EXECUTIVE SUMMARY
Why is insurance necessary? The question contains the answer within itself. After all, life is fraught with tensions and apprehension regarding the future and what it holds for the individual. Despite all the planning and preparation one might make, no one can accurately guarantee or predict how or when death might result and the circumstances that might ensue in its aftermath. We are not saying that life and existence are constantly fraught with danger and uncertainly. But then it is essential that you plan for the future. The chances for a fatality or an injury to occur to the average individual may not be particularly high but then no one can really afford to completely disregard his or her future and what it holds. In today’s world of economic growth, you can hardly live without insurance. Insurance is a boon to the mankind in several ways. There are a wide range of insurance policies like the health and the property insurance. In fact, the insurance plans were laid by many states and governments since past so many centuries. An Insurance Broker is an independent intermediary who mediates (act as a go-between), Insurance Contracts between his/her client (the Insured) and the Insurers. Insurance Agents also mediate Insurance Contracts, but they are primarily Agents of the Insurer. Such an Agent may either be an employee or a mandatory of the Insurer.
Page | 1
The Long-and Short-term Insurance Acts provide an agreement whereby the Insured agrees that the Insurer’s Agents will be exempted from liability for any act or omission, or whereby it is agreed that the Insurer’s Agent will be deemed to be the Insured’s Agent, is void. The broker work with number of insurance companies and remain well positioned to obtain a good deal for the prospects on favorable terms. The broker is an independent intermediary who will act on behalf of the plan and also will continue to serve the client till the settlement of the claim. Contrary to this, the insurance agent acts on behalf of insurers/ insurance companies.
Page | 2
INTRODUCTION
Insurance brokers According to the Insurance Regulatory and Development Authority Regulations, 2002, the term “insurance broker” shall be deemed to mean a direct broker, a reinsurance broker or a composite broker as the case may be unless expressly stated to the contrary. An insurance broker acts as an intermediary between clients and insurance companies. Clients may be either individuals or commercial businesses and organizations. Brokers use their indepth knowledge of risks and the insurance market to find and arrange suitable insurance policies. Insurance brokers, unlike tied agents, are independent and offer products from more than one insurer, to ensure that their clients get the best deal.Insurance policies range from motor insurance, required by law to drive a vehicle in the UK, to public, employers’ or product liability insurance, which pays compensation on the basis of the assessment of legal liability for damage, injury or harm. Brokers are a set of intermediaries who can solicit and procure insurance business of life insurance, general insurance, or both. They are essentially independent contractors. A broker can be a proprietor, partnership firm or a company formed under the provisions of Company Act 1956. The brokers work with number of insurance companies and remain well positioned to obtain a good deal for the prospects on favorable terms. The broker is an independent intermediary who acts on behalf of the prospect and the policyholders i.e. at the time of recommending the risk plan and also will continue to serve the client till the settlement of the claim. Contrary to this, the insurance agent acts on behalf of insurers/ insurance companies. The broker
Page | 3
has to identify his client’s risk needs and will have to do shopping by contracting different insurance companies to search for an adequate product with a competitive price which will be most suitable to his clients. Therefore the broker has to be a well versed professional adequately trained to operate as a market mover in the insurance industry. The agent represents supply side (acting on behalf of suppliers) whereas the broker represents the demand side in the insurance market in view of the fact that he is the person who knows about what the prospective clients need and what type of insurance cover both life and general can satisfy these ever changing customer needs. As such brokers’ role will be much supportive to the growth of insurance industry. On the basis of the brokers’ solicitation the product development will be much faster “as the insurance companies will have a dependable data feedback for product designing and arriving at the decision on pricing, etc.
Page | 4
TYPES OF BROKERS
The types of brokers are classified as under: 1. General Insurance Brokers 2. Life Insurance Brokers 3. Composite Brokers 4. Reinsurance Brokers General Insurance and Life Insurance brokers are direct brokers. According to the Regulation “Direct Broker” means an insurance broker who for the time being licensed by the Authority to act as such, for a remuneration carries out the specified functions in the field of life insurance or general insurance or both on behalf his clients. Composite Broker means an insurance broker who for the time being licensed by the Authority to act as such, for remuneration, arranges insurance for his clients with insurance companies and/or reinsurance for his client/s. Reinsurance Broker means an insurance broker who for the time being licensed by the Authority to act as such, for remuneration, arranges reinsurance for direct insurers with insurance and reinsurance companies.
Page | 5
FUNCTIONS OF A DIRECT BROKER
The functions of a direct broker shall include any one or more of the following: ? Obtaining detailed information of the client’s business and risk management philosophy.
? Familiarizing himself with the client’s business and underwriting
information so that this can be explained to an insurer and others; ? Rendering advice on appropriate insurance cover and terms; ? Maintaining detailed knowledge of available insurance markets; as may be applicable; ? Submitting quotation received from insurer/s for consideration of a client;
? Providing requisite underwriting information as required by an insurer in
assessing the risk to decide pricing terms and conditions for cover;
? Acting promptly on instructions from a client and providing him written
acknowledgements progress reports
? Assisting clients in paying premium under section 64VB of Insurance Act,
1938 (4 of 1938); ? Providing services related to insurance consultancy and risk management; ? Assisting in the negotiation of the claims; and ? Maintaining proper records of claims.
Page | 6
FUNCTIONS OF A RE-INSURANCE BROKER
The functions of re-insurance broker shall include any one or more of the following: ? Familiarizing himself with the client’s business and risk retention philosophy; ? Maintaining clear records of the insurer’s business to assist the re-insurer/ (s) or others;
? Rendering advice based on technical data on the reinsurance covers
available in the international insurance and reinsurance markets;
? Maintaining a database of available reinsurance markets; including
solvency ratings of individual re-insurers; ? Rendering consultancy and risk management services for re-insurance; ? Selecting and recommending a re-insurer or a group of re-insurers; ? Negotiating with a re-insurer on the client’s behalf; ? Assisting in case of commutation of reinsurance contracts placed with them,
? Acting promptly on instructions from a client and providing it written
acknowledgements and progress reports; ? Collecting and remitting premiums and claims within such time as agreed upon; ? Assisting in the negotiation and settlement of claims; ? Maintaining proper records of claims; and
? Exercising due care and diligence at the time of selection of re-insurers and
international insurance brokers having regard to their respective security rating and establishing respective responsibilities at the time of engaging their services.
Page | 7
REQUIREMENTS AND QUALIFICATION OF A BROKER
? The broker will have to obtain the license from the IRDA. For this purchase an application has to be made in Form A to the Authority. ? The application shall be made for any one or more of the following categories, namely: (a)direct broker; (b)re insurance broker; (c) composite broker; along with the requisite fees as specified in the Regulation. ? The applicant has to have minimum of two persons employed having the minimum qualifications of an Associate of Insurance Institute of India or its equivalent or any other professional qualifications from an institution recognized by government, in finance, law, engineering, or business management, and has undergone theoretical and practical training to be conducted by National Insurance Academy, Pune on the basis of syllabus finalized by the IRDA.
? However, a person carrying on reinsurance broking and other insurance
consultancy for a period of more than 10 years and having required experience of carrying on business, the authority may grant exemptions as regards qualifications and training.
? The broker’s application will be reviewed by the authority in regard to
infrastructural aspects i.e. whether he has sufficient office space, equipments and manpower to discharge his duties. ? The principal officer should not have violated the code of conduct.
Page | 8
? The applicant should not be engaged in any other business and the issue of
license is in the interest of the policyholders. ? Requirement of Capital
Category of Insurance Typed of Broker Broker Minimum Capital Required Category I Category II Category III Category IV Direct General Insurance Broker Direct Life Insurance Broker Reinsurance Broker Composite Broker Rs.50 Lakhs Rs.50 Lakhs Rs.200 Lakhs Rs.250 Lakhs
Simultaneously with the application for license the applicant has to satisfy the capital adequacy requirement that has been notified by the IRDA which is shown in the above table. A similar requirement will be notified for renewal of the license issued. The capital in the case of a company limited by shares and a cooperative society the form of equity shares. No part of the capital of an applicant shall be held by a non-Indian interest beyond 36% at any time.
? Every Insurance broker shall have to arrange for professional indemnity
cover throughout the validity period of his license, which is a period of three years from the date of its issue unless same is suspended or cancelled pursuant to the regulations. This is because he has to provide for the risk in case of breach of duty while transacting business or any damage caused because of his negligence.
PRINCIPLES GOVERNING INSURANCE BROKERS
Page | 9
A. Insurance brokers shall at all times conduct their business with Utmost good faith and integrity. B. Insurance brokers shall do everything possible to satisfy the insurance requirements of their clients and shall place the interest of those clients before all other considerations. Subject to these requirements and interests, insurance brokers shall have proper regard for others. C. Statements made by or on behalf of insurance brokers when advertising shall not be misleading or extravagant. The following are some specific examples of the application of these principles:
•
In the conduct of their business insurance brokers shall provide advice objectively and independently. Insurance brokers shall only use or permit the use of the description “insurance broker” in connection with business provided that business is carried on in accordance with the requirements of the regulation
•
•
Insurance brokers shall ensure that all work carried out in connection with their insurance broking business shall be under the control and dayto-day supervising possible to ensure that their employees are made aware of this Code.
•
Insurance brokers shall on request from the client explain the differences in, and the relative costs of, the principal types of insurance, which in the opinion of the insurance broker might suit a client’s needs.
• Insurance brokers shall ensure the use of a sufficient number of insurers to satisfy the insurance requirements of their clients.
Page | 10
• Insurance brokers shall, upon request, disclose to any client who is an individual and who is, or is contemplating becoming, the holder of a policy of insurance the amount of commission paid by the insurer under any relevant policy of insurance.
•
Although the choice of an insurer can only be a matter of judgment, insurance brokers shall use their skill objectively in the best interests of their client.
•
Insurance brokers shall not withhold from the policyholder any written evidence or Documentation relating to the contract of insurance without adequate and justifiable reasons being disclosed in writing and without delay to the policyholder. If an insurance broker withhold a document from a policyholder by way of a lien for monies due from that policyholder he shall inform a client of the name of all insurers with whom a contract of insurance is placed. This information shall be given at the inception of the contract and any changes thereafter shall be advised at the earliest opportunity to the client.
•
Before any work involving a charge is undertaken or an agreement to carry out business is concluded, insurance brokers shall disclose and identify any amount they propose to charge to the client or policyholder, which will be in addition to the premium payable to the insurer.
•
Insurance brokers shall disclose to a client any payment, which they receive as a result of securing on behalf of that client any service additional to the arrangement of a contract of insurance.
•
Insurance brokers shall have proper regard for the wishes of a policyholder or client who seeks to terminate an agreement with them to carry out business.
Page | 11
•
Any information acquired by an insurance broker from his client shall not be used or disclosed except in the normal course of negotiating, maintaining, or renewing a contract of insurance for that client or unless the consent of the client has been obtained or the information is required by a court of competent jurisdiction.
•
In the completion of the proposal form, claim form, or any other material document, insurance brokers shall make it clear that all the answers or statements are the client’s own responsibility. The client should always be asked to check the details and told that the inclusion of incorrect information may result in a claim being repudiated.
•
Advertisements made by or on behalf of insurance brokers shall comply with the applicable parts, of the Code of Advertising Practice published by the Advertising Standards Council and for this purpose the Code of Advertising Practice shall be deemed to form part of this Code of Conduct.
•
When advertising their services directly or indirectly either in person or in writing insurance brokers shall disclose their identity, occupation and purpose before seeking information or before giving advice.
•
Insurance brokers shall display in any office where they are carrying on business and to which the public have access a notice to the effect that a copy of the Code of Conduct is available upon request.
CODE OF CONDUCT
Page | 12
1.Every insurance broker shall follow recognized standards of professional conduct and discharge his functions in the interest of the policyholders. 2. Conduct in matters relating to clients relationship – Every insurance broker shall:
(a) conduct its dealings with clients with utmost good faith and integrity at all
times. (b) Act with care and diligence; (c) Ensure that the client understands his relationship with the broker and on whose behalf the broker is acting; (d)Treat all information supplied by the prospective clients as completely confidential to themselves and to the insure(s) to which the business is being offered. (e) Take appropriate steps to maintain the security of confidential documents in their possession; (f) Hold specific authority of client to develop terms. (g) Understand the type of client it is dealing with and the extent of the client’s awareness of risk and insurance, (h) Obtain written mandate from client to represent the Client to the insurer and communicate the grant of a cover to the client after effecting insurance; (i) Obtain written mandate from client to represent the client to the insurer, reinsurer and confirm cover to the insurer after effecting re-insurance, and submit relevant reinsurance acceptance and placement slips; (j) Avoid conflict of interest. 3. Conduct in matters relating to sales practices – Every insurance broker shall:
Page | 13
(a) confirm that it is a member of the Insurance Brokers Association of India
or such a body of brokers as approved by the Authority which has a memorandum of understanding with the Authority; (b)confirm that he does not employ agents or canvassers to bring in business
(c) identify itself and explain as soon as possible the degree of choice in the
products that are on offer; (d)ensure that the client understands the type of service it can off; (e)ensure that the policy proposed is suitable to the needs of the prospective client;
(f) give advice only on those matters in which it is knowledgeable and seek or
recommend other specialist for advice when necessary;
(g) not make inaccurate or unfair criticisms of any insurer or any member of
the Insurance Brokers Association of India or member of such body of brokers as approved by the Authority;
(h) explain why a policy or policies are proposed and provide comparisons in
terms of price, cover or service where there is a choice of products.
(i) state the period of cover for which the quotation remains valid if the
proposed cover is not effected immediately;
(j) explain when and how the premium is payable and how such premium is
to be collected, where another party is financing all or part of the premium; full details shall be given to the client including any obligations that the client may owe to that party (k) explain the procedures to follow in the event of a loss.
