Chapter 2 Exposure Identification and Analysis
FNDING POTENTIAL CLIENTS
Brokers obtain new clients either actively – by approaching a potential client, or passively – by being approached.
Broker seeks Client
Some brokerages have sales staff to prospect for new clients
Others depend on advertising in specific industry journals, on TV or radio, telephone directory, local newspapers or on the internet.
Some brokers solicit business from potential clients through direct mail campaigns putting together a presentation of potential coverages and options for a specific industry – this approach is aimed at the potential clients line of work.
Client seeks Broker
Clients, in turn, contact new brokers in a variety of ways such as by phone, internet or in person.
They may select a broker randomly or because of your advertised experience in their industry or because an existing client of your brokerage has recommended you.
You could be the only broker approached or you could be one of many.
QUALIFYING THE CLIENT
When brokers canvass for clients they generally approach a specific pre-qualified segment of their target market.
Potential clients seek out new brokers because they have never had insurance before; are dissatisfied with their current broker/insurer; or want a second option or competitive quotes on their insurance program.
These clients could be approaching you because their board of directors has a policy of obtaining market comparison quotes on a regular basis or their being advised to do so from their financial advisor.
Determine if the current insurer has refused renewal or offered renewal on limited coverage or terms. Has the existing broker offered alternatives?
When evaluating the suitability of a prospect, consider:
- type of class of business
- clients service requirements
- potential competition on the account
- quotation terms
- clients payment practices
- possible moral hazard
Class of Business
A broad knowledge of different industries and of the risks pertaining to them will assist you in identifying exposures typical to that particular class of business.
Knowing the typical hazards, consider whether you can assist the client and if you have access to markets that will write the insurance.
If the clients business has high hazard exposures, insurance may be difficult to place but does not mean the client is disqualified as a prospect.
The industry may be unattractive to the underwriters however the client may be more appealing because of their overall loss experience is better than industry average due to loss prevention measures and/or larger deductibles carried.
Service Requirements
When evaluating client needs, compare them against your brokerage’s capabilities. Can you reasonably and profitably meet the client’s expectations of type and level of service.
Competition
Is the client truly interested in what you can do for them or are they merely shopping around for a better price or validating their current broker’s recommendations and insurance program.
Try to determine your probability of success before committing your time and expense.
Quotation Terms
If the client is looking for a quote on a pre-set insurance package – be careful. You may exposure yourself and your brokerage to an errors and omissions situation if not permitted to review the clients needs.
Also consider if the client will accept your advice later. If you decide to provide a quote, clearly indicate in writing that this quote is subject to a full risk management review of client’s exposures if successful.
If client puts their business out to tender on a yearly basis, your decision to respond will depend on your brokerages general practice.
Tendered business is considered ephemeral (lasting a short time) – acquired one year, lost the next.
Payment Practices
Client could be approaching you because of payment disagreements with previous broker. This could be difficult to ascertain however, if suspected, consider obtaining a credit report to review overall payment history.
Moral Hazard
Be wary of anyone who seems especially impatient to arrange insurance and/or is overly interested in how specific losses might be adjusted and paid.
After all considerations have been given and you wish to proceed, obtain the expiry dates (X-dates) of current insurance policies to establish a timeline for completing a survey and preparing a submission to the underwriters.
PREPARING TO MEET WITH A POTENTIAL CLIENT
Once you’ve pre-qualified the prospect, obtained a commitment from them to meet with you and established a time line to provide a quotation, gather more detailed information about the industry, the client and the products/services sold.
Sources you might consult include:
- colleagues
- underwriters
- library resources
- client’s web site
Colleagues
Use resources around you to expand your general knowledge of the clients industry. Review other client files for similar business or talk to in-house experts in various industries either via email or posting questions in the internet.
Some brokerages are members of a marketing cluster – an association of two or more brokerages linked by formal agreement to focus their collective marketing while remaining independent in all other respects.
Underwriters
Underwriters will have experiences and concerns about specific industries. Find out what special requirements they have, if any.
Library Resources
A variety of information is available: news clippings; magazine articles; internet pages on various industry issues.
