C131 – Advanced Skills for the Insurance Broker and Agent

 Study Notes 3 – Marketing, Quoting and Binding Risks 

ORGANIZING THE DATA

Organize and analyze

You’ve obtained information that permits you to recommend an insurance and risk management program

All data from each meeting is organized and provides you the opportunity to analyze what you still may have to identify and what information you may still need to uncover.

Using a survey template to organize this data ids in your analysis of the prospects risk exposures and eases the preparation of a quotation request.

By the end of the third meeting you will have completed the inspection of the premises, gained a thorough understanding of the business operations, discussed risk management options and determined the clients wishes with respect to the selection of Insurers.

Prepare the Submission

Using the brokerages submission guidelines, you typically begin work on a submission at the end of the second meeting and complete it after the third meeting.

TEAM WORK

Division of responsibilities

Producer / account executive – responsible for prospecting for and meeting with clients.

Marketer – prepares the request for quotations and submits the request to the underwriter.

The Marketer analyzes the quotations received and prepares the proposal for the producer.

The Producer/Account Executive presents the proposal to the client and secures the business for the brokerage.

Essential that Producers and Marketers are fully aware of their own and each other’s responsibilities and that they communicate clearly and often.

Underwriters become frustrated when a marketer cannot answer their questions because they have to query the producer for the information.

MARKETING

Arranging insurance requires market intelligence

-          knowing what the general markets offers

-          where to obtain different kinds of insurance coverage

-          details of coverage

-          types of risks your insurers are targeting

-          how to present your requests for quotes to each insurance market

Develop your market knowledge by:

-          researching market trends

-          understanding market conditions

-          selecting appropriate insurers

Market Trends

Keeping up to date allows you to make more detailed market comparisons and develop strong marketing strategies when presenting risks to insurers

Ongoing market research might include:

-          understanding various insurers appetite for business

-          premium levels and rates for different risk categories

-          keeping abreast of changes in wordings (new exclusions; changes to coverages)

Changes in wordings could be universally introduced as a result of outside events or court decisions.

Market Conditions

Insurance market tends to be cyclical – oscillating between hard and soft markets in response to a multitude of factors (past claims experience of the industry as a whole; supply and demand of investment money)

Hard Market – demand exceeds supply and there is less competition between insurers.  Characterized by higher prices and more restrictive terms.  Underwriters more cautious.

Soft Market – supply exceeds demand and competition between insurers is more intense.  Characterized by low prices and broad coverage.  Underwriters more willing to consider innovating methods of insuring risks.

Research techniques that can help you keep up to date with changing market trends and conditions:

-          communicating regularly with insurers so that you can be an effective liaison between them and clients

-          developing close relationships with individual underwriters

-          reading and retaining information; newsletters sent by insurers

-          reading insurance journals; periodicals and informational web sites

-          reading online news pages

-          reading online news pages specific to insurance industry

-          maintaining a network of professionals from all areas of the insurance industry; attending seminars keeps you in touch with valuable information about current trends.

Selecting Insurers

Understanding how specific insurers operate and making comparisons allows you to consider what their appetites are; any specific markets your brokerage deals with; and the financial strength of insurers.

Insurer Risk Appetite

Insurers vary on classes of risk they will consider; coverage wordings provided and limits they’re write.

Insurers adjust their perceptions of preferred business on an ongoing basis throughout the year based on their results.  What was desirable last week may be less desirable now.

An insurer’s flexibility on wordings is another factor to take into account.  How easily can you have wordings customized to address the specific needs of particular clients and how open is the underwriter to amending or deleting policy exclusions or adding clauses to insure specific exposures.

Some markets are open to crafting manuscript wordings to address individual situations

A manuscript wording is a wording that does not conform (usually) to the standard wordings in general use within the insurance industry.  It is often unique to the policy involved.   Can be developed by either the broker or insurer – typically done by the broker.

Others may consider customizing wordings a special concession made to accommodate individual brokers.  Insurers generally limit the number of times they are willing to do this

Specialty Markets

Some classes of business and/or some risks are considered unique or difficult to insure.  A wholesale broker may be required to place this business with a specialty market.

Periodicals and websites of managing general agents can give you an idea of the kinds of coverages available and what classes of business are written in these markets

Financial Strength

As insurance is a promise to pay future losses in return for premium now, the stability of an insurer is of vital importance to both the broker and the insureds.

Rating services such as AM Best Company, Fitch Ratings Ltd., and Standards & Poor monitor insurer solvency and provide insurer ratings based on an insurer’s ability to meet obligations to policyholders and a debt rating.

Some clients use the ratings to determine which insurer they are prepared to deal with.