4. Conduct in relation to furnishing of information- every insurance broker shall:
Page | 14
a) Ensure that the consequences of non disclosure and inaccuracies are pointed out to the prospective client; b) Avoid influencing the prospective client and make it clear that all the answers or statements given are the latter’s own responsibility. Ask the client to carefully check details of information given in the document and request the client to make true, fair and complete disclosure. c) Explain to the client the importance of disclosing all subsequent changes that might affect the insurance throughout the duration of the policy. d) Disclose on behalf of its client all material facts within its knowledge and give a fair presentation of the risk. 5. Conduct in relation to explanation of insurance contract - every insurance broker shall: a) Provide the list of insurer(s) participating under the insurance contract and advise any subsequent changes thereafter; b) Explain all the essential provisions of the cover afforded by the policy recommended by him so that, as far as possible, the prospective client understands what is being purchased; c) Quote terms exactly as provided by insurer; d) Draw attention to any warranty imposed under the policy, major or unusual restriction, exclusions under the policy and explain how the contract may be cancelled; e) Provide the client with prompt written confirmation that insurance has been effected
Page | 15
f) Notify changes to the terms and conditions of any insurance contract and give reasonable notice before any changes take effect; 6. Conduct in relation to renewal of policies- every insurance broker shall: a) Ensure that its client is aware of the expiry date of the insurance even if he chooses not to offer further cover to the client; b) Ensure that renewal notices contain a warning about the duty of disclosure including the necessity to advise changes affecting the policy which have occurred since the policy inception or the last renewal date; c) Ensure that the renewal notices contain a requirement for keeping a record(including copies of letters) of all information supplied to the insurer for the purpose of renewal of the contract; d) Ensure that the client receives the insurers renewal invitation well in time before the expiry date. 7. Conduct in relation to claim by client- every insurance broker shall: a) Explain to its clients their obligation to notify claims promptly and to disclose all material facts and advise subsequent developments as soon as possible. b) Request the clients to make true, fair and complete disclosure where it believes that the client has not done so. If further disclosure; is not forthcoming it shall consider declining to act further for the client; c) Give prompt advice to the client of any requirement concerning the claim d) Forward any information received from the client regarding a claim or an incident that may give rise to a claim without delay, and in any event within three working days;
Page | 16
e) Advise the clients without delay of the insurer’s decision or otherwise of a claim and give all reasonable assistance to the client in pursuing his claim. 8. Conduct in relation to receipt of complaints- every insurance broker shall: a) Ensure that letters of instruction, policies and renewal documents contain details of complaints handling procedures; b) Accept complaints either by phone or in writing; c) Acknowledge, a complaint within fourteen days from the receipt of correspondence advise the member of staff who will be dealing with the complaint and the timetable for dealing with it; d) Ensure that response letters are sent and inform the complainant of what he may do if he is unhappy with the response; e) Ensure that complaints are dealt with at a suitably senior level; f) Have in place a system for recording and monitoring complaints. 9. Conduct in relation to documentation – every insurance broker shall: a) Ensure that any documents issued comply with all statutory or regulatory requirements from time to time in force; b) Send policy documentation without avoiding delay, c) Make available, with policy documentation, advice that the documentation shall be read carefully and retained by the client; d) Not withhold documentation from its clients without their consent, unless adequate and justifiable reasons are disclosed in writing and without delay
Page | 17
to the client. Where documentation is withheld, the client must still receive full details of the insurance contact; e) Acknowledge receipt of all monies received in connection with an insurance policy f) Ensure that their reply is sent promptly or use its best endeavors to obtain a prompt reply to all correspondence; g) Ensure that all written terms and conditions are fair in substance and set out, clearly and in plain language, client’s rights and responsibilities; and h) Subject to the payment of any monies wed to it, make available to any new insurance broker instructed by the client all documentation to which the client is entitled and which is necessary for the new insurance broker to act on behalf of the client. 10. Conduct in matters relating to advertising- every insurance broker shall conform to the relevant provisions of the Insurance Regulatory and Development Authority (insurance advertisements and disclosure) regulations, 2000 and: a) Ensure that statements made are not misleading or extravagant b) Where appropriate, distinguish between contractual benefits which the insurance policy is bound to provide and non- contractual benefits which may be provided. c) Ensure that advertisements shall not be restricted to the policies of one insurer except where the reasons for such restrictions are fully explained with the prior approval of that insurer;
Page | 18
d) Ensure that advertisements contain nothing which is in breach of law nor omit anything which the law requires; e) Ensure that advertisement does not encourage or condone defiance or breach of the law; f) Ensure that advertisements contain nothing which is likely, in the light of generally prevailing standards of decency and propriety, to cause grave or widespread offence or to cause disharmony; g) Ensure that advertisements are not so framed as to abuse the trust of clients or exploit their lack of experience or knowledge; 11. Conduct in matters relating receipt of remuneration- every insurance broker shall: a) Disclose whether in addition to the remuneration prescribed under these regulations, he proposes to charge the client, and if so in what manner; b) Advise the clients in writing of the insurance premium and any fees or charges separately and the purpose of any related services; c) I requested by a client, disclose the amount of remuneration or other remuneration it receives as a result of effecting insurance for that client. This will include and payment received as a result of securing on behalf of the client any service additional to the arrangement of the contract of insurance: and d) Advise its clients, prior to affecting the insurance, of their intention to make any deductions from the amount of claim collected for a client, where this is a recognized practice for the type of insurance concerned.
Page | 19
12. Conduct in relation to matters relating to training- every insurance broker shall: a) That its staff are aware of and adhere to the standards expected of them by this code; b) Ensure that staff are competent, suitable and have been given adequate training c) Ensure that there is a system in place to monitor the quality of advice given by its staff; d) Ensure that members of staff are aware of legal requirements including the law agency affecting their activities; and only handle classes of business in which they are competent; e) Draw the attention of the client to section 41 of the act which prohibits rebating and sharing of commission. 13. An insurance broker as defined in these regulations shall not act as an insurance agent of any insurer under section 42 of the act. 14. Every insurance broker shall abide by the provisions of the insurance Act 1938, Insurance Regulatory and Development Act 1999, rules and regulations made there under which may be applicable and relevant to the activities carried on by them as insurance brokers.
Page | 20
SEGREGATION OF INSURANCE MONEY
In case of reinsurance contracts, it may be agreed between the parties, specifically or as a part of international market practices that the licensed reinsurance broker or composite broker can collect the premium and remit to the reinsurer and/or collect the claims due from the reinsurer to be passed on to the insured. In these circumstances the money collected by the broker shall be dealt with in the following manner:• He shall act as the trustee of insurance money that he is required to handle, in order to discharge his function as a reinsurance broker. • Ensure that ‘insurance money’ is held in an “Insurance bank Account” with one or more Scheduled Banks or with other such institutions as may be approved by the Authority.
Page | 21
• Give written notice to, and receive, written conformation form a bank, or other institution that he is not entitled to combine the account with any other account, or to exercise any right, of set off, charge or lien against money in that account. • Ensure that all monies received from or on behalf of an insured is paid into the Insurance Bank Account which remains in the ‘Insurance bank Account’ to remain in deposit until it is transferred on to the reinsurer or the direct insurer. • Ensure that any refund of premium which may become due to direct insurer on account of the cancellation of a policy or alteration in its terms and conditions or otherwise shall be paid by the reinsurer directly to the direct insurer. • Interest on recovery/payment received shall be for the benefit of the direct insurer or reinsurer. • Only remove from the ‘Insurance Bank Account’ charges, fees of commission earned and interest received from any funds comprising the account. • Take immediate steps of any deficiency in the required “Segregated Amount”.
Page | 22
PROFESSIONAL INDEMNITY INSURANCE
About professional indemnity insurance Anyone offering professional services owes a duty of care to their customers anybody else who might reasonably rely upon the service or advice. Consumers are more and more likely to resort to litigation when it appears the professional standards have not been met. All service providers have legal liabilities to their clients and third parties. When action is taken to enforce these legal liabilities ‘professionals’ rely upon their professional indemnity insurer for advice, assistance and security. The insurer promises to indemnify the professional against claims by clients or other persons affected by professional’s activity. The insurer will provide an indemnity to professionals for damages which are awarded against them plus legal costs of defending the claim and for costs awarded against them.
Page | 23
Professional indemnity insurance is written on a “claims made” basis. This means that the policy provides cover for any third party claim first made against the assured during the currency of the policy “Claims made” cover is offered regardless of when the act,error or omission that occasioned the claim took place.however it is usual for the policy to be made subject to “retroactive date”.this means that the policy will not provide cover for claims based upon acts,errors or omissions that occurred before the retroactive date.the “retroactive date” is usually the start date of the insured’s first professional indemnity policy.subject to negotiation the “retroactive date” can be extended back in time. The Features are: (1)Every insurance broker shall take out and maintain and continue to maintain a professional indemnity insurance cover throughout the period of the license granted to him by the Authority.Provided that the Authority shall insuitable cases allow a newly licensed insurance broker to provide such a guarantee within 15 months from the date of issue of original license. (2)The insurance cover must indemnify an insurance broker against: (a)Any error or omission or negligence on his part or on the part of his employees and directors; (b)Any loss of money or other property for which the broker is legally liable in consequence of any financial or fraudulent act or omission;
Page | 24
(c) Any loss of documents and costs and expenses incurred in replacing or restoring such documents; (d)Dishonest or fraudulent act or omission by brokers employees or former employees (3)The indemnity cover(a)Shall be on a yearly basis for the entire period of license;
(b) Shall not contain any terms to the effect that payments of claims
depend upon the insurance broker havin first met the liability; (c) Shall indemnify in respect of all claims made during the period of the insurance regardless of the time.at which the event giving rise to the claim may have occurred.Provided that an indemnity insurance cover not fully conforming to the above requirements shall be permitted by the Authority in special cases for reasons to be recorded by it in writing. (4)The un-insured excess in respect of each claim shall not exceed five percent of the capital employed by the insurance broker in the business.
(5)The insurance policy-shall be obtained from any registered insurer in India who has agreed to (a)Provide the insurance broker with an annual certificate containing address, including the license number of the insurance broker, the policy number, the limit of indemnity, the excess and the name of the
Page | 25
insurer as evidence that the cover meets the requirements of the Authority; (b)Send a duplicate certificate to the authority at the time the certificate is issued to the insurance broker and
(c) Inform the insurer immediately of any case of voidance, non-renewal
or cancellation of cover mid-term. (6)Every insurance broker shall(a) inform immediately the Authority should any cover be cancelled or voided or if any policy is not renewed; (b) inform immediately the insurer in writing of any claim made by or against it (c) advise immediately the insurer of all circumstances or occurrence that may give rise to a claim under the policy; and (d) advise the Authority as soon as an insurer has notified that it intends to decline indemnity in respect of a claim under the policy. (7) Professional indemnity insurance will protect you against a range of liabilities arising out of services rendered or advice given including: • Negligence-allegations of a breach of your duty of care to a client or of an error or omission • Dishonesty-claims arising from theft,misuse or appropriation of client funds • Infringement of copyright or trademark • Loss of or damage to documents belonging to your clients
Page | 26
By effecting professional indemnity insurance you can transfer most of these risks to your insurer.
ROLE OF AN INSURANCE BROKER
Page | 27
A broker may see himself as being essential a placer of insurance on behalf of his clients or he may offer many kinds of additional service from information about savings and pensions to fire burglary or safety surveys. The difference between the work of one broker and that of another may thus be enormous but there is one thing that they all have in common. Each of them is an expert advisor to his clients on insurance matters, a link between the clients need for cover and the insurers who can meet that need. The brokers skid lies in finding as good a match as possible for his clients needs from among the display of competing insurance products on the market and where necessary stimulating insurers to modify their policies or to create new covers in order to meet the clients needs better. This means that not only must the broker understand the insurance market, which is the basic specialist skill he is offering to the public but he must also understand his client. This is not simply a matter of finding out what kind of insurance the client is looking for; it is also one of discovering what particular needs underlie the request. A broker has thus to be very well informed about both sides of the market he serves, and this necessity is often a sound reason for specialization particularly for the smaller broker. The market sector chosen may be determined by some specialist knowledge of particular classes of insurance which the broker's staffs have, or the size of his firm may lead the broker to concentrate on a particular type of client. Large broking firms seek to provide service to clients both large and small but it may be uneconomic to handle insurances for individuals side by side with those of larger industrial clients. The solution usually adopted is to set up subsidiaries or branches specially designed to serve the individual.
Page | 28
This avoids the difficulty inherent in trying to serve both markets with the same organization namely that since the brokers remuneration is normally by commission calculated as a percentage of the premium, the overheads involved in providing all the services needed to deal with the insurance needs of large companies might rule out handling small premium business. Some brokers have neither individuals nor industrial companies as their main clients but insurers for whom they place reinsurance. This may be an important part of the business of a large broker, or it may constitute the whole activity of a smaller broking firm. Finally to summarize the role of the insurance brokers will inter Alia consists of: • Having a detailed knowledge of available markets • Obtaining a detailed and thorough knowledge of the clients business and philosophy and analysis of the same • Recommendation of an insurer or a group of insurers to the clients • Maintaining clear records of the clients business so that this can be explained to an insurer and other parties • Providing technical advice on developments inthe insurance markets and the law • Negotiating with insurers on the clients behalf • Collecting and remitting premiums and claims
Page | 29
• Maintaining precise records of past claims • Assissting in the negotiation of claims • Where appropriate and dependent on the size of both the client and broker providing additional services such as insurance consultancy services risk management services and uninsured loss recoveries.
Page | 30
BROKING STRATEGY
?Broking strategy should stop ridiculous rate reduction. ?Broking strategy should balance both the trends of competition and co operation in cyclical nature of the operational results. ?Broking strategy should be one of making an unbearable loss into bearable smaller units for all participants l. Therefore Broking strategy= Loss of one When shared by many All survive it breaks not any
? Broking strategy to evolve an insurance relationship by risk consultancy to
corporate client is a greater need for the changing times. Risk management loss prevention and/or minimization measures and risk improvement technology required by both the insured and the insurer is a technical expert. Insurance broker has to nourish a relationship between the layman insured and the expert insurer by an expertise to satisfy both. A reinsurance contract on the other side is a contract between reinsured who is a national expert and the reinsurer who is an international expert. The broking strategy needs expertise to manage experts on both sides. ?Insurance broker must be a) resourceful to give all the data b) reasonable in negotiations
Page | 31
c) reliable in all technical and financial transactions l d) responsible in recovering losses and premiums on behalf of both parties e) reachable by personal visits throughout the year to both parties
f)
reputable in all financial dealings into preview review and renew his
business transactions ?Broking strategy is a combination of knowledge and wisdom. Knowledge implies ability to detect faults defects and demerits of existing insurance reinsurance programmes. Wisdom implies ability to give remedies to them. ?Brokers must have a global broking strategy to achieve a global spread of risks. They must travel worldwide in existing markets to serve their principals and clients and visit to new markets to explore new business relationships. ?Broking strategy also implies very high and sound level of insurance and reinsurance technology to give meaningful contribution on analyzing reviewing and redesigning reinsurance programs. ?In case of problematic situations involving arbitrations litigation etc. The insurance brokers have to play a prompt and positive role by a constructive Broking strategy. ?Broking strategy also implies attending international forums of various conferences like TWIC OESAI UNCTAD etc. and present papers on various hi-tech subjects. ?Broking strategy also includes providing training facilities to clients officers and executives by arranging training programs.