In addition, consider Best’s Underwriting Guide and/or D&B (Dunn & Bradstreet)
Best’s Underwriting Guide provides insurance professionals with details descriptions of industrial risks by class including:
- underwriters checklists or questions to be asked and special hazards that may exist
- profile of the industry
- examples of materials/equipment used by the industry
- suggested lines of insurance to consider
- special exposures that may exist with the industry classification
- recommended loss control measures
D&B reports on the prospect can provide:
- date the company commenced operations
- gross sales
- net worth
- number of employees
- information about special events (major losses or mergers and acquisitions)
- credit history
- list of branches or divisions
Client’s Website
This source of information will yield valuable information about the company itself. Experience; background of the principals; products and/or services provided; any claims or guarantees made about the products and/or services; financial data on the company.
Organize the Information
Will ease access to it when in discussions with the client and when you prepare quotation requests or submission to underwriters.
Using Surveys Effectively
As a resource, they can be used an information blueprints reminding the broker of information that may or may not apply to potential clients, so they must be tailored to your prospective client.
When preparing interview questions from a survey, ask questions that would not be readily inferred by the underwriter (example: size and heat source, temperature settings; safety equipment of a commercial bakery).
When meeting with potential clients, along with the basic information about the industry, collect data on the insurance markets prepared to write this type of business. This will help you answer common questions such as:
- possible insurance markets for clients business
- information on specialty coverages required (surety bonds)
- information on special inspections
- supplementary applications that may be required
MEETING WITH POTENTIAL CLIENTS
In order to examine the sales and marketing process in some depth, four meetings with the client are examined here. While there is some overlap, each meeting has a different purpose:
- first meeting – to be come acquainted and collect data readily available
- second meeting – to conduct an in-depth interview with the various experts at the clients premises to collect more data necessary to prepare submission
- third meeting – to physically inspect the premises and collect/clarify other information required
- fourth meeting – to present the quotation to the client
The first 3 meetings are discussed in this chapter – the fourth is discussed later in the text.
First Meeting
Very simple yet very crucial.
You will have about half an hour to sell the concept of risk analysis; yourself and your brokerage and arrange next steps (further information or visits needed).
Main goal is to gain clients trust; sell the risk analysis concept; obtain copies of client’s loss history and current insurance documents - generally gather specific information about the client and the business that is readily available.
Because this first meeting is intended as an introduction, you don’t have much time to gather information. Collect what you can, then establish a process by which more can be gathered with minimal inconvenience to the client.
Gaining clients trust
Establishing credibility as a broker is essential to gaining the trust and respect of a potential client.
Use the first meeting to “sell” yourself and your brokerage to the client. If meeting in person, provide client with any promotional material you have.
Arrive on time with organized notes and questions based on preliminary research.
A professional and friendly disposition will help you make the potential client comfortable – which encourages them to provide you with complete information (hopefully).
Reinforce the benefits of dealing with you by identifying your strengths and contributions to the process:
- valuable risk management advise
- contact with insurance professional who is always available
Remember that sometimes how a question is asked is as relevant as what is asked.
Selling Risk Analysis – explain the benefits of accurately identifying and analyzing their exposures to loss, not just the risks they wish to transfer to insurers using examples specific to their business to demonstrate how avoiding, minimizing and transferring risk will benefit them.
If client only wants a comparison quote and you believe you can do so without and E&O exposure, use this as the first part of the broker-client relationship. Following the successful quotation exercise and having gained the prospect as a client, you can then proceed to improve the risk through analysis.
When completing the risk analysis and obtaining possibly sensitive information about the business operations, it is beneficial to tell the client why the information is required, what it will be used for and how it will be safeguarded.
Obtaining Documents
At the first meeting, obtain those that the client has readily available and ask that others be made available to you at the next meeting.
Typical documents you may with to consult include:
Advertising brochures and catalogues – review to determine client’s services or products and their intended uses. Are there any claims or warranties made.
Loss History – insurers generally require minimum of 5 years history broken down by type of insurance. Some lines of coverage (product liability) requiring a more encompassing loss history might be necessary. Some coverage (claims-made basis on professional liability) may require applications which disclose any known incidents even if the client does not think they will result in a claim.
