importance of collecting complete information in the event of a loss; has an incident reporting procedure for all employees; has report forms including instructions for reporting claims. If you have a 24 hour claims number, it can be printed on the form; if the form is to be faxed, provide a fax number; if claims are to be reported directly to insurer, provide that information as well. To assist your client in the claims process, helping them to understand what will happen next and how they can assist in the claims process, explain:
- How long after reporting the claim the client can expect to be contacted
- What to do if they don’t hear from the insurer within this time frame
- What services or assistance you will provide
- What information the insurer will require to settle the claim
o Crime claim – insurer will probably request a copy of the police report
o Business interruption claim – insurer will want to see sales and expense figures
At reasonable intervals, follow up with the insurance company to confirm how the claim adjustment is progressing enabling you to be fully prepared with the most up-to-date information when discussing claims with the client
At time, loss adjustment can be delayed because the client doesn’t understand what the insurer needs to settle the loss. Follow up with the adjusters to determine what is necessary and liaise with the client to explain the process or to expedite the flow of information.
If your brokerage has authority to settle claims, know to what limits you have this authority for and communicate this to the client
When the claim is closed, survey the client for their opinion of the claims service and pass all comments – positive and negative – onto the insurer for any action necessary. Review any critical comments to ameliorate the negative impact on your service and reputation.
RENEWALS
An opportunity for you to maintain, and if possible, improve your standards of client care. You want to ensure your client’s interests receive the maximum protection and you strengthen your reputation as a competent and proactive broker.
If new inspections are required, make arrangements early, particularly if you’re planning to remarket the account.
Pre-Contact Review
Before meeting with the client, review their insurance program as you would a new business prospect. Check if the program can be improved by new coverages that have become available; if coverages for new operations or locations are required; if there is any other risk management enhancement that can be made or suggested.
Make a list of coverages to discuss; both new ones and those previously declined. Changes in the marketplace or new of losses within the clients industry may make them more receptive to additional coverages or enhancements. Also discuss any changes to policy wordings that may affect your client.
Consider the current market conditions. Hard market conditions may make quotes taking longer to obtain and insurers insisting on receiving complete information.
Meeting with the Client
At the beginning, you may have met with a number of different people in the client’s organization. Consider who would be best able to assist you in obtaining renewal data and arrange your meeting accordingly. If there are new personnel, this is a perfect opportunity to sell yourself to any new contacts and build new relationships.
For larger accounts, arrange to meet the insured at least three months prior to expiry and for small, less complex accounts you may decide to have the initial renewal contact two months before renewal. Review current exposures and coverages and any changes that have taken place during the policy term to determine what progress has been made on any loss control measures or recommendations made and start collecting renewal information.
Update the summary of coverages you provided at last renewal with any changes that occurred throughout the year – use this to help the client decide if any changes are required.
If property is written on a blanket basis, prepare a new statement of values and update it with respect to:
- Any new locations
- Changes in building values due to renovations and additions
- Changes in values of any improvements and betterments
- Changes in inventory values due to increased stock or addition of higher value items
- Upgrades or changes in equipment
- Changes in values due to inflation
Provide your client with new business interruption worksheets to be completed to determine whether the amounts of coverage are still adequate. The client should consult with their accountant to provide these figures and you may, if necessary, schedule a meeting with the financial officer or advisor to obtain accurate information.
For some crime coverages (professional liability; D&O; umbrella) new applications may be required so review previous applications with the client to determine what changes are needed and assist them in completing new applications. If insurers require updated financials, arrange for these at the same time.
Discuss the client’s operations to ensure you are fully aware of all liability exposures asking if any changes are expected in the near future, such as:
- Changes in operation
- Changes in the risk
- Changes in the values
Request updated liability rating information – anticipated sales or payroll figures
If automobiles are part of your client exposures, obtain an up-to-date vehicle and driver information. Review list of vehicles with the client to add or delete any vehicles and to determine if there are any changes in the operations
For vehicles written on a blanket fleet endorsement, confirm the schedule of vehicles when you review the account and when you request renewal be issued as some policies contain conditions requiring the list of vehicles be updated at the time of binding. So if you’ve updated several months prior, vehicles added during the intervening period may not be insured.
Finally, recommend any improvements to coverage that may be warranted, illustrating reasons for the proposed improvements based on examples of losses drawn from the clients industry.
Obtain renewal quotes from the existing carrier and others as required and present to client with options to renew based on your discussions with them.
Delivering Documents
When you deliver renewal documents and invoice to the client, review the summary of insurance, pointing our any differences from the expiring policy.
Offer improvements or additions to coverage to complete the client’s insurance program
Document coverages recommended but refused by the client
Remind them of the need to contact you regarding any changes in their operations, values or vehicles to be insured
Most importantly, thank your client for renewing the business through your brokerage and reiterate your availability to discuss insurance matters at any time.
nce L �9� t `m� �V� so they need to take into consideration the additional interests.Uniform coverage – The owner or general contractor can control the scope of coverage ensuring all parties have adequate insurance and no contractor will lose his insurance mid-term. Financial stability is ensured through the policy term.
Wrap-up allows some flexibility for the owner employing smaller trades for the project who may not be able to afford high liability limits appropriate for the project.
Dedicated Policy Limits – Whereas the project could be insured on the individual participants CGL, the aggregate limits applies to any and all insured operations of the individual contractor making it possible for the limit of the policy to be exhausted responding to other prior claims leaving no coverage for the project itself. The Wrap-up policy’s limits apply solely to the project named.
Loss History insulated – from the client’s regular CDL policy and do not become part of his loss experience. This will be attractive to your client because many losses are caused by sub-trades, not the owner or general contractor.
Cost control – If one wrap-up liability policy is arranged for the entire project, there are generally lower costs, a negotiable deductible and uniform terms. If individual insurance is arranged for each contractor and sub-trade, the additional costs are added to the contract price.
Sub-contractor’s insurance – While the wrap-up liability does provide insurance for the project for each contractor, the completed operations exposure from the project continues even after the extended completed operations period provided by wrap-up ends. Individual contractors still require their own insurance. If they’ve arranged any special conditions in their policy that are not included in the wrap-up they would want the benefit of these terms to apply to any claim arising from the project insured on the wrap-up. Providing the contractor with the benefits of both wordings, excluding anything that is covered by the wrap-up policy from their own policy and arrange a difference in condition cover within the contractor’s own policy which will pick up extended completed operations and excess limits at a negotiated rate is your best service.
Arranging Insurance – Underwriters require a detailed application for wrap-up liability which includes:
- Named insured
- Location
- Construction
- Future occupancy
- Soil types
- Number of floors above and below grade
- Construction methods
- Qualifications and expertise of owner; general contractor; architect and engineers
- Existing liability insurance
- Loss history of all parties
Generally the party in control of the project will arrange the policy – owner or general contractor.
If the contractor is well known, it can be easier for you to negotiate comprehensive coverage. If not, it might be better for the building owner to arrange for insurance. That way, he can make sure the coverage is up to the specifications he requires.
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