Page | 32
?Broking strategy also to fund big market losses on behalf of reinsurers is also very significant.
? Broking strategy and mergers is a very sensitive subtle and serious aspect
of Broking strategy. ?Broking strategy combines patience and prudence.
MARKETING OF INSURANCE BROKING
In the insurance industry it will be observed that there are large numbers of claims of small amounts but as the amount of loss increases the number of claims decreases fast and then tapers very slowly. Insuraers frequently use the probability distributions to estimate the future losses on the risks they have accepted and to fix future price of insurance on the basis of past experience as evidenced by the distributions. It is by and large a competitive market, mainly because the rewards can be good and until recently it has been comparatively easy to enter the market. This over capacity in brokers and the resulting competition lead to considerable innovation as brokers device new covers and alter the scope of existing ones.
Page | 33
Within this broad pattern, there are 2 predominant broking approaches. The first is of the essentially conservative broker, who has an acknowledged market position producing a relatively stable incoming profit while on the other hand the new comer is faced with the problem of finding a share of the market that he can attack, and in attacking it, while he might not use the word ‘marketing’, he uses marketing techniques and in particular, segmentation and the development of a new product or service. This uniqueness may be in terms of a different approach to selling, different types of cover, different types of service, or even concentration on a particular section of the market, in order that he can show a special expertise. These innovatory broking approaches occur in all areas of broking activity. A group of skilled brokers leave a Lloyd broker and form a new broking firm and in a few years they have established a market position of their own. In the High street broker market, firms come and go. In looking at the broker and marketing, a thought should be spared for the customer. One buys in order to guard against a possibility that would otherwise produce discomfort or danger, or to enhance ones position internally or externally. It is often assumed that the motives of those buying insurance are different; this is not infact the case. Obviously while buying insurance one is as apprehensive as when buying other products, and the marketing approach involves arousing that apprehension while showing how it can be handled. The clients need for reassurance is met by the broker in many different ways, some relating to organisation and others to the individual. The prime emphasis might be on high-quality technical service, so removing uncertainty from several aspects of the clients operations. Alternatively but rarely, it might be on
Page | 34
understanding the clients business in detail and using solutions that fit effectively not only the clients technical needs but the actual style and character of his business. Finally, the most important to a majority of the clients is still the personal and social relationship. This has not been analyzed publicly but cannot be overestimated. When faced with a difficult and unpleasant subject, the presence of a friendly, understanding, helpful and sociable insurance broker helps reduce the apprehensions.
Marketing Process The marketing process for brokers can be considered fewer than 5 main headings:
1. The selection of the market position – Which part of the market does
the broker wish to serve and how shall he serve it? His decision in this are create, if he is successful, the unique position of his business that gives it its particular appeal and share in the market.
2. The presentation of the broker to his clients and potential clients –
this would include any advertising but more importantly would also include the whole public image of the broker, the aim being to equate the market position selected with the general picture presented to that market by the broker.
3. The selling process – involving the selection of the individual prospects,
the approach to those prospects and the actual sales
Page | 35
4. Delivery – or the broking equivalent of delivery of the goods ordered.
This can be of many forms and may be an analysis of the clients insurance needs, a renewal discussion or the presentation of the insurance policies.
5. After sales service – primarily the provision of technical advice, and the
handling of changes and claims.
These 5 steps have been set forward as thought they are logical, conscious process, but infact a great deal of insurance broking is a matter of fact responses to events with little overall planning or marketing except in some of the major firms. In the authors opinion, the whole character of the insurance market infact encourages this reaction to events and day by day activity rather than longer-term planning. While studies are often carried out by the major brokers preparatory to opening different branches in the different parts of UK and different overseas countries, in general these marketing surveys do not have the same degree of detail and subsequent accuracy that many industrial market surveys have, that a great deal of the business walks in through the brokers door. Once he has establishes his position, recommendations from existing clients will lead to a continuing and usually increasing flow of business provided he continues to do a good job. In the industrial sphere the position is quite different it still feels a most inefficient process. One could estimate that one in ten of approaches to customers are successful and with a different definition of the word approach we could produce a success rate down in the 2 or 3 percent category. It is fortunate that broking is basically a profit making business, or it would be
Page | 36
impossible to finance such inefficient selling. The reasons for this ineffectiveness lie basically in the lack of skilled marketing. The average broking account executive analyses his own success in terms of technical ability, personal charm, persistence or knowing the right people, and proceeds to carry through the same approach to clients whom he does not yet serve. In attacking an industrial account, there are 2 key factors. The first is timing and the second is the network of people involved in the sales decision. In relation to timing the best potential prospects are either dissatisfied customers- those who have become disillusioned with their existing brokers service – or those clients where changes in personnel or organization raise the possibility of a change in insurance broker. By concentrating his attention on this point the average broker could probably quadruple his effectiveness. Looking at the organizational network involved in selling, one can make use of the work that has already been done in the field of industrial marketing and trace out the people actually involved in the broking decision. In industrial parlance these will include these 3 categories, namely the buyer (the insurance manager or person who actually gives the order), the user and the decision maker. The actual mechanism, by which companies make insurance buying decisions or, more precisely, decisions to change their mode of insurance buying, is quite complex. For the broking salesman, it is important to establish whether he has a genuine prospect or, as is more often the case, he is being used as a stick to beat the existing broker into providing better service. The gathering of intelligence about buying intentions and buying decisions is part of the skills of every industrial salesman, but the broking world tends to lag behind in this
Page | 37
respect. It maybe that brokers’ over – reliance on good social and personal relationships leads them to assume that every piece of information they are given is not only accurate but also the whole truth, when in fact it is often anything but. There is no space in which to look at the whole picture of sales motivation, but quite of an inclination to change begins in an industrial company and is not carried through owing to lack of persistence, lack of perception and lack of imagination on part of the broker attempting to sell his services. A good marketing approach would resolve most of these problems by encouraging the salesman to understand the market, his company’s position in that market, and his potential client’s problems and needs as well as the organisational structure and philosophy of that client. The fourth part of the process is packaging. Many brokers might object to the use of the word ‘packaging’ in relation to their product or service, but it might be helpful to reflect on the importance of packaging in every other decision they make. The way in which a product or service is presented is a reflection of how the company feels about its customers or client. It can enhance their relationship or it can damage or destroy that relationship. Some years ago, a very large British industrial account executive changed hands in a situation where there was complete dissatisfaction with the quality of service provided by the office. In packaging the broker is concerned with what the customer expects from him, how it is presented and the timing of that presentation. A report on changes might be subject for discussion, in which case packaging does not mean the inclusion of a superb glossy cover – although equally report should
Page | 38
be tidily and confidently presented – but the manner of presentation. In particular it means the extent to which the report takes account of preferences and problems of the client rather than the presenter’s view of the skills and importance of his own organisation. • Does the report take sufficient account of the short time available to the recipient to study it? • If the opportunity presents itself, are audio – visuals used and do these audiovisuals reflect the character of the broker presenting them rather than that of the agency employed in their manufacture? (The same approach can be used in the renewal process.) • How serious is the preparation for the renewal discussions in terms of understanding the changes, which are taking place in the client’s organisation and business as well as in the insurance market? • Apart from providing the opportunity for a long lunch, does the renewal discussion enhance the client’s appreciation of the technical and other qualities of the broker? • Does the broker deliver the insurance policies on time, correct and in good order? One of the biggest problems in the broking world today is the increasing separation between account executive and technician. The account executive who masters the technicalities of the business will have a much stronger position with his client than the one who sees himself as captain of the team where everybody else does work.
Page | 39
After- sales service is probably the weakest point of most broking operations today. It is hoped, however, that this will improve once the Financial Service Act comes into force, since a regular review of the client’s needs in respect of long – term insurances is one of the Act’s requirements. There have, in the past, been a number of reasons for this comparative weakness in many brokers’ after-sales service. Shortage of skilled technical staff may be one, problems in insurers’ offices may be another, but probably the main reason is lack of attention. The best means of selling most products and services is personal recommendation, and personal recommendation will be given on the basis, not of whether the user liked the product when he first bought it or whether he liked the salesman, but of how the product performed in service. For insurance broking this involves the day – by – day provision of technical advice and service, including the handling problems. Needless to say, in making this comment, cost has not been ignored. What, then, is the position of marketing in insurance broking? It can be assumed that today most brokers know about marketing and have some idea of its relevance to them, but it can at the same time be argued there is as yet little conscious of marketing techniques in insurance broking. The Financial Services Act may change this, since one intention of the Act is to enhance professionalism in the field of life assurance, unit trusts and pensions and it should therefore assist the marketing of insurance broking in these areas. There is very considerable scope for the organisations that take advantage of a skilled marketing approach in what is still a highly profitable market.
Page | 40
INSURANCE CLAIM SERVICE
Insurance is a contingency liability product i.e. its utility in terms of claim is only on d occurrence of the event against which the insurance is taken. Thus on d occurrence of the event, the insured will claim the damages of his insured product. Thus the insurance claims services are an essential part of the function of an insurance broker. The various claims are: Life Policy Claims The claims that will arise in case of life insurance policies will be of two types: those that arise on the death of the life insured and those arising of the surviving of the life insured till the stipulated date of maturity in case of endowment type of policies and survival to the periodical due dates in case of policies with periodical survival benefits. While the first types of claims is
Page | 41
referred to as : Death claims the other types are called Maturity claims. The claims arising out of the life ensured surviving till the end of the endowment type of policy or to the various periodical payment due dates in case of Money Back type or Anticipated type of policies, are settled normally by the insurers on their own, without the policy owner having to do anything. Claims arising out of death of life insured during the currency of policy, in case of Term insurance policies and whole of life policies are those, which require the action to be initiated by the policy owners or the beneficiaries. Here, the broker has a role to play. In the case of policies owned by the deceased insured the claims will be handled by the beneficiaries. It may be the persons(s), who are nominated by the policy owner to those who are successors to the estate of the life insured. On some occasions the legal advisor/executor handling the client’s estate will be representing them in making the claim. The broker will have details of the insurance covers, and should provide these to enable the claim to be made. The broker should also brief the legal advisor of the reasoning behind the policies that were effected and how the provision of future income was to be provided under the plan. The information will assist the legal advisor in the administration of the estate. If the policy owner is other than the decreased, the policy owner will make claim directly to the insurer. Disability claims When the client advises the broker of a possible claim under a disability policy, the broker should spell out the details of the cover provided by the policy. These details include:
Page | 42
• The waiting period, if any-the period of time that must elapse before the policy benefit will commence; • The benefit period- how long the benefits are payable for; this may vary for accident and illness; • The actual benefit- whether lump sum or monthly benefit, and if monthly benefit, whether it will be increased in line with inflation each year (assuming a long term disability); • Premium waiver, in case of the life policies- generally, the clients will have to pay premiums while the benefit is being paid; • Any unusual policy provisions that may affect the claim- remember, the broker will have a much better idea of the policy cover than the client. For eg, where an illness has occurred within a short time after affecting the policy, there may b an “incubation” period in the policy; that is, the policy will not respond to any illness that arises within 21 days of the commencement of the policy. The broker will arrange for a claim form to be completed and forwarded to the insurer. This will include provision for a medical certificate from the doctor. Generally, insurers will have their own forms that they want their doctor to complete. The reason for this is that they need specific information to insure the loss falls within the policy provisions and, by posing questions aimed at obtaining this information it reduces the need for subsequent questions of the doctor.
Page | 43
The insurer’s claims department will generally deal direct with the client during the period of disablement and will seek subsequent medical reports from the doctor. During this time, there is little need for the broker, but in the interest of good customer relations, the broker should periodically check with the client to see that all is progressing well. In this way, the client will feel that their interest are being looked after and the broker, by keeping in touch, will be able to head off any problems before they develop into quiet difficult once. The client cannot see the result of those insurances for which he has paid until he makes a claim. He will expect and be entitled to immediate and expert attention. He should receive guidance on how to make the claim and how to deal with insurers and loss adjusters when they are appointed. The limitations and extent of the client’s policy must be fully explained to him and the insurance broker should be active in safeguarding the interest of his clients. Health insurance claims As soon as a health disorder is noticed the insurer needs to be informed. Insured may contact the broker instead directly contacting the insurer and then the broker should help the client in lodging the claim and explain the documentary and other formalities so as to expedite the claim settlements. Where the condition to likely to involve a larger claim (possibly hospital stay), it may be advisable to check with the insurer as to the cover provided, for there may b provisions in the cover that would affect their clients decisions. For eg, the insurer may meet the full hospital cost if certain hospitals are used, but only a portion of the cost if other hospitals are used. The client may elect to use one of the hospitals where the full cost is met, but to do this they need this
Page | 44
information in advance. The broker’s role with health insurance is one of guiding and advising the client. General insurance claims Property Any claim would first be reported to the insurer and the insurer would most likely respond by forwarding a claim form. Most claims under this category tend to be small contents losses. With those claims, the claim form will seek details of the loss or damage and how it occurred. It will also seek details of the item(s) such as their value, and seek some evidence of their purchase and ownership by the client. Then insurer will to establish the type and model of the item. In most of the losses, the insurer would appoint a loss assessor who would carry out an investigation and would deal direct with the client.