Current insurance policies – The goal is to familiarize yourself with the existing program and wordings so that you can make recommendations for improvement
List of locations – to ensure that all property and locations are insured as required. List should include all buildings; equipment and stock. Ask client to confirm accuracy at next meeting
Floor plan of premises – will provide a plan of the client’s production lines enabling you to understand the flow of work and identify potential bottlenecks.
Statement of Values – required if client wishes to insure the property on a stated amount co-insurance basis. It is a schedule of values supported by appraisal of buildings; stock and equipment by location. Unlikely available at first meeting.
Schedule of vehicles and drivers – can be extracted from the automobile insurance policy or obtained from a separate list including values of the vehicles and driver information. You can ensure all vehicles are included in the policy and rated correctly.
Annual financial reports – contain information needed to underwrite the account (sales; payroll figures) For a publicly traded company, this information is a matter of public record.
Contracts – including leases; vendors; and shipping contracts. Examine to identify contractually acquired exposures (leased equipment) that require insurance and to determine exposures transferred to others.
After the first meeting:
Analyze and organize data – from your own research and the first client meeting. Refer back to your survey form to classify information; assess what you know and identify and group questions you have yet to investigate.
Review exclusions – if you’ve obtained the existing wordings, examine them to determine if there are any critical exclusions that may result in uninsured exposures. If you’re able to recommend additional insurance to counteract, this represents a sales opportunity. Can you recommend other coverages. If insurance is unavailable, inform the client of your analysis in writing explaining how the business could be affected by these exposures.
Locations and Values – assess the schedule provided against what you now know about the clients operation. Do they appear reasonable and note to discuss with the client at next meeting. Consult a rating bureau (CGI) to obtain or confirm construction details.
Loss history – review to identify patterns of frequency and/or severity. Identify areas to discuss loss prevention procedures or increased deductibles with the client. Loss history can also indicate unexpected exposures.
Financial statements – used to analyze clients sales and expenses to calculate business interruption values and to obtain a split of sales of different products/services for rating. Can also be used to qualify the client. Again because of their sensitive nature, discuss with client why you need them and how you will protect this information.
Contracts – to determine client’s exposure. Contractual transfer of liability can work both to the clients’ advantage (making another responsible) but also to increase the exposures (contract makes the client responsible for an exposure). In either case compare the contractual agreements against existing insurance policies to determine if the client is adequately protected.
Second Meeting
Used to complete the loss exposure identification and clarify exposures already identified; gather additional documents not available earlier and through analysis, begin to identify the best technique or combination for dealing with the exposures.
Identifying and Clarifying Loss Exposures – your goal is a thorough understanding of the clients operations and exposures.
- ask questions to clarify anything you don’t understand
- complete survey notes with information to be used in underwriting, rating, risk management
- consult the experts both within clients premises and elsewhere obtaining client’s permission where necessary
- inspect the premises (could be done at the third meeting) with someone who can explain processes
- note anything that might become an exposure
Being aware of information underwriters need, helps you to find the relevant starting point for discussions with client.
Any exposures unique to the particular client, may affect the underwriting and rating of the risk.
Strategizing – you obtain a clearer picture of the exposures and the clients priorities and concerns. From this you can determine possible risk management options to recommend. These options include:
- avoiding risk
- minimizing risk through risk improvement and contingency plans
- transferring risk through contractual agreements or insurance
- retaining the risk.
Since any of these option have a financial impact on the business, the client will probably consult their financial advisor or their own risk manager when determining a course of action. Your role is to help the client strategize, to assist them in determining which of these options best suits each circumstance and to provide them with insurance quotations for the risks to be transferred to insurers.
Avoiding Risk – eliminates exposure to loss but could also eliminate business opportunities and reduce revenues.
Minimizing Risk – discussions with the client and inspection of premises may enable you to recommend potential improvements to the existing loss control procedures or the establishment of new techniques.
Some improvements may require major capital expense, therefore a client might want to implement in stages over several years. Other measures may already be in place or simply require time to accomplish.