Brokerages management decisions may suspend placing business with certain companies because of concerns about the insurer’s financial condition; service standards and/or rating/underwriting instability.

Marketing Strategy

Target receptive markets – assess the markets you deal with; which ones will be best for the client; do you require specialty markets and are they available to you; what experiences have your co-workers had with the various markets with respect to coverage; service and pricing.

If in doubt about underwriter accepting a submission, ask for a confirmation of interest.  Can be more proactive than forwarding the complete quotation – gives the underwriter the opportunity to review quickly and provide direction.

Brokerages often keep information on past experiences with different insurers, what classes they write and what approaches have worked best.

If you have little experience in a line of business, request assistance.  Straying from your core competencies leaves you and your brokerage vulnerable to uninsured losses and possible E&O exposures.

Your own and your brokerage’s relationship with markets and/or underwriters can wield considerable influence on how your quotations requests are received.

The brokerage volume and profitability with specific insurers can also have an effect too.  Management can direct you to give certain insurers preference when placing new risks due to focusing on increasing their volume with that insurer.

In a soft market, do not simply flood the market with requests for quotes.  You run the risk that your submissions may not be taken seriously or underwriters will not give any priority to these requests.

In a hard market, you can expect that the same risk the underwriters were eager to write in a soft market will appeal to a much lower proportion of underwriters.  The better your market intelligence the more accurately you can target your requests to receptive underwriters – the likelihood of receiving quotes

QUOTATION REQUEST

A quotation request (submission) consists of a set of documents submitted to an underwriter describing the risk to be insured and the coverages required.

It is intended to provide the underwriter with sufficient details to assess, underwrite and price the risk.

You may wish to provide a cover letter providing a brief summary of the nature of the risk including a list of items and specify the date by which you wish to receive the quote, and your recommendation of the risk based on your inspection; knowledge of the client or other pertinent details for their consideration.

Your goal is to describe the risk and coverages required succinctly, in a format that enables the underwriter to quickly ascertain whether they can write the business; the company’s capacity and how the coverage would be priced.

Contents of a Submission

-          name and mailing address of the client

-          location address(s)

-          description of the business operations including processes, materials, equipment used, special hazards, safety features

-          details of the age, protection and construction of all locations

-          complete schedule of coverages and limits required

-          vehicle descriptions including values and use

-          list of drivers and driving records

-          liability rating information – sales, payroll, square footage

-          minimum 5 years loss history

-          name of present insurer

-          expiry date of existing policy

Attachments to the submission might include:

-          application forms (auto; bond)

-          questionnaires (crime; liability)

-          fully completed statement of values if applicable

-          any special endorsements or wordings used on existing policy

-          a diagram and/or photographs of premises

-          product catalogues

-          advertising materials; brochures

-          printed copies of relevant material from clients website and web address

Split liability data – provide underwriters with sales and/or payroll figures split by product or service to take advantage of varying rates.  If different market places are involved, provide percentage of figures for sales to each country

Bring to underwriters attention any special information:

-          an explanation of loss history and steps taken by the client to eliminate or reduce future losses

-          changes in deductibles that will prevent the reoccurrence of unavoidable small claims

-          special wordings/coverages required due to contracts; local laws or special operations of the client

-          proof of any prerequisite coverage (professional liability)

-          discrepancies between the information the client supplied and the business’ website or brochures

SUBMITTING THE RISK

Full disclosure – as a broker, your personal reputation is your most valuable asset.  When you submit a risk for quote, your objective is to attract the underwriter to quote on the business and to establish your credibility so that they will trust you in future dealings.

Multiple Submissions

While it is preferable to have an entire account written by a single insurer, this is not always possible.  Your choice of markets is dictated by what those markets will write, what insurance coverage the client requires and the size and complexity of the risk.  You may need to make multiple submissions containing different elements to the appropriate insurers.

Similarly, a risk may be so large, complex or of such high hazard that no one insurer can write the entire risk.  When the property portion of a risk is shared proportionally among several insurers it is called a subscription policy – a single policy in which the coverage is shared among two or more companies.  The company with the largest share will usually be the “lead” company and issue the policy documents.

The same submission is sent to each insurer but only the lead company will quote the non-property coverages.  Other insurers indicate the property rates; deductibles and wordings they require and percentage of the risk they are prepared to write.

If insurance is required in the US you may need the assistance of a local broker to handle it for you due to licensing requirements or because of the need for local knowledge of the forms and applications used in the US.

Comparison Quotes

As different companies may have different appetites for risk, tailor your submission to reflect the requirements of each insurer.  One market may prefer to insure sprinklered risks, while another might be more interested in the financial strength and longevity of the account.