Motor vehicle These losses are generally for smaller bumps and knocks. The insurer is advised and they will arrange for the vehicle loss to be assessed. This all involves little on the part of the client, and even less on the part of the broker. The introduction of “claims made” policies presents many problems and the broker should understand the reason why they are being unused by insurers and the implication to the insured. The broker who has placed the risk may sometimes be required to negotiate with the underwriter regarding the claim. However, expect for the very smallest broking companies, it is more unusual for a special claims broker to be appointed whose sole responsibility is to deal
Page | 45
with these items. If loss adjusters or other accessing and negotiating parties are employed by the underwriter then it may be the broker’s duty to negotiate with them as well. Part of any broker’s role is to analyze the previous claims experience if there is one. If there is a run of small claims it may be worth the client’s time in considering the application of an excess to cut these out. There is no future in continuing to make small claims on insurers if the effect is the premium increase at each renewal date. That is simply the swapping of bank loans. If an excess is to apply, it is important to decide who will handle the claims under the excess. Sometimes the insured will wish to do this himself since it involves his relationship with third parties and these is thus a public relations exercise involved. Sometimes the insured will prefer insurers to do it on his behalf.
Aviation Claims The claims - broker’s job entails the need for an indepth knowledge of the aviation policy wording. Initial advice of a claim is notified to a broker and a great deal of time and effort can be saved if his knowledge is sufficient to take the correct action at this stage. On large risks, for instance, the broker might have set up a special procedure, which enables funds to be available to the clients within hors of the loss. Quick and efficient arrangements for the settlement of things are a vital part of the service given to the client by brokers. Failure to act quickly can mean lost business to the broker and perhaps the market.
Page | 46
In aviation – Insurance the broker plays a strong intermediary role in that he may deal with surveyors and adjusters on behalf of underwriters, although the actual appointment of surveyors and adjusters is by underwriters. Marine Claims The marine claim brokers must, ofcourse, have a detailed knowledge of the policy forms and classes. He must also have a working knowledge of other aspects of business, which affect the settlement of claims. Hull Claims When the broker receives the notification of a loss, it is vital that this information is passed on to the underwriters immediately. The main reason is that underwrites can appoint a surveyor. Any delay can cause problems concerning the possibility of further damage, the incurring of unnecessary expenses and delay in actual payment. The broker must then advice the client that he has lodged the claim with the underwriter and that a surveyor is on his way to inspect the damage. The broker should advice the client to appoint an “average adjuster” to act on the clients behalf. The average adjuster will then work in collaboration with the surveyors. In the case of almost any Hull loss there are atleast five interested parties-the insured, the average adjuster, the claims broker, the surveyor, the insurer. The brokers job is to link all the parties together. The final report and recommendations are usually submitted to the broker, who will then negotiate settlements with the underwriter. In certain cases the insured may request “payment on account”. In this situation the broker must negotiate the payment with the underwriter. The
Page | 47
broker arranges this with conjunction with the average adjuster. When considering a collision claim the broker must advice the client to instruct a solicitor to act on his behalf and advice the hull insurer when this action has been taken. It may not be necessary if it is a very straight forward case such as collision with a moored ship or fixed object Cargo Claims From broking point of view, cargo claims can be looked at under two headings: (1)Imports and (2) Exports
1.
Imports – The first thing that will happen is that the consignee will
receive goods in a damaged condition or find that some goods are missing. Notification of the loss will be sent to the broker, who must immediately advice the underwriters. The underwriters may accept the claim at this stage or appoint a surveyor. The broker will then instruct the surveyor accordingly. At the same time it is vital that the broker instructs the client to advice all the other parties involved that they are being held liable for the loss or damage or part thereof. The surveyor and consignee will agree on how to approach the claim and the surveyors report and recommendations will be sent to the broker so that settlement can be negotiated with the underwriters. In controvertial cases the report may go directly to the underwriters.
2.
Exports – In the event of a loss a consignee does not want long,
protracted negotiations with London, and so the broker will set up a ”claims payable abroad system” . This system gives the local brokers the right to act as surveyor and adjuster and in many cases actually to pay the claim. In these
Page | 48
circumstances there is very little action for the broker to take other than to mark up his records when final details are sent. A broker may have to become substantially involved when the local agent is not authorised to actually pay the claim. If a dispute arises, the broker will be involved because the subsequent discussion, negotiation and arbitration will usually take place in London where a very large source occurs overseas. The underwriters will appoint a specialist suveryor to inspect the damaged cargo to inspect the damaged cargo and report back. In certain cases brokers have been responsible for establishing a market organisation for the centralisation of loss assessment and the availability of funds in the short term, and generally for advising the smaller companies overseas in this field. With the use of a large number of re-insurers often situated in many countries spread across continents there could be considerable delays without the organisational backing that the broker is able to supply. This will include the distribution of information, negotiation of difficult claims and arrangement of special settlements.
BROKING SYSTEMS COMPARED WITH DIRECT REINSURANCE
The Continued coexistence of brokers and of professional reinsurance companies that mainly deal direct with their clients can be interpreted as evidence that both systems possess advantages for ceding companies and reinsurers.
Page | 49
Brokers provide a degree of flexibility in reinsurance markets which otherwise it would be difficult to achieve. Their existence, often worldwide, market contracts can be particularly beneficial when a substantial amount of facultative reinsurance is required quickly, or cover is wanted either for abnormal risks, such as new or substandard risks or for very lagre risks necessitating the mobilizing of market capacity on an international scale. The benefit of their knowledge and expertise also extend to the handling of the more mundane risks. In the United States, for example, the size and diversity of the brokerage market is such that a broker can turn to many reinsurers to obtain a good lead for almost any class of business and thus brokers simulate the quality of service, innovation and competition throughout the whole reinsurance market. The same remarks can also be applied in large measure on a worldwide scale. A direct insurance company seeking the best reinsurance protection for its needs can obtain from a broker expert guidance on appropriate forms of reinsurance. It can also be sure that its business will be geographically well distributed and that especially for non-proportional reinsurances where premiums do not follow the original premium rates, the reinsurers selected will provide cover on fair terms. In turn a broker can provide a reinsurance company with both informed access to new markets without the necessity of engaging in expensive sales promotion and with assistance in obtaining the market capacity required for placing its own retrocessions. On the other hand there are advantages in the direct dealing between ceding office and reinsurer as is typically practiced by the large professional companies. The advantages are listed as follows:
Page | 50
1. The simplicity and clarity of a close direct relationship between two parties whereby there is no loss of some of the subtleties of information otherwise passed through a third party. 2. More prompt fun transmittals between the parties. 3. The absence of a fragmenting of treaty participations. 4. A type of underwriting, claims and actual service which a knowledgeable and technically staffed insurer can provide to some degree almost automatically as a part of direct contact and supervision of the reinsured’s business. 5. The absence of some accounting complexities resulting from fragmentation of shares of treaties and from frequent additions and subtractions from the participants in a given reinsurance programme. 6. Simplicity of handling treaty bouquets for clients in having available a reinsurer able to do across the board acceptances. Which of the two systems may be judged the better, must depend upon individual circumstances. Brokers and reinsurance companies vary considerably in the services they can offer but as a broad generalization, the strength of brokers lies in dealing with reinsurances that either: 1. Require the mobilization of large part of worldwide reinsurance capacity, as with catastrophe covers, especially for natural perils, or where local direct insurer has been obliged to accept the whole of a large insurance such as for a local airline, which normally would have been partially spread through the use of coinsurance.
Page | 51
2. Fall into the category of specialist covers, notably of a non-proportional type, where terms have to be negotiated with reinsurers. In property and marine business brokers tend to handle a far higher proportion of excess of loss covers than proportional reinsurances. Therefore, given freedom to choose, the extent to which both direct and reinsurance companies either deal direct or employ brokers depends on individual needs and the type of reinsurance being handled and partly on local practice. It must be recognized too that circumstances change. Advances in computer systems may in the future lead to improvements in the amount of information available bearing on reinsurance needs and facilitates which could be exchanged between companies. If such developments do occur then they could lead to radical changes in reinsurance markets to which both brokers and reinsurers will need to respond.
AREAS OF IMPROVING SERVICES OF INSURANCE BROKERS
Areas identified of Improving services of Insurance brokers are on the following lines; • Brokers must adopt to changing market conditions and accept realities rather than stick to traditional conventional ways and means.
Page | 52
• Quality based broking is the most favoured by the clients who need a broker to serve their cause by adequate coverage of risk and prompt recovery of claims • Global presence to be felt by frequent travels and personal contacts with clients in various markets of the world • Brokers have a moral responsibility much stronger than legal bindings. Ethical anchorage of trust is more significant than legal liabilities of an intermediary • The TQM( Total Quality Management) is now modified by return on quality management by; a) Focus on customer satisfaction b) Result oriented efficiency incentives c) Employee involvement and motivation
CONCLUSION
Insurance brokers have to make their way competitively with creativity, efficiency and initiative to enlarge the network of clients despite insurance
Page | 53
companies development officials, trained agents and corporate agents which may include some 46,000 branches of 27 public sector banks all over India. The insurance companies target to rope in these accesses to clients The task ahead for insurance broker is not easy and poses odds with opportunities. A corporate Insurance brokerage firm is on the threshold of changes and challenges of the Indian Insurance industry. Every Insurance broker earns valuable foreign exchange from re-insurance transactions for the country’s economy. A direct insurance broker presents the outgo of foreign exchange by tagging risk management services, risk consulting services, Insurance programming techniques and evolves an insurance relationship for mini and mega risks within the nook and corner of the domestic market of the Indian Sub-continent. The main points of the role of Insurance broker are as under:
1. An information bridge between buyers and sellers, up-to-date
intelligence on widely dispersed markets. 2. A neutral link providing anonymity and diplomacy for delicate negotiations, insuring equity and fair dealing at the same time. 3. A means of insuring prompt documentation and rendering the settlement of accounts including collection of cash losses. 4. An expertise to design re-insurance programs and obtaining support of a strong leader and following re-insurers 5. Assistance in setting up of internal procedures and in training of staff, as also in transfer of advanced technology. 6. Placement of target risks, catastrophe covers and specialised risks.
Page | 54
7. Assistance in arbitration and in negotiated settlements of disputes
CASE STUDY
Page | 55
HSBC Insurance Brokers India private limited HSBC Insurance Brokers(India) Private limited was licensed in August 2003 as direct as well as re-insurance broker. Their core team has over 100 years of experience in insurance broking and risk financing, and are able to deliver effective risk management, insurance broking and employee benefits solutions. They are able to access local markets and international markets by working closely with their colleagues in London HSBC Insurance Brokers is one of the largest international insurance broking , risk management and employee benefits organizations in the world. They are the only major insurance broker that forms part of a global banking group. As members of the HSBC Group they share an international network with offices in countries and territories in Europe, the Asia-pacific Region, the Americas, the Middle east and Africa. The group enables them to evaluate insurance in a broader business sense with immediate access to specialist advice and services in ares such as trade finance, cash and investment managemnent, treasury and foreign exchange, as well as processing services and financial controls and disciplines.
Page | 56
HSBC Insurance Brokers have the depth of knowledge to analyse complex risk situations from multiple perspectives and develop comprehensive solutions that meet the specific needs of their clients. HSBC Insurance Brokers is a founder member of the ASSUREX GLOBAL network. This ensures their representation by leading independent brokers and agents worldwide. Assure Globalism the third largest commercial insurance in the world. At HSBC insurance brokers they strive to provide their clients with the confidence and certainty to pursue their objectives.
•
Brand Positioning- The Intelligent Alternative
• Philosophy • How they work. • About their employees Brand Positioning –The Intelligent Alternative HSBC Insurance Brokers integrated communications campaign highlights their ability to distinguish themselves in the international insurance markets within which they operate. The message is clear: The intelligent alternative emphasizes their individuality, a desire to stand out from the crowd and a pride in doing so. They offer a different outlook, as they come from a different direction-the only insurance broker that is part of a global bank. They have a unique ability to leverage expertise across the world and across a wide range of disciplines, and this diversity of outlook underlines their status as the Intelligent Alternative.
Page | 57
PHILOSOPHY The purpose of HSBC Insurance Brokers is to add value and enhance their clients business. The way they work is a reflection of their goal. Knowledge an open minded attitude and integrity are their key principles. As part of the HSBC group they have an extensive range of resources to draw on for the benefit of their clients. However as a service organization they understand that working relationships are personal relationships. HSBC Insurance Brokers is made up of the knowledge and specialist skills to meet the needs of the people and companies with whom they work. KNOWLEDGE To perform with the standards of professionalism and skill required by today’s market environment they need to understand their clients business inside out and have the perception to be able to look at their insurance requirements in the round. Thus knowledge is their life blood. AN OPEN MINDED ATTITUDE Risk management is never black and white. To navigate successfully its intricacies and thus they believe in an open minded attitude that challenges preconceptions and assumptions in order to reach the optimum solution. They set a high value on agile mindsets that enable them to engage in a constant process of learning. INTEGRITY
Page | 58
Integrity underpins everything they do at HSBC. Their business and reputations are based on trusts. Individually they assume responsibility for safe guarding that trust. HOW THEY WORK They provide risk management thinking through; DIRECT CLIENT SOLUTIONS Joined up thinking for all the insurance and risk management requirements of corporate and commercial companies in the UK and worldwide. This are also provides solutions for UK specialty businesses: Education, Estates and Private Clients and Professional Indemnity INTERNATIONAL AND INTERMEDIARY SOLUTIONS Innovative thinking for specialty of constructions energy marine and aviation. This area controls the rapidly growing Captive management business in the Bermuda. Their wholesale business area serves clients who are predominantly other intermediaries –areas such as cargo. REINSURANCE SOLUTIONS Leading edge broking and consulting services to underwriters through the treaty division, facultative business through the international property and casualty business area , and connected representatives offices in Italy and Sweden.
Page | 59
ABOUT THEIR EMPLOYEES At the HSBC brokers they search for and recruit talented individuals from a range of specialist backgrounds and invest heavily in their personal development Wherever their clients are and whatever their challenges their employees have the skills and resources to meet their needs. Their specialist disciplines cover a comprehensive range of technical insurance, broking claims management, actuarial captive and risk management capabilities. These disciplines are the clients with insightful and innovative solutions. The measure of their success is the respect in which many of their key people are held both by their clients and their industry peers. everyday they seek to leverage their intelligence, skill, flair, and experience of the individuals that together make up HSBC Insurance Brokers to deliver reassurance and confidence around the globe.