Contingency plans can minimize the effects of risks that cannot be avoided. Ask the client what plans they have formulated to deal with work slowdowns or stoppages due to losses.
Risk Transfer – The client can minimize the effect of risks by transferring them to others through contractual agreements or to insurers.
Contractual Risk Transfers are affected by:
Market conditions – a provider of goods/services is more likely to accept the transfer of risk in order to win a contract
Legal Issues – some responsibilities that cannot be legally transferred either because of common law or statute law – they may differ from one jurisdiction to another.
Convention – equipment leases – it is usual to transfer the risk of loss to the equipment from the owner (lessor) to the lessee
Experience and Control – the more knowledgeable party and who has control of the work or property is usually better able to cope with the risk.
Be aware that where a risk has been transferred to others the transfer may be incomplete.
Insurance Risk Transfer:
Discuss your clients expectations for an insurance quotation, including:
o timing of a quote
o the insurer the client would prefer to deal with
o which risks to insure and which the client will retain
o policy wordings
Risk Retention – two common ways to retain risks:
Deductibles – creates an economic incentive for insured’s to protect their property from damage and it makes risks more attractive to insurers by having the insured retain responsibility for certain risks.
In some policy wordings the deductible applies only to losses below a specified threshold. Above that limit, the loss is adjusted as though the policy were not subject to a deductible.
Liability policy deductibles can apply to just the loss or to the loss and to defense costs.
Self-insured retention (SIR) – is the amount of a potential loss that is not covered by insurance. It can represent a portion of a risk, entire building, a class of contents or all losses arising from a particular cause.
An SIR allows the insured to be a partner with the insurer in the risk. The insured may have some authority to participate in the claims settlement process.
Only insured’s who have the financial ability to fund their potential losses and the ability to be involved in the claims adjustment process should consider an SIR over a deductible.
If the client elects to use an SIR, confirm that they understand the differences between SIR’s and deductibles and if necessary explain the duties and obligations of the insured under SIR’s
Differences between deductibles and SIR’s
Like deductibles, SIR’s heighten awareness of loss for the insured therefore they are encouraged to actively practice loss prevention. Depending on the client, SIR’s and deductibles can be very large amounts of money. But – unlike deductibles (the amount of insurance is reduced by the deductible) the SIR does not affect the policy limit.
A good exercise to determine if retention is an effective risk management strategy for a client is to review past losses and determine how many deductibles or SIR’s the company could absorb.
The client’s business size will affect this decision. For an average sized or smaller company the cost of insurance can be only a fraction of the loss exposure. When costs are lower than possible losses, insurance is economical.
For large companies, retention of risk and large deductibles can be methods to gain control of premium dollars to improve cash flow. The size of the company reflects how much loss exposure it can absorb.
For larger companies, an SIR can be a means of providing cover for a risk that the insurer does not want to accept. An SIR can be arranged through a funding mechanism within the primary insurance policy up to a level over which the underwriter is comfortable.
Once the client has determined the appropriate strategy for managing their risk exposures, continue your analysis and organization of the material gathered so that you are able to make a submission to the underwriters for those risks to be insured.
Third Meeting
If your gathered material reveals gaps in any understanding of the clients operations, you will need clarification so that you can prepare your submission to insurers. The third meeting with the client may be necessary.
This may also be the time and opportunity to inspect the site operations if it’s not already done. The prospective insurer may wish to inspect the property as well.
When inspections are performed, you or a loss control engineer can confirm the information the client has provided and identify exposures and hazards undisclosed during the interview process.
If you are inspecting the risk yourself, use an inspection form that details specifics to investigate, including construction details, occupancy, processes, fire extinguishers and their service dates, alarms systems, crime exposures and liability concerns. Photographs will support your report.
Your goal is to provide underwriters with a balanced view of the risk, bringing attractive elements as well as hazards to their attention. You’re identifying possible loss control improvements, as this may affect the underwriting and rating of the risk.
Record your findings in a written report, documenting any new information that has been revealed. This report puts you in a position to complete the submission to insurers for a quotation.
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