IRMI Update—Issue #101
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
November 23, 2004
In This Issue
Colleague,
As the end of the year rapidly approaches, many insurance agents will find
themselves in the need of some quick and convenient continuing education credit.
If you haven't already done so, I encourage you to check out the Training and
CE section of our Web site to take care of your CE needs.
You'll find many informative property-casualty (and life/health) insurance
courses, which have been approved for insurance CE credit in 49 states. We're
constantly adding to and updating the course library. For example, we recently
updated our popular additional insured, employment practices, and D&O courses.
And we recently added a flood insurance course to our personal lines offerings.
With online delivery, you can take the courses any time from any computer
with access to the Internet. If you are a Texas agent, we even offer "classroom
equivalent" courses online to allow you to get the 15 hours classroom credit
you need without leaving your home or office.
And you can't beat the price of our insurance CE courses. You can get all
the credit you need to renew your license in most states for under $50. When
you have a few minutes, browse our course catalog and consider the benefits
of online self-study CE courses to meet
your license requirements.
Thank you for subscribing to IRMI Update and for recommending it to your
colleagues.
Have a great day.
Jack
Jack P. Gibson
President
IRMI
Promptly Provide Insurers with Notice of Lawsuits—Sometimes
risk and insurance professionals are reluctant to give notice to insurers of
potential business litigation lawsuits when it isn't clear that the event is
covered under their policies or in fear that future premiums will be adversely
affected. Electing to not provide notice of claims is problematic for at least
five distinct reasons.
- Since the duty to defend is broader than the duty to pay, a defense
may be available even if any subsequent settlements or awards aren't covered.
Cash flow recognized from defense fee reimbursement in such cases can be
significant.
- Insurance brokers' exposure to errors and omissions claims rises when
potentially covered claims of which they are aware are not reported to insurers.
- Difficulties in discerning when the first alleged wrongful conduct occurred
that might trigger coverage could cause the analyst to apply the wrong policy
terms to the coverage analysis.
- Most jurisdictions follow the rule that a narrowing of insurance coverage
that is not brought to the insured's attention cannot be applied. Thus,
pre-wrongful acts inception policies must also be reviewed.
- Current business litigation exposure is but one of the liability risks
to be assessed by underwriters upon renewal. Anecdotal evidence seems to
indicate that premium adjustments rarely occur in connection with this claims
activity.
In summary, it is wise to carefully consider submitting any legal liability
claim against the organization to insurers, even if it initially appears to
involve issues and circumstances beyond the scope of the insurance program.
Reporting claims will avoid allowing the insurer to later use late reporting
as a defense to providing coverage. As the litigation matures and more facts
become known, a final coverage determination can be made.
By: David Gauntlett
Gauntlett & Associates
Irvine, CA
dag@gauntlettlaw.com
www.gauntlettlaw.com
Suggest a Risk Tip. Send us a practical tip (less than 300 words) for identifying and managing risks,
buying insurance, managing claims, or filling gaps in insurance coverages. Submit your tips. We'll
acknowledge your contribution as we did for David.
There are now 606 risk management and insurance articles on IRMI.com. Below
you'll find summaries of some recent additions with links to the articles.
The 2004 winner of the Gary E. Bird Horizon Award is the Mo-Kan Construction
Industry Substance Abuse Fund for its groundbreaking workplace drug testing
program. Bestowed at the 24th IRMI Construction Risk Conference, the award is
presented annually by IRMI to recognize the implementation of innovative, cost-effective,
and efficient risk management techniques. The objective of the Mo-Kan Construction
Industry Substance Abuse Program (CISAP) is to improve worksite safety by keeping
drugs from playing a role in construction site accidents, and it is working.
Annual industry savings from the program are estimated to be in excess of 300
percent of the annual cost of the CISAP. For details, see the Gary E. Bird
Horizon Award section of the Conference Web site.
IRMI will add a new member to its editorial team in 2005. We're seeking a
risk management, insurance, or legal professional with 3–5 years' experience,
an intense interest in understanding risk management and insurance tactics,
and excellent writing skills. For more information on this unique employment
opportunity, see the About
IRMI Career Opportunities section.
In IRMI Update 100, Jack Gibson asked readers
what they thought about a code of ethics for the insurance/risk management industry,
particularly in light of the recent Eliot Spitzer investigations. Below are
some of the responses received.
-
I applaud your urging to companies to develop and implement a code of
ethics and to mitigate risk throughout their value chain by demanding that
business partners do likewise. As you likely know, the construction industry
continues to make headlines for corruption and various legislative initiatives
are moving forward at both the federal and state levels aimed at eliminating
such.
The recent Ethical Practices in the Construction Industry published by
FMI (and spearheaded by our firm) yields image-damaging appraisals of the
condition the of moral fortitude characterized by the emblem "contractor."
Is industry leadership going to stand by and let this self-deprecating inflammation
continue? Other industries, the electronics industry the most notable recently,
have developed industry-wide standards for ethical conduct. Our industry
has not.
Many practitioners inside the industry see and hear unethical acts everyday,
yet they are passed over as, "That's business," or "I don't like it, but
what can I do?" Where is the industry leadership that is going to stand
up and say, "I am not going to take anymore. Let's stop talking about it—let's
do something!" Perhaps leadership just doesn't know what to do as it is
a delicate topic and each industry segment has its sensitivities about "normal"
practices.
The survey I reference concluded, "It is clear from our survey response
that that ethics is an important concern among companies in the industry.
It is also clear that very few are taking actions to support their ethical
values."
Where is the leadership?
—Rick Bishop, President, Integribuild, LLC, Richmond,