Page | 60
BIBLIOGRAPHY
Books
1. The Insurance institute of India 2. Insurance broking by K.L. Naik
Websites
1. www.hsbc.com 2. www.altavista.com
Page | 61
doc_648508151.doc
Why is insurance necessary? The question contains the answer within itself. After all, life is fraught with tensions and apprehension regarding the future and what it holds for the individual. Despite all the planning and preparation one might make, no one can accurately guarantee or predict how or when death might result and the circumstances that might ensue in its aftermath. We are not saying that life and existence are constantly fraught with danger and uncertainly. But then it is essential that you plan for the future. The chances for a fatality or an injury to occur to the average individual may not be particularly high but then no one can really afford to completely disregard his or her future and what it holds. In today’s world of economic growth, you can hardly live without insurance. Insurance is a boon to the mankind in several ways. There are a wide range of insurance policies like the health and the property insurance. In fact, the insurance plans were laid by many states and governments since past so many centuries. An Insurance Broker is an independent intermediary who mediates (act as a go-between), Insurance Contracts between his/her client (the Insured) and the Insurers. Insurance Agents also mediate Insurance Contracts, but they are primarily Agents of the Insurer. Such an Agent may either be an employee or a mandatory of the Insurer.
Page | 1
The Long-and Short-term Insurance Acts provide an agreement whereby the Insured agrees that the Insurer’s Agents will be exempted from liability for any act or omission, or whereby it is agreed that the Insurer’s Agent will be deemed to be the Insured’s Agent, is void. The broker work with number of insurance companies and remain well positioned to obtain a good deal for the prospects on favorable terms. The broker is an independent intermediary who will act on behalf of the plan and also will continue to serve the client till the settlement of the claim. Contrary to this, the insurance agent acts on behalf of insurers/ insurance companies.
Page | 2
INTRODUCTION
Insurance brokers According to the Insurance Regulatory and Development Authority Regulations, 2002, the term “insurance broker” shall be deemed to mean a direct broker, a reinsurance broker or a composite broker as the case may be unless expressly stated to the contrary. An insurance broker acts as an intermediary between clients and insurance companies. Clients may be either individuals or commercial businesses and organizations. Brokers use their indepth knowledge of risks and the insurance market to find and arrange suitable insurance policies. Insurance brokers, unlike tied agents, are independent and offer products from more than one insurer, to ensure that their clients get the best deal.Insurance policies range from motor insurance, required by law to drive a vehicle in the UK, to public, employers’ or product liability insurance, which pays compensation on the basis of the assessment of legal liability for damage, injury or harm. Brokers are a set of intermediaries who can solicit and procure insurance business of life insurance, general insurance, or both. They are essentially independent contractors. A broker can be a proprietor, partnership firm or a company formed under the provisions of Company Act 1956. The brokers work with number of insurance companies and remain well positioned to obtain a good deal for the prospects on favorable terms. The broker is an independent intermediary who acts on behalf of the prospect and the policyholders i.e. at the time of recommending the risk plan and also will continue to serve the client till the settlement of the claim. Contrary to this, the insurance agent acts on behalf of insurers/ insurance companies. The broker
Page | 3
has to identify his client’s risk needs and will have to do shopping by contracting different insurance companies to search for an adequate product with a competitive price which will be most suitable to his clients. Therefore the broker has to be a well versed professional adequately trained to operate as a market mover in the insurance industry. The agent represents supply side (acting on behalf of suppliers) whereas the broker represents the demand side in the insurance market in view of the fact that he is the person who knows about what the prospective clients need and what type of insurance cover both life and general can satisfy these ever changing customer needs. As such brokers’ role will be much supportive to the growth of insurance industry. On the basis of the brokers’ solicitation the product development will be much faster “as the insurance companies will have a dependable data feedback for product designing and arriving at the decision on pricing, etc.
Page | 4
TYPES OF BROKERS
The types of brokers are classified as under: 1. General Insurance Brokers 2. Life Insurance Brokers 3. Composite Brokers 4. Reinsurance Brokers General Insurance and Life Insurance brokers are direct brokers. According to the Regulation “Direct Broker” means an insurance broker who for the time being licensed by the Authority to act as such, for a remuneration carries out the specified functions in the field of life insurance or general insurance or both on behalf his clients. Composite Broker means an insurance broker who for the time being licensed by the Authority to act as such, for remuneration, arranges insurance for his clients with insurance companies and/or reinsurance for his client/s. Reinsurance Broker means an insurance broker who for the time being licensed by the Authority to act as such, for remuneration, arranges reinsurance for direct insurers with insurance and reinsurance companies.
Page | 5
FUNCTIONS OF A DIRECT BROKER
The functions of a direct broker shall include any one or more of the following: ? Obtaining detailed information of the client’s business and risk management philosophy.
? Familiarizing himself with the client’s business and underwriting
information so that this can be explained to an insurer and others; ? Rendering advice on appropriate insurance cover and terms; ? Maintaining detailed knowledge of available insurance markets; as may be applicable; ? Submitting quotation received from insurer/s for consideration of a client;
? Providing requisite underwriting information as required by an insurer in
assessing the risk to decide pricing terms and conditions for cover;
? Acting promptly on instructions from a client and providing him written
acknowledgements progress reports
? Assisting clients in paying premium under section 64VB of Insurance Act,
1938 (4 of 1938); ? Providing services related to insurance consultancy and risk management; ? Assisting in the negotiation of the claims; and ? Maintaining proper records of claims.
Page | 6
FUNCTIONS OF A RE-INSURANCE BROKER
The functions of re-insurance broker shall include any one or more of the following: ? Familiarizing himself with the client’s business and risk retention philosophy; ? Maintaining clear records of the insurer’s business to assist the re-insurer/ (s) or others;
? Rendering advice based on technical data on the reinsurance covers
available in the international insurance and reinsurance markets;
? Maintaining a database of available reinsurance markets; including
solvency ratings of individual re-insurers; ? Rendering consultancy and risk management services for re-insurance; ? Selecting and recommending a re-insurer or a group of re-insurers; ? Negotiating with a re-insurer on the client’s behalf; ? Assisting in case of commutation of reinsurance contracts placed with them,
? Acting promptly on instructions from a client and providing it written
acknowledgements and progress reports; ? Collecting and remitting premiums and claims within such time as agreed upon; ? Assisting in the negotiation and settlement of claims; ? Maintaining proper records of claims; and
? Exercising due care and diligence at the time of selection of re-insurers and
international insurance brokers having regard to their respective security rating and establishing respective responsibilities at the time of engaging their services.
Page | 7
REQUIREMENTS AND QUALIFICATION OF A BROKER
? The broker will have to obtain the license from the IRDA. For this purchase an application has to be made in Form A to the Authority. ? The application shall be made for any one or more of the following categories, namely: (a)direct broker; (b)re insurance broker; (c) composite broker; along with the requisite fees as specified in the Regulation. ? The applicant has to have minimum of two persons employed having the minimum qualifications of an Associate of Insurance Institute of India or its equivalent or any other professional qualifications from an institution recognized by government, in finance, law, engineering, or business management, and has undergone theoretical and practical training to be conducted by National Insurance Academy, Pune on the basis of syllabus finalized by the IRDA.
? However, a person carrying on reinsurance broking and other insurance
consultancy for a period of more than 10 years and having required experience of carrying on business, the authority may grant exemptions as regards qualifications and training.
? The broker’s application will be reviewed by the authority in regard to
infrastructural aspects i.e. whether he has sufficient office space, equipments and manpower to discharge his duties. ? The principal officer should not have violated the code of conduct.
Page | 8
? The applicant should not be engaged in any other business and the issue of
license is in the interest of the policyholders. ? Requirement of Capital
Category of Insurance Typed of Broker Broker Minimum Capital Required Category I Category II Category III Category IV Direct General Insurance Broker Direct Life Insurance Broker Reinsurance Broker Composite Broker Rs.50 Lakhs Rs.50 Lakhs Rs.200 Lakhs Rs.250 Lakhs
Simultaneously with the application for license the applicant has to satisfy the capital adequacy requirement that has been notified by the IRDA which is shown in the above table. A similar requirement will be notified for renewal of the license issued. The capital in the case of a company limited by shares and a cooperative society the form of equity shares. No part of the capital of an applicant shall be held by a non-Indian interest beyond 36% at any time.
? Every Insurance broker shall have to arrange for professional indemnity
cover throughout the validity period of his license, which is a period of three years from the date of its issue unless same is suspended or cancelled pursuant to the regulations. This is because he has to provide for the risk in case of breach of duty while transacting business or any damage caused because of his negligence.
PRINCIPLES GOVERNING INSURANCE BROKERS
Page | 9
A. Insurance brokers shall at all times conduct their business with Utmost good faith and integrity. B. Insurance brokers shall do everything possible to satisfy the insurance requirements of their clients and shall place the interest of those clients before all other considerations. Subject to these requirements and interests, insurance brokers shall have proper regard for others. C. Statements made by or on behalf of insurance brokers when advertising shall not be misleading or extravagant. The following are some specific examples of the application of these principles:
•
In the conduct of their business insurance brokers shall provide advice objectively and independently. Insurance brokers shall only use or permit the use of the description “insurance broker” in connection with business provided that business is carried on in accordance with the requirements of the regulation
•
•
Insurance brokers shall ensure that all work carried out in connection with their insurance broking business shall be under the control and dayto-day supervising possible to ensure that their employees are made aware of this Code.
•
Insurance brokers shall on request from the client explain the differences in, and the relative costs of, the principal types of insurance, which in the opinion of the insurance broker might suit a client’s needs.
• Insurance brokers shall ensure the use of a sufficient number of insurers to satisfy the insurance requirements of their clients.
Page | 10
• Insurance brokers shall, upon request, disclose to any client who is an individual and who is, or is contemplating becoming, the holder of a policy of insurance the amount of commission paid by the insurer under any relevant policy of insurance.
•
Although the choice of an insurer can only be a matter of judgment, insurance brokers shall use their skill objectively in the best interests of their client.
•
Insurance brokers shall not withhold from the policyholder any written evidence or Documentation relating to the contract of insurance without adequate and justifiable reasons being disclosed in writing and without delay to the policyholder. If an insurance broker withhold a document from a policyholder by way of a lien for monies due from that policyholder he shall inform a client of the name of all insurers with whom a contract of insurance is placed. This information shall be given at the inception of the contract and any changes thereafter shall be advised at the earliest opportunity to the client.
•
Before any work involving a charge is undertaken or an agreement to carry out business is concluded, insurance brokers shall disclose and identify any amount they propose to charge to the client or policyholder, which will be in addition to the premium payable to the insurer.
•
Insurance brokers shall disclose to a client any payment, which they receive as a result of securing on behalf of that client any service additional to the arrangement of a contract of insurance.
•
Insurance brokers shall have proper regard for the wishes of a policyholder or client who seeks to terminate an agreement with them to carry out business.
Page | 11
•
Any information acquired by an insurance broker from his client shall not be used or disclosed except in the normal course of negotiating, maintaining, or renewing a contract of insurance for that client or unless the consent of the client has been obtained or the information is required by a court of competent jurisdiction.
•
In the completion of the proposal form, claim form, or any other material document, insurance brokers shall make it clear that all the answers or statements are the client’s own responsibility. The client should always be asked to check the details and told that the inclusion of incorrect information may result in a claim being repudiated.
•
Advertisements made by or on behalf of insurance brokers shall comply with the applicable parts, of the Code of Advertising Practice published by the Advertising Standards Council and for this purpose the Code of Advertising Practice shall be deemed to form part of this Code of Conduct.
•
When advertising their services directly or indirectly either in person or in writing insurance brokers shall disclose their identity, occupation and purpose before seeking information or before giving advice.
•
Insurance brokers shall display in any office where they are carrying on business and to which the public have access a notice to the effect that a copy of the Code of Conduct is available upon request.
CODE OF CONDUCT
Page | 12
1.Every insurance broker shall follow recognized standards of professional conduct and discharge his functions in the interest of the policyholders. 2. Conduct in matters relating to clients relationship – Every insurance broker shall:
(a) conduct its dealings with clients with utmost good faith and integrity at all
times. (b) Act with care and diligence; (c) Ensure that the client understands his relationship with the broker and on whose behalf the broker is acting; (d)Treat all information supplied by the prospective clients as completely confidential to themselves and to the insure(s) to which the business is being offered. (e) Take appropriate steps to maintain the security of confidential documents in their possession; (f) Hold specific authority of client to develop terms. (g) Understand the type of client it is dealing with and the extent of the client’s awareness of risk and insurance, (h) Obtain written mandate from client to represent the Client to the insurer and communicate the grant of a cover to the client after effecting insurance; (i) Obtain written mandate from client to represent the client to the insurer, reinsurer and confirm cover to the insurer after effecting re-insurance, and submit relevant reinsurance acceptance and placement slips; (j) Avoid conflict of interest. 3. Conduct in matters relating to sales practices – Every insurance broker shall:
Page | 13
(a) confirm that it is a member of the Insurance Brokers Association of India
or such a body of brokers as approved by the Authority which has a memorandum of understanding with the Authority; (b)confirm that he does not employ agents or canvassers to bring in business
(c) identify itself and explain as soon as possible the degree of choice in the
products that are on offer; (d)ensure that the client understands the type of service it can off; (e)ensure that the policy proposed is suitable to the needs of the prospective client;
(f) give advice only on those matters in which it is knowledgeable and seek or
recommend other specialist for advice when necessary;
(g) not make inaccurate or unfair criticisms of any insurer or any member of
the Insurance Brokers Association of India or member of such body of brokers as approved by the Authority;
(h) explain why a policy or policies are proposed and provide comparisons in
terms of price, cover or service where there is a choice of products.
(i) state the period of cover for which the quotation remains valid if the
proposed cover is not effected immediately;
(j) explain when and how the premium is payable and how such premium is
to be collected, where another party is financing all or part of the premium; full details shall be given to the client including any obligations that the client may owe to that party (k) explain the procedures to follow in the event of a loss.