In all cases, supply the underwriter with as complete a submission for the requested overages as possible.  This ensures the underwriter has a clear picture of the total risk and maximizes your changes of receiving a quote back quickly.

Abeyance

Once you’ve submitted your quote, abeyance the file to await the response(s).  Length depends on your procedures and the client’s existing cover expires.  Give the underwriter enough time to review the submission and work up a quote as well as your review to compare with other quotes and prepare a proposal to the client.

If you don’t hear from the underwriter within your abeyance period, contact them to enquire about the status.

INSURER RESPONSE

Three possible responses:

Request for more information (questions)

If underwriters have queries that require you to contact the client, collect them all so that you reduce the inconvenience to the client.  Once queries are resolved re-abeyance the file keeing in mind your timeline.

Decline

If underwriter declines or reaches a decision you didn’t anticipate, you can either accept the decision or ask the underwriter for clarification.

You may be able to reverse their decision by clarifying issues of concern with the underwriter.

If you’re unable to influence the underwriter decision, you gain insight into the underwriting process and increase your understanding of that insurer’s risk appetite leading to more effective use of your time in the future.

Quotation

Your desired outcome is to receive a quote for the entire account from one market.  Failing that, you wish to receive a quote or authorization for some portion of the risk

REVIEWING THE QUOTE

When quote received, review against your submission matching it to the coverages and terms you requested and noting any differences or special conditions the underwriters may have imposed.  If dealing with multiple insurers, compare against each others as well.

Assess the terms of each quote to ensure you understand how these terms affect your client and consider whether they will be acceptable to the client.

Avoid inter-insurer disputes whereby you’re placing parts of an insurance program with different markets review carefully for potential exposures that one insurer might consider part of another’s policy.

Points to consider in your review include limits of insurance, confirmation that coverage and rating reflect your request, the proposed wording and factors that affect binding coverage

Confirm limits are what were requested and the insurer is able to write the entire line.  If not, approach others insurers to participate on the risk on a subscription basis or arrange excess insurance over the primary insurance

Excess Insurance – insurance that participates only after all other similar insurance on the same subject is exhausted or participates when the loss exceeds a previously agreed amount.;

Primary Insurance – also knows as underlying insurance is the insurance that responds first.

Appropriate coverage and Rating

Verify wordings used in the quote reflect those requested.

Confirm that all property has been included in the quote, particularly where you have multiple locations or buildings.

Ascertain that all vehicles and equipment scheduled have been quoted for the coverages and deductibles requested ensuring rating used reflects the declared use of the automobiles.

Wording Review

Compare the wordings to those used on the expiring policy to determine any differences.  If unfamiliar with the forms used ask the underwriter or wholesale broker for clarification.

Confirm that you understand any special exclusions (overloaded cranes)

Pay attention to any special endorsements requested, any deductibles and/or self-insured retentions, conditions or warranties and coinsurance clauses.  How do they compare to the expiring policy. 

Binding Considerations

If binding is subject to completion or signature of any special forms, prepare them for clients signature.

Finally confirm with underwriter that you’ve the authority to find coverage if client accepts the quote.

COMPARING QUOTES

SEE SAMPLE COMPARISON ON PAGE 23

Document the comparisons in your files to help you organize your proposal and prepare you for any questions the client may have.

Generally you’ll select the quote to present based on all the following factors:

-          Best dollar value

-          Most comprehensive coverage

-          Most stable insurer

-          Taking into account any preferences expressed by the client

PREPARING THE PROPOSAL

A well designed proposal clearly communicates to the client your understanding of their business, its exposures and the insurance program you’re proposing to protect the client

The proposal could include:

-          name and address of the insured

-          list of insured locations, vehicles and equipment

-          name and address of proposed insurers

-          specific details of coverages being quoted along with key exclusions, warranties, special extensions

-          statement of terms and conditions of your proposal

-          recommendations for additional coverages not currently carried

-          information on unavailable cover, if any

-          a clear disclaimer stating that

o   the proposal is not evidence of coverage bound

o   policy conditions, limitations and exclusions discussed in the proposal are only some of those contained in the actual policy wording and recommend the client read the wording for complete understanding

o   when insurance is bound all coverages arranged will be confirmed with a written binder

-          an invitation for the prospect to contact you with any concerns or questions they may have

-          the premiums quoted; how they compare with respect to premium adjustments; the amount of applicable premium sales taxes, shown separately; and if any fees are applicable (inspections or signing fees)

Prepare a summary page that highlights the items in the proposal the client was most interested in as shown in example on page 23-26.

THE FOURTH MEETING: PRESENTING THE PROPOSAL

Give the client time to read the proposal summary and then present the full proposal in detail.  Presenting the proposal allows you to explain and illustrate how the proposal meets the clients needs that have been determined in the previous 3 meetings.