4. Conduct in relation to furnishing of information- every insurance broker shall:
Page | 14
a) Ensure that the consequences of non disclosure and inaccuracies are pointed out to the prospective client; b) Avoid influencing the prospective client and make it clear that all the answers or statements given are the latter’s own responsibility. Ask the client to carefully check details of information given in the document and request the client to make true, fair and complete disclosure. c) Explain to the client the importance of disclosing all subsequent changes that might affect the insurance throughout the duration of the policy. d) Disclose on behalf of its client all material facts within its knowledge and give a fair presentation of the risk. 5. Conduct in relation to explanation of insurance contract - every insurance broker shall: a) Provide the list of insurer(s) participating under the insurance contract and advise any subsequent changes thereafter; b) Explain all the essential provisions of the cover afforded by the policy recommended by him so that, as far as possible, the prospective client understands what is being purchased; c) Quote terms exactly as provided by insurer; d) Draw attention to any warranty imposed under the policy, major or unusual restriction, exclusions under the policy and explain how the contract may be cancelled; e) Provide the client with prompt written confirmation that insurance has been effected
Page | 15
f) Notify changes to the terms and conditions of any insurance contract and give reasonable notice before any changes take effect; 6. Conduct in relation to renewal of policies- every insurance broker shall: a) Ensure that its client is aware of the expiry date of the insurance even if he chooses not to offer further cover to the client; b) Ensure that renewal notices contain a warning about the duty of disclosure including the necessity to advise changes affecting the policy which have occurred since the policy inception or the last renewal date; c) Ensure that the renewal notices contain a requirement for keeping a record(including copies of letters) of all information supplied to the insurer for the purpose of renewal of the contract; d) Ensure that the client receives the insurers renewal invitation well in time before the expiry date. 7. Conduct in relation to claim by client- every insurance broker shall: a) Explain to its clients their obligation to notify claims promptly and to disclose all material facts and advise subsequent developments as soon as possible. b) Request the clients to make true, fair and complete disclosure where it believes that the client has not done so. If further disclosure; is not forthcoming it shall consider declining to act further for the client; c) Give prompt advice to the client of any requirement concerning the claim d) Forward any information received from the client regarding a claim or an incident that may give rise to a claim without delay, and in any event within three working days;
Page | 16
e) Advise the clients without delay of the insurer’s decision or otherwise of a claim and give all reasonable assistance to the client in pursuing his claim. 8. Conduct in relation to receipt of complaints- every insurance broker shall: a) Ensure that letters of instruction, policies and renewal documents contain details of complaints handling procedures; b) Accept complaints either by phone or in writing; c) Acknowledge, a complaint within fourteen days from the receipt of correspondence advise the member of staff who will be dealing with the complaint and the timetable for dealing with it; d) Ensure that response letters are sent and inform the complainant of what he may do if he is unhappy with the response; e) Ensure that complaints are dealt with at a suitably senior level; f) Have in place a system for recording and monitoring complaints. 9. Conduct in relation to documentation – every insurance broker shall: a) Ensure that any documents issued comply with all statutory or regulatory requirements from time to time in force; b) Send policy documentation without avoiding delay, c) Make available, with policy documentation, advice that the documentation shall be read carefully and retained by the client; d) Not withhold documentation from its clients without their consent, unless adequate and justifiable reasons are disclosed in writing and without delay
Page | 17
to the client. Where documentation is withheld, the client must still receive full details of the insurance contact; e) Acknowledge receipt of all monies received in connection with an insurance policy f) Ensure that their reply is sent promptly or use its best endeavors to obtain a prompt reply to all correspondence; g) Ensure that all written terms and conditions are fair in substance and set out, clearly and in plain language, client’s rights and responsibilities; and h) Subject to the payment of any monies wed to it, make available to any new insurance broker instructed by the client all documentation to which the client is entitled and which is necessary for the new insurance broker to act on behalf of the client. 10. Conduct in matters relating to advertising- every insurance broker shall conform to the relevant provisions of the Insurance Regulatory and Development Authority (insurance advertisements and disclosure) regulations, 2000 and: a) Ensure that statements made are not misleading or extravagant b) Where appropriate, distinguish between contractual benefits which the insurance policy is bound to provide and non- contractual benefits which may be provided. c) Ensure that advertisements shall not be restricted to the policies of one insurer except where the reasons for such restrictions are fully explained with the prior approval of that insurer;
Page | 18
d) Ensure that advertisements contain nothing which is in breach of law nor omit anything which the law requires; e) Ensure that advertisement does not encourage or condone defiance or breach of the law; f) Ensure that advertisements contain nothing which is likely, in the light of generally prevailing standards of decency and propriety, to cause grave or widespread offence or to cause disharmony; g) Ensure that advertisements are not so framed as to abuse the trust of clients or exploit their lack of experience or knowledge; 11. Conduct in matters relating receipt of remuneration- every insurance broker shall: a) Disclose whether in addition to the remuneration prescribed under these regulations, he proposes to charge the client, and if so in what manner; b) Advise the clients in writing of the insurance premium and any fees or charges separately and the purpose of any related services; c) I requested by a client, disclose the amount of remuneration or other remuneration it receives as a result of effecting insurance for that client. This will include and payment received as a result of securing on behalf of the client any service additional to the arrangement of the contract of insurance: and d) Advise its clients, prior to affecting the insurance, of their intention to make any deductions from the amount of claim collected for a client, where this is a recognized practice for the type of insurance concerned.
Page | 19
12. Conduct in relation to matters relating to training- every insurance broker shall: a) That its staff are aware of and adhere to the standards expected of them by this code; b) Ensure that staff are competent, suitable and have been given adequate training c) Ensure that there is a system in place to monitor the quality of advice given by its staff; d) Ensure that members of staff are aware of legal requirements including the law agency affecting their activities; and only handle classes of business in which they are competent; e) Draw the attention of the client to section 41 of the act which prohibits rebating and sharing of commission. 13. An insurance broker as defined in these regulations shall not act as an insurance agent of any insurer under section 42 of the act. 14. Every insurance broker shall abide by the provisions of the insurance Act 1938, Insurance Regulatory and Development Act 1999, rules and regulations made there under which may be applicable and relevant to the activities carried on by them as insurance brokers.
Page | 20
SEGREGATION OF INSURANCE MONEY
In case of reinsurance contracts, it may be agreed between the parties, specifically or as a part of international market practices that the licensed reinsurance broker or composite broker can collect the premium and remit to the reinsurer and/or collect the claims due from the reinsurer to be passed on to the insured. In these circumstances the money collected by the broker shall be dealt with in the following manner:• He shall act as the trustee of insurance money that he is required to handle, in order to discharge his function as a reinsurance broker. • Ensure that ‘insurance money’ is held in an “Insurance bank Account” with one or more Scheduled Banks or with other such institutions as may be approved by the Authority.
Page | 21
• Give written notice to, and receive, written conformation form a bank, or other institution that he is not entitled to combine the account with any other account, or to exercise any right, of set off, charge or lien against money in that account. • Ensure that all monies received from or on behalf of an insured is paid into the Insurance Bank Account which remains in the ‘Insurance bank Account’ to remain in deposit until it is transferred on to the reinsurer or the direct insurer. • Ensure that any refund of premium which may become due to direct insurer on account of the cancellation of a policy or alteration in its terms and conditions or otherwise shall be paid by the reinsurer directly to the direct insurer. • Interest on recovery/payment received shall be for the benefit of the direct insurer or reinsurer. • Only remove from the ‘Insurance Bank Account’ charges, fees of commission earned and interest received from any funds comprising the account. • Take immediate steps of any deficiency in the required “Segregated Amount”.
Page | 22
PROFESSIONAL INDEMNITY INSURANCE
About professional indemnity insurance Anyone offering professional services owes a duty of care to their customers anybody else who might reasonably rely upon the service or advice. Consumers are more and more likely to resort to litigation when it appears the professional standards have not been met. All service providers have legal liabilities to their clients and third parties. When action is taken to enforce these legal liabilities ‘professionals’ rely upon their professional indemnity insurer for advice, assistance and security. The insurer promises to indemnify the professional against claims by clients or other persons affected by professional’s activity. The insurer will provide an indemnity to professionals for damages which are awarded against them plus legal costs of defending the claim and for costs awarded against them.
Page | 23
Professional indemnity insurance is written on a “claims made” basis. This means that the policy provides cover for any third party claim first made against the assured during the currency of the policy “Claims made” cover is offered regardless of when the act,error or omission that occasioned the claim took place.however it is usual for the policy to be made subject to “retroactive date”.this means that the policy will not provide cover for claims based upon acts,errors or omissions that occurred before the retroactive date.the “retroactive date” is usually the start date of the insured’s first professional indemnity policy.subject to negotiation the “retroactive date” can be extended back in time. The Features are: (1)Every insurance broker shall take out and maintain and continue to maintain a professional indemnity insurance cover throughout the period of the license granted to him by the Authority.Provided that the Authority shall insuitable cases allow a newly licensed insurance broker to provide such a guarantee within 15 months from the date of issue of original license. (2)The insurance cover must indemnify an insurance broker against: (a)Any error or omission or negligence on his part or on the part of his employees and directors; (b)Any loss of money or other property for which the broker is legally liable in consequence of any financial or fraudulent act or omission;
Page | 24
(c) Any loss of documents and costs and expenses incurred in replacing or restoring such documents; (d)Dishonest or fraudulent act or omission by brokers employees or former employees (3)The indemnity cover(a)Shall be on a yearly basis for the entire period of license;
(b) Shall not contain any terms to the effect that payments of claims
depend upon the insurance broker havin first met the liability; (c) Shall indemnify in respect of all claims made during the period of the insurance regardless of the time.at which the event giving rise to the claim may have occurred.Provided that an indemnity insurance cover not fully conforming to the above requirements shall be permitted by the Authority in special cases for reasons to be recorded by it in writing. (4)The un-insured excess in respect of each claim shall not exceed five percent of the capital employed by the insurance broker in the business.
(5)The insurance policy-shall be obtained from any registered insurer in India who has agreed to (a)Provide the insurance broker with an annual certificate containing address, including the license number of the insurance broker, the policy number, the limit of indemnity, the excess and the name of the
Page | 25
insurer as evidence that the cover meets the requirements of the Authority; (b)Send a duplicate certificate to the authority at the time the certificate is issued to the insurance broker and
(c) Inform the insurer immediately of any case of voidance, non-renewal
or cancellation of cover mid-term. (6)Every insurance broker shall(a) inform immediately the Authority should any cover be cancelled or voided or if any policy is not renewed; (b) inform immediately the insurer in writing of any claim made by or against it (c) advise immediately the insurer of all circumstances or occurrence that may give rise to a claim under the policy; and (d) advise the Authority as soon as an insurer has notified that it intends to decline indemnity in respect of a claim under the policy. (7) Professional indemnity insurance will protect you against a range of liabilities arising out of services rendered or advice given including: • Negligence-allegations of a breach of your duty of care to a client or of an error or omission • Dishonesty-claims arising from theft,misuse or appropriation of client funds • Infringement of copyright or trademark • Loss of or damage to documents belonging to your clients
Page | 26
By effecting professional indemnity insurance you can transfer most of these risks to your insurer.
ROLE OF AN INSURANCE BROKER
Page | 27
A broker may see himself as being essential a placer of insurance on behalf of his clients or he may offer many kinds of additional service from information about savings and pensions to fire burglary or safety surveys. The difference between the work of one broker and that of another may thus be enormous but there is one thing that they all have in common. Each of them is an expert advisor to his clients on insurance matters, a link between the clients need for cover and the insurers who can meet that need. The brokers skid lies in finding as good a match as possible for his clients needs from among the display of competing insurance products on the market and where necessary stimulating insurers to modify their policies or to create new covers in order to meet the clients needs better. This means that not only must the broker understand the insurance market, which is the basic specialist skill he is offering to the public but he must also understand his client. This is not simply a matter of finding out what kind of insurance the client is looking for; it is also one of discovering what particular needs underlie the request. A broker has thus to be very well informed about both sides of the market he serves, and this necessity is often a sound reason for specialization particularly for the smaller broker. The market sector chosen may be determined by some specialist knowledge of particular classes of insurance which the broker's staffs have, or the size of his firm may lead the broker to concentrate on a particular type of client. Large broking firms seek to provide service to clients both large and small but it may be uneconomic to handle insurances for individuals side by side with those of larger industrial clients. The solution usually adopted is to set up subsidiaries or branches specially designed to serve the individual.
Page | 28
This avoids the difficulty inherent in trying to serve both markets with the same organization namely that since the brokers remuneration is normally by commission calculated as a percentage of the premium, the overheads involved in providing all the services needed to deal with the insurance needs of large companies might rule out handling small premium business. Some brokers have neither individuals nor industrial companies as their main clients but insurers for whom they place reinsurance. This may be an important part of the business of a large broker, or it may constitute the whole activity of a smaller broking firm. Finally to summarize the role of the insurance brokers will inter Alia consists of: • Having a detailed knowledge of available markets • Obtaining a detailed and thorough knowledge of the clients business and philosophy and analysis of the same • Recommendation of an insurer or a group of insurers to the clients • Maintaining clear records of the clients business so that this can be explained to an insurer and other parties • Providing technical advice on developments inthe insurance markets and the law • Negotiating with insurers on the clients behalf • Collecting and remitting premiums and claims
Page | 29
• Maintaining precise records of past claims • Assissting in the negotiation of claims • Where appropriate and dependent on the size of both the client and broker providing additional services such as insurance consultancy services risk management services and uninsured loss recoveries.
Page | 30
BROKING STRATEGY
?Broking strategy should stop ridiculous rate reduction. ?Broking strategy should balance both the trends of competition and co operation in cyclical nature of the operational results. ?Broking strategy should be one of making an unbearable loss into bearable smaller units for all participants l. Therefore Broking strategy= Loss of one When shared by many All survive it breaks not any
? Broking strategy to evolve an insurance relationship by risk consultancy to
corporate client is a greater need for the changing times. Risk management loss prevention and/or minimization measures and risk improvement technology required by both the insured and the insurer is a technical expert. Insurance broker has to nourish a relationship between the layman insured and the expert insurer by an expertise to satisfy both. A reinsurance contract on the other side is a contract between reinsured who is a national expert and the reinsurer who is an international expert. The broking strategy needs expertise to manage experts on both sides. ?Insurance broker must be a) resourceful to give all the data b) reasonable in negotiations
Page | 31
c) reliable in all technical and financial transactions l d) responsible in recovering losses and premiums on behalf of both parties e) reachable by personal visits throughout the year to both parties
f)
reputable in all financial dealings into preview review and renew his
business transactions ?Broking strategy is a combination of knowledge and wisdom. Knowledge implies ability to detect faults defects and demerits of existing insurance reinsurance programmes. Wisdom implies ability to give remedies to them. ?Brokers must have a global broking strategy to achieve a global spread of risks. They must travel worldwide in existing markets to serve their principals and clients and visit to new markets to explore new business relationships. ?Broking strategy also implies very high and sound level of insurance and reinsurance technology to give meaningful contribution on analyzing reviewing and redesigning reinsurance programs. ?In case of problematic situations involving arbitrations litigation etc. The insurance brokers have to play a prompt and positive role by a constructive Broking strategy. ?Broking strategy also implies attending international forums of various conferences like TWIC OESAI UNCTAD etc. and present papers on various hi-tech subjects. ?Broking strategy also includes providing training facilities to clients officers and executives by arranging training programs.
Page | 32
?Broking strategy also to fund big market losses on behalf of reinsurers is also very significant.
? Broking strategy and mergers is a very sensitive subtle and serious aspect
of Broking strategy. ?Broking strategy combines patience and prudence.
MARKETING OF INSURANCE BROKING
In the insurance industry it will be observed that there are large numbers of claims of small amounts but as the amount of loss increases the number of claims decreases fast and then tapers very slowly. Insuraers frequently use the probability distributions to estimate the future losses on the risks they have accepted and to fix future price of insurance on the basis of past experience as evidenced by the distributions. It is by and large a competitive market, mainly because the rewards can be good and until recently it has been comparatively easy to enter the market. This over capacity in brokers and the resulting competition lead to considerable innovation as brokers device new covers and alter the scope of existing ones.
Page | 33
Within this broad pattern, there are 2 predominant broking approaches. The first is of the essentially conservative broker, who has an acknowledged market position producing a relatively stable incoming profit while on the other hand the new comer is faced with the problem of finding a share of the market that he can attack, and in attacking it, while he might not use the word ‘marketing’, he uses marketing techniques and in particular, segmentation and the development of a new product or service. This uniqueness may be in terms of a different approach to selling, different types of cover, different types of service, or even concentration on a particular section of the market, in order that he can show a special expertise. These innovatory broking approaches occur in all areas of broking activity. A group of skilled brokers leave a Lloyd broker and form a new broking firm and in a few years they have established a market position of their own. In the High street broker market, firms come and go. In looking at the broker and marketing, a thought should be spared for the customer. One buys in order to guard against a possibility that would otherwise produce discomfort or danger, or to enhance ones position internally or externally. It is often assumed that the motives of those buying insurance are different; this is not infact the case. Obviously while buying insurance one is as apprehensive as when buying other products, and the marketing approach involves arousing that apprehension while showing how it can be handled. The clients need for reassurance is met by the broker in many different ways, some relating to organisation and others to the individual. The prime emphasis might be on high-quality technical service, so removing uncertainty from several aspects of the clients operations. Alternatively but rarely, it might be on
Page | 34
understanding the clients business in detail and using solutions that fit effectively not only the clients technical needs but the actual style and character of his business. Finally, the most important to a majority of the clients is still the personal and social relationship. This has not been analyzed publicly but cannot be overestimated. When faced with a difficult and unpleasant subject, the presence of a friendly, understanding, helpful and sociable insurance broker helps reduce the apprehensions.
Marketing Process The marketing process for brokers can be considered fewer than 5 main headings:
1. The selection of the market position – Which part of the market does
the broker wish to serve and how shall he serve it? His decision in this are create, if he is successful, the unique position of his business that gives it its particular appeal and share in the market.
2. The presentation of the broker to his clients and potential clients –
this would include any advertising but more importantly would also include the whole public image of the broker, the aim being to equate the market position selected with the general picture presented to that market by the broker.
3. The selling process – involving the selection of the individual prospects,
the approach to those prospects and the actual sales
Page | 35
4. Delivery – or the broking equivalent of delivery of the goods ordered.
This can be of many forms and may be an analysis of the clients insurance needs, a renewal discussion or the presentation of the insurance policies.
5. After sales service – primarily the provision of technical advice, and the
handling of changes and claims.
These 5 steps have been set forward as thought they are logical, conscious process, but infact a great deal of insurance broking is a matter of fact responses to events with little overall planning or marketing except in some of the major firms. In the authors opinion, the whole character of the insurance market infact encourages this reaction to events and day by day activity rather than longer-term planning. While studies are often carried out by the major brokers preparatory to opening different branches in the different parts of UK and different overseas countries, in general these marketing surveys do not have the same degree of detail and subsequent accuracy that many industrial market surveys have, that a great deal of the business walks in through the brokers door. Once he has establishes his position, recommendations from existing clients will lead to a continuing and usually increasing flow of business provided he continues to do a good job. In the industrial sphere the position is quite different it still feels a most inefficient process. One could estimate that one in ten of approaches to customers are successful and with a different definition of the word approach we could produce a success rate down in the 2 or 3 percent category. It is fortunate that broking is basically a profit making business, or it would be
Page | 36
impossible to finance such inefficient selling. The reasons for this ineffectiveness lie basically in the lack of skilled marketing. The average broking account executive analyses his own success in terms of technical ability, personal charm, persistence or knowing the right people, and proceeds to carry through the same approach to clients whom he does not yet serve. In attacking an industrial account, there are 2 key factors. The first is timing and the second is the network of people involved in the sales decision. In relation to timing the best potential prospects are either dissatisfied customers- those who have become disillusioned with their existing brokers service – or those clients where changes in personnel or organization raise the possibility of a change in insurance broker. By concentrating his attention on this point the average broker could probably quadruple his effectiveness. Looking at the organizational network involved in selling, one can make use of the work that has already been done in the field of industrial marketing and trace out the people actually involved in the broking decision. In industrial parlance these will include these 3 categories, namely the buyer (the insurance manager or person who actually gives the order), the user and the decision maker. The actual mechanism, by which companies make insurance buying decisions or, more precisely, decisions to change their mode of insurance buying, is quite complex. For the broking salesman, it is important to establish whether he has a genuine prospect or, as is more often the case, he is being used as a stick to beat the existing broker into providing better service. The gathering of intelligence about buying intentions and buying decisions is part of the skills of every industrial salesman, but the broking world tends to lag behind in this
Page | 37
respect. It maybe that brokers’ over – reliance on good social and personal relationships leads them to assume that every piece of information they are given is not only accurate but also the whole truth, when in fact it is often anything but. There is no space in which to look at the whole picture of sales motivation, but quite of an inclination to change begins in an industrial company and is not carried through owing to lack of persistence, lack of perception and lack of imagination on part of the broker attempting to sell his services. A good marketing approach would resolve most of these problems by encouraging the salesman to understand the market, his company’s position in that market, and his potential client’s problems and needs as well as the organisational structure and philosophy of that client. The fourth part of the process is packaging. Many brokers might object to the use of the word ‘packaging’ in relation to their product or service, but it might be helpful to reflect on the importance of packaging in every other decision they make. The way in which a product or service is presented is a reflection of how the company feels about its customers or client. It can enhance their relationship or it can damage or destroy that relationship. Some years ago, a very large British industrial account executive changed hands in a situation where there was complete dissatisfaction with the quality of service provided by the office. In packaging the broker is concerned with what the customer expects from him, how it is presented and the timing of that presentation. A report on changes might be subject for discussion, in which case packaging does not mean the inclusion of a superb glossy cover – although equally report should
Page | 38
be tidily and confidently presented – but the manner of presentation. In particular it means the extent to which the report takes account of preferences and problems of the client rather than the presenter’s view of the skills and importance of his own organisation. • Does the report take sufficient account of the short time available to the recipient to study it? • If the opportunity presents itself, are audio – visuals used and do these audiovisuals reflect the character of the broker presenting them rather than that of the agency employed in their manufacture? (The same approach can be used in the renewal process.) • How serious is the preparation for the renewal discussions in terms of understanding the changes, which are taking place in the client’s organisation and business as well as in the insurance market? • Apart from providing the opportunity for a long lunch, does the renewal discussion enhance the client’s appreciation of the technical and other qualities of the broker? • Does the broker deliver the insurance policies on time, correct and in good order? One of the biggest problems in the broking world today is the increasing separation between account executive and technician. The account executive who masters the technicalities of the business will have a much stronger position with his client than the one who sees himself as captain of the team where everybody else does work.
Page | 39
After- sales service is probably the weakest point of most broking operations today. It is hoped, however, that this will improve once the Financial Service Act comes into force, since a regular review of the client’s needs in respect of long – term insurances is one of the Act’s requirements. There have, in the past, been a number of reasons for this comparative weakness in many brokers’ after-sales service. Shortage of skilled technical staff may be one, problems in insurers’ offices may be another, but probably the main reason is lack of attention. The best means of selling most products and services is personal recommendation, and personal recommendation will be given on the basis, not of whether the user liked the product when he first bought it or whether he liked the salesman, but of how the product performed in service. For insurance broking this involves the day – by – day provision of technical advice and service, including the handling problems. Needless to say, in making this comment, cost has not been ignored. What, then, is the position of marketing in insurance broking? It can be assumed that today most brokers know about marketing and have some idea of its relevance to them, but it can at the same time be argued there is as yet little conscious of marketing techniques in insurance broking. The Financial Services Act may change this, since one intention of the Act is to enhance professionalism in the field of life assurance, unit trusts and pensions and it should therefore assist the marketing of insurance broking in these areas. There is very considerable scope for the organisations that take advantage of a skilled marketing approach in what is still a highly profitable market.
Page | 40
INSURANCE CLAIM SERVICE
Insurance is a contingency liability product i.e. its utility in terms of claim is only on d occurrence of the event against which the insurance is taken. Thus on d occurrence of the event, the insured will claim the damages of his insured product. Thus the insurance claims services are an essential part of the function of an insurance broker. The various claims are: Life Policy Claims The claims that will arise in case of life insurance policies will be of two types: those that arise on the death of the life insured and those arising of the surviving of the life insured till the stipulated date of maturity in case of endowment type of policies and survival to the periodical due dates in case of policies with periodical survival benefits. While the first types of claims is
Page | 41
referred to as : Death claims the other types are called Maturity claims. The claims arising out of the life ensured surviving till the end of the endowment type of policy or to the various periodical payment due dates in case of Money Back type or Anticipated type of policies, are settled normally by the insurers on their own, without the policy owner having to do anything. Claims arising out of death of life insured during the currency of policy, in case of Term insurance policies and whole of life policies are those, which require the action to be initiated by the policy owners or the beneficiaries. Here, the broker has a role to play. In the case of policies owned by the deceased insured the claims will be handled by the beneficiaries. It may be the persons(s), who are nominated by the policy owner to those who are successors to the estate of the life insured. On some occasions the legal advisor/executor handling the client’s estate will be representing them in making the claim. The broker will have details of the insurance covers, and should provide these to enable the claim to be made. The broker should also brief the legal advisor of the reasoning behind the policies that were effected and how the provision of future income was to be provided under the plan. The information will assist the legal advisor in the administration of the estate. If the policy owner is other than the decreased, the policy owner will make claim directly to the insurer. Disability claims When the client advises the broker of a possible claim under a disability policy, the broker should spell out the details of the cover provided by the policy. These details include:
Page | 42
• The waiting period, if any-the period of time that must elapse before the policy benefit will commence; • The benefit period- how long the benefits are payable for; this may vary for accident and illness; • The actual benefit- whether lump sum or monthly benefit, and if monthly benefit, whether it will be increased in line with inflation each year (assuming a long term disability); • Premium waiver, in case of the life policies- generally, the clients will have to pay premiums while the benefit is being paid; • Any unusual policy provisions that may affect the claim- remember, the broker will have a much better idea of the policy cover than the client. For eg, where an illness has occurred within a short time after affecting the policy, there may b an “incubation” period in the policy; that is, the policy will not respond to any illness that arises within 21 days of the commencement of the policy. The broker will arrange for a claim form to be completed and forwarded to the insurer. This will include provision for a medical certificate from the doctor. Generally, insurers will have their own forms that they want their doctor to complete. The reason for this is that they need specific information to insure the loss falls within the policy provisions and, by posing questions aimed at obtaining this information it reduces the need for subsequent questions of the doctor.
Page | 43
The insurer’s claims department will generally deal direct with the client during the period of disablement and will seek subsequent medical reports from the doctor. During this time, there is little need for the broker, but in the interest of good customer relations, the broker should periodically check with the client to see that all is progressing well. In this way, the client will feel that their interest are being looked after and the broker, by keeping in touch, will be able to head off any problems before they develop into quiet difficult once. The client cannot see the result of those insurances for which he has paid until he makes a claim. He will expect and be entitled to immediate and expert attention. He should receive guidance on how to make the claim and how to deal with insurers and loss adjusters when they are appointed. The limitations and extent of the client’s policy must be fully explained to him and the insurance broker should be active in safeguarding the interest of his clients. Health insurance claims As soon as a health disorder is noticed the insurer needs to be informed. Insured may contact the broker instead directly contacting the insurer and then the broker should help the client in lodging the claim and explain the documentary and other formalities so as to expedite the claim settlements. Where the condition to likely to involve a larger claim (possibly hospital stay), it may be advisable to check with the insurer as to the cover provided, for there may b provisions in the cover that would affect their clients decisions. For eg, the insurer may meet the full hospital cost if certain hospitals are used, but only a portion of the cost if other hospitals are used. The client may elect to use one of the hospitals where the full cost is met, but to do this they need this
Page | 44
information in advance. The broker’s role with health insurance is one of guiding and advising the client. General insurance claims Property Any claim would first be reported to the insurer and the insurer would most likely respond by forwarding a claim form. Most claims under this category tend to be small contents losses. With those claims, the claim form will seek details of the loss or damage and how it occurred. It will also seek details of the item(s) such as their value, and seek some evidence of their purchase and ownership by the client. Then insurer will to establish the type and model of the item. In most of the losses, the insurer would appoint a loss assessor who would carry out an investigation and would deal direct with the client.