If presenting to someone other than the person you previously met, this is an excellent opportunity to present your proposal and sell your services.  Preferably this person will be the decision maker for the client.

Discussion content:

-          explain specific items in the written proposal

-          recommend improved risk management strategies

-          document coverages accepted or declined

-          present an expert representative and/or supporting materials

-          explain the premiums

-          calculate and explain taxes on premium where applicable

-          explain payment options and the down payments required.

-          offer your office’s services

Explain the terms and conditions in the written proposal including exclusion clause, the effect of any warranties and any recommendations for additional coverage not currently carried.

Provide your recommendations for changes or additions to the insurance program by providing the client with loss examples relevant to their industry that illustrate the protection the additional coverage can provide.

Document your advice

Note any risks the client decides to self-insure on a copy of the proposal and obtain client signature confirming the decision.  Documenting coverages offered and declined is a means of emphasizing to the client that your main concern is to provide them with insurance you believe is important to meet their needs.

Offer coverages in writing and continue the practice of requesting client’s signed confirmation of their decision to accept or reject any additional coverage.

Premiums

De-emphasize pricing when presenting a quote – policies written on price alone can be lost for the same reason.

Focus instead on the protection the policy affords and services of your brokerage.  Putting premium near the end of the proposal leads the client away from considering price as their first and/or only consideration.

Avoid itemizing the premium cost for each coverage but be prepared to discuss how customizing the program will affect the price.

Depending on the size of the clients operations, they may want to allocate insurance costs against each subsidiary within organization

Adjustable Premiums

Some premiums such as liability or stock coverages may be adjustable.  A deposit premium, based on an estimate, is charged at the inception of the policy.  Premium is subject to adjustment at renewal or other predetermined time, on the basis of actual risk the insurer accepted.  Need to ensure adjusted premium is calculated based on true exposure.

Premium Taxes

Be prepared to discuss the implications with your client.  Sales taxes vary by province.  Ensure taxes are applied only to the premium for the applicable locations, not blanket over the entire policy

Payment Options

Offering options for financing especially where high premiums are involved may be helpful in securing the account.  Typically premium is paid in full, in two parts (initial deposit followed by the balance in 30 days) or through a payment plan.

CLOSING THE SALE

Having presented your proposal, ask for the sale.  The process begins with your first meeting with the client then continues through all your contacts with them including the research done before each meeting, the questions asked during the meetings and the professional way in which you provide solutions to their unique needs.  The sales focus increased the likelihood that by the 4^th meeting, your proposal will be accepted.

Client may have other proposals to consider.  If so, ask the client what you must do in order to obtain the business.  Find out what elements of other proposals will affect the client’s decision and be prepared to schedule an additional meeting to discuss these elements.

Closing phrases:

-          we can bind cover for you on this basis effective date

-          how would you like to pay

-          we’ll contact you next day to finalize binding

-          the insurer requires you to complete this application prior to binding.  We have completed it based on details you provided – could you please review for accuracy and sign when your satisfied.

ORDERING THE POLICY

Obtain client’s signature confirming the purchase of all coverages and insurers selected ensuring beforehand the client understands what they are purchasing.

Even if you have binding authority, obtain confirmation in writing of the coverage bound at the earliest point possible.  If a subscription policy, notify all insurers of coverage request not just the lead company asking them for acknowledgement of coverage.

When binding is contingent on receipt of signed applications or documents, advise the client that if the signed documents are not forwarded coverage will not be bound in time and any losses may not be covered.

Once binding confirmed issue a binder to the client.  Wherever possible, tie the binder to the policy number of the policy issued and include:

-          name and address of insured

-          locations and type of risk being insured

-          date and time coverage is bound and date; expiry date of coverage and date and time binder expires

-          any loss payees or mortgages and their mailing address

-          description of subject of insurance

-          type and form of contract under which the risk is bound tying the binder to the insurers usual policy forms – “subject to all the terms and conditions of the insurer’s usual policy in that behalf”

-          clause stating “This policy contains a clause that may limit the amount payable”

-          name of insurer binding coverage

-          provisional premium

-          name; address and signature of issuing broker

POLICY DOCUMENTS

When received, review for accuracy.  Failure to do so could result in your sending the client a document that does not provide the protection they understood they were buying.

Arrange a meeting to deliver the documents to whoever is assigned you deliver them to.  Draw attention to the need to promptly advise you of any changes to the present risk or the purchase of new operations.  You may also provide contact information of specific people at your brokerage that can be contacted to provide certificates of insurance, deal with claims or coverage changes and/or provide other services.