Motor vehicle These losses are generally for smaller bumps and knocks. The insurer is advised and they will arrange for the vehicle loss to be assessed. This all involves little on the part of the client, and even less on the part of the broker. The introduction of “claims made” policies presents many problems and the broker should understand the reason why they are being unused by insurers and the implication to the insured. The broker who has placed the risk may sometimes be required to negotiate with the underwriter regarding the claim. However, expect for the very smallest broking companies, it is more unusual for a special claims broker to be appointed whose sole responsibility is to deal
Page | 45
with these items. If loss adjusters or other accessing and negotiating parties are employed by the underwriter then it may be the broker’s duty to negotiate with them as well. Part of any broker’s role is to analyze the previous claims experience if there is one. If there is a run of small claims it may be worth the client’s time in considering the application of an excess to cut these out. There is no future in continuing to make small claims on insurers if the effect is the premium increase at each renewal date. That is simply the swapping of bank loans. If an excess is to apply, it is important to decide who will handle the claims under the excess. Sometimes the insured will wish to do this himself since it involves his relationship with third parties and these is thus a public relations exercise involved. Sometimes the insured will prefer insurers to do it on his behalf.
Aviation Claims The claims - broker’s job entails the need for an indepth knowledge of the aviation policy wording. Initial advice of a claim is notified to a broker and a great deal of time and effort can be saved if his knowledge is sufficient to take the correct action at this stage. On large risks, for instance, the broker might have set up a special procedure, which enables funds to be available to the clients within hors of the loss. Quick and efficient arrangements for the settlement of things are a vital part of the service given to the client by brokers. Failure to act quickly can mean lost business to the broker and perhaps the market.
Page | 46
In aviation – Insurance the broker plays a strong intermediary role in that he may deal with surveyors and adjusters on behalf of underwriters, although the actual appointment of surveyors and adjusters is by underwriters. Marine Claims The marine claim brokers must, ofcourse, have a detailed knowledge of the policy forms and classes. He must also have a working knowledge of other aspects of business, which affect the settlement of claims. Hull Claims When the broker receives the notification of a loss, it is vital that this information is passed on to the underwriters immediately. The main reason is that underwrites can appoint a surveyor. Any delay can cause problems concerning the possibility of further damage, the incurring of unnecessary expenses and delay in actual payment. The broker must then advice the client that he has lodged the claim with the underwriter and that a surveyor is on his way to inspect the damage. The broker should advice the client to appoint an “average adjuster” to act on the clients behalf. The average adjuster will then work in collaboration with the surveyors. In the case of almost any Hull loss there are atleast five interested parties-the insured, the average adjuster, the claims broker, the surveyor, the insurer. The brokers job is to link all the parties together. The final report and recommendations are usually submitted to the broker, who will then negotiate settlements with the underwriter. In certain cases the insured may request “payment on account”. In this situation the broker must negotiate the payment with the underwriter. The
Page | 47
broker arranges this with conjunction with the average adjuster. When considering a collision claim the broker must advice the client to instruct a solicitor to act on his behalf and advice the hull insurer when this action has been taken. It may not be necessary if it is a very straight forward case such as collision with a moored ship or fixed object Cargo Claims From broking point of view, cargo claims can be looked at under two headings: (1)Imports and (2) Exports
1.
Imports – The first thing that will happen is that the consignee will
receive goods in a damaged condition or find that some goods are missing. Notification of the loss will be sent to the broker, who must immediately advice the underwriters. The underwriters may accept the claim at this stage or appoint a surveyor. The broker will then instruct the surveyor accordingly. At the same time it is vital that the broker instructs the client to advice all the other parties involved that they are being held liable for the loss or damage or part thereof. The surveyor and consignee will agree on how to approach the claim and the surveyors report and recommendations will be sent to the broker so that settlement can be negotiated with the underwriters. In controvertial cases the report may go directly to the underwriters.
2.
Exports – In the event of a loss a consignee does not want long,
protracted negotiations with London, and so the broker will set up a ”claims payable abroad system” . This system gives the local brokers the right to act as surveyor and adjuster and in many cases actually to pay the claim. In these
Page | 48
circumstances there is very little action for the broker to take other than to mark up his records when final details are sent. A broker may have to become substantially involved when the local agent is not authorised to actually pay the claim. If a dispute arises, the broker will be involved because the subsequent discussion, negotiation and arbitration will usually take place in London where a very large source occurs overseas. The underwriters will appoint a specialist suveryor to inspect the damaged cargo to inspect the damaged cargo and report back. In certain cases brokers have been responsible for establishing a market organisation for the centralisation of loss assessment and the availability of funds in the short term, and generally for advising the smaller companies overseas in this field. With the use of a large number of re-insurers often situated in many countries spread across continents there could be considerable delays without the organisational backing that the broker is able to supply. This will include the distribution of information, negotiation of difficult claims and arrangement of special settlements.
BROKING SYSTEMS COMPARED WITH DIRECT REINSURANCE
The Continued coexistence of brokers and of professional reinsurance companies that mainly deal direct with their clients can be interpreted as evidence that both systems possess advantages for ceding companies and reinsurers.
Page | 49
Brokers provide a degree of flexibility in reinsurance markets which otherwise it would be difficult to achieve. Their existence, often worldwide, market contracts can be particularly beneficial when a substantial amount of facultative reinsurance is required quickly, or cover is wanted either for abnormal risks, such as new or substandard risks or for very lagre risks necessitating the mobilizing of market capacity on an international scale. The benefit of their knowledge and expertise also extend to the handling of the more mundane risks. In the United States, for example, the size and diversity of the brokerage market is such that a broker can turn to many reinsurers to obtain a good lead for almost any class of business and thus brokers simulate the quality of service, innovation and competition throughout the whole reinsurance market. The same remarks can also be applied in large measure on a worldwide scale. A direct insurance company seeking the best reinsurance protection for its needs can obtain from a broker expert guidance on appropriate forms of reinsurance. It can also be sure that its business will be geographically well distributed and that especially for non-proportional reinsurances where premiums do not follow the original premium rates, the reinsurers selected will provide cover on fair terms. In turn a broker can provide a reinsurance company with both informed access to new markets without the necessity of engaging in expensive sales promotion and with assistance in obtaining the market capacity required for placing its own retrocessions. On the other hand there are advantages in the direct dealing between ceding office and reinsurer as is typically practiced by the large professional companies. The advantages are listed as follows:
Page | 50
1. The simplicity and clarity of a close direct relationship between two parties whereby there is no loss of some of the subtleties of information otherwise passed through a third party. 2. More prompt fun transmittals between the parties. 3. The absence of a fragmenting of treaty participations. 4. A type of underwriting, claims and actual service which a knowledgeable and technically staffed insurer can provide to some degree almost automatically as a part of direct contact and supervision of the reinsured’s business. 5. The absence of some accounting complexities resulting from fragmentation of shares of treaties and from frequent additions and subtractions from the participants in a given reinsurance programme. 6. Simplicity of handling treaty bouquets for clients in having available a reinsurer able to do across the board acceptances. Which of the two systems may be judged the better, must depend upon individual circumstances. Brokers and reinsurance companies vary considerably in the services they can offer but as a broad generalization, the strength of brokers lies in dealing with reinsurances that either: 1. Require the mobilization of large part of worldwide reinsurance capacity, as with catastrophe covers, especially for natural perils, or where local direct insurer has been obliged to accept the whole of a large insurance such as for a local airline, which normally would have been partially spread through the use of coinsurance.
Page | 51
2. Fall into the category of specialist covers, notably of a non-proportional type, where terms have to be negotiated with reinsurers. In property and marine business brokers tend to handle a far higher proportion of excess of loss covers than proportional reinsurances. Therefore, given freedom to choose, the extent to which both direct and reinsurance companies either deal direct or employ brokers depends on individual needs and the type of reinsurance being handled and partly on local practice. It must be recognized too that circumstances change. Advances in computer systems may in the future lead to improvements in the amount of information available bearing on reinsurance needs and facilitates which could be exchanged between companies. If such developments do occur then they could lead to radical changes in reinsurance markets to which both brokers and reinsurers will need to respond.
AREAS OF IMPROVING SERVICES OF INSURANCE BROKERS
Areas identified of Improving services of Insurance brokers are on the following lines; • Brokers must adopt to changing market conditions and accept realities rather than stick to traditional conventional ways and means.
Page | 52
• Quality based broking is the most favoured by the clients who need a broker to serve their cause by adequate coverage of risk and prompt recovery of claims • Global presence to be felt by frequent travels and personal contacts with clients in various markets of the world • Brokers have a moral responsibility much stronger than legal bindings. Ethical anchorage of trust is more significant than legal liabilities of an intermediary • The TQM( Total Quality Management) is now modified by return on quality management by; a) Focus on customer satisfaction b) Result oriented efficiency incentives c) Employee involvement and motivation
CONCLUSION
Insurance brokers have to make their way competitively with creativity, efficiency and initiative to enlarge the network of clients despite insurance
Page | 53
companies development officials, trained agents and corporate agents which may include some 46,000 branches of 27 public sector banks all over India. The insurance companies target to rope in these accesses to clients The task ahead for insurance broker is not easy and poses odds with opportunities. A corporate Insurance brokerage firm is on the threshold of changes and challenges of the Indian Insurance industry. Every Insurance broker earns valuable foreign exchange from re-insurance transactions for the country’s economy. A direct insurance broker presents the outgo of foreign exchange by tagging risk management services, risk consulting services, Insurance programming techniques and evolves an insurance relationship for mini and mega risks within the nook and corner of the domestic market of the Indian Sub-continent. The main points of the role of Insurance broker are as under:
1. An information bridge between buyers and sellers, up-to-date
intelligence on widely dispersed markets. 2. A neutral link providing anonymity and diplomacy for delicate negotiations, insuring equity and fair dealing at the same time. 3. A means of insuring prompt documentation and rendering the settlement of accounts including collection of cash losses. 4. An expertise to design re-insurance programs and obtaining support of a strong leader and following re-insurers 5. Assistance in setting up of internal procedures and in training of staff, as also in transfer of advanced technology. 6. Placement of target risks, catastrophe covers and specialised risks.
Page | 54
7. Assistance in arbitration and in negotiated settlements of disputes
CASE STUDY
Page | 55
HSBC Insurance Brokers India private limited HSBC Insurance Brokers(India) Private limited was licensed in August 2003 as direct as well as re-insurance broker. Their core team has over 100 years of experience in insurance broking and risk financing, and are able to deliver effective risk management, insurance broking and employee benefits solutions. They are able to access local markets and international markets by working closely with their colleagues in London HSBC Insurance Brokers is one of the largest international insurance broking , risk management and employee benefits organizations in the world. They are the only major insurance broker that forms part of a global banking group. As members of the HSBC Group they share an international network with offices in countries and territories in Europe, the Asia-pacific Region, the Americas, the Middle east and Africa. The group enables them to evaluate insurance in a broader business sense with immediate access to specialist advice and services in ares such as trade finance, cash and investment managemnent, treasury and foreign exchange, as well as processing services and financial controls and disciplines.
Page | 56
HSBC Insurance Brokers have the depth of knowledge to analyse complex risk situations from multiple perspectives and develop comprehensive solutions that meet the specific needs of their clients. HSBC Insurance Brokers is a founder member of the ASSUREX GLOBAL network. This ensures their representation by leading independent brokers and agents worldwide. Assure Globalism the third largest commercial insurance in the world. At HSBC insurance brokers they strive to provide their clients with the confidence and certainty to pursue their objectives.
•
Brand Positioning- The Intelligent Alternative
• Philosophy • How they work. • About their employees Brand Positioning –The Intelligent Alternative HSBC Insurance Brokers integrated communications campaign highlights their ability to distinguish themselves in the international insurance markets within which they operate. The message is clear: The intelligent alternative emphasizes their individuality, a desire to stand out from the crowd and a pride in doing so. They offer a different outlook, as they come from a different direction-the only insurance broker that is part of a global bank. They have a unique ability to leverage expertise across the world and across a wide range of disciplines, and this diversity of outlook underlines their status as the Intelligent Alternative.
Page | 57
PHILOSOPHY The purpose of HSBC Insurance Brokers is to add value and enhance their clients business. The way they work is a reflection of their goal. Knowledge an open minded attitude and integrity are their key principles. As part of the HSBC group they have an extensive range of resources to draw on for the benefit of their clients. However as a service organization they understand that working relationships are personal relationships. HSBC Insurance Brokers is made up of the knowledge and specialist skills to meet the needs of the people and companies with whom they work. KNOWLEDGE To perform with the standards of professionalism and skill required by today’s market environment they need to understand their clients business inside out and have the perception to be able to look at their insurance requirements in the round. Thus knowledge is their life blood. AN OPEN MINDED ATTITUDE Risk management is never black and white. To navigate successfully its intricacies and thus they believe in an open minded attitude that challenges preconceptions and assumptions in order to reach the optimum solution. They set a high value on agile mindsets that enable them to engage in a constant process of learning. INTEGRITY
Page | 58
Integrity underpins everything they do at HSBC. Their business and reputations are based on trusts. Individually they assume responsibility for safe guarding that trust. HOW THEY WORK They provide risk management thinking through; DIRECT CLIENT SOLUTIONS Joined up thinking for all the insurance and risk management requirements of corporate and commercial companies in the UK and worldwide. This are also provides solutions for UK specialty businesses: Education, Estates and Private Clients and Professional Indemnity INTERNATIONAL AND INTERMEDIARY SOLUTIONS Innovative thinking for specialty of constructions energy marine and aviation. This area controls the rapidly growing Captive management business in the Bermuda. Their wholesale business area serves clients who are predominantly other intermediaries –areas such as cargo. REINSURANCE SOLUTIONS Leading edge broking and consulting services to underwriters through the treaty division, facultative business through the international property and casualty business area , and connected representatives offices in Italy and Sweden.
Page | 59
ABOUT THEIR EMPLOYEES At the HSBC brokers they search for and recruit talented individuals from a range of specialist backgrounds and invest heavily in their personal development Wherever their clients are and whatever their challenges their employees have the skills and resources to meet their needs. Their specialist disciplines cover a comprehensive range of technical insurance, broking claims management, actuarial captive and risk management capabilities. These disciplines are the clients with insightful and innovative solutions. The measure of their success is the respect in which many of their key people are held both by their clients and their industry peers. everyday they seek to leverage their intelligence, skill, flair, and experience of the individuals that together make up HSBC Insurance Brokers to deliver reassurance and confidence around the globe.
Page | 60
BIBLIOGRAPHY
Books
1. The Insurance institute of India 2. Insurance broking by K.L. Naik
Websites
1. www.hsbc.com 2. www.altavista.com
Page | 61
doc_648508151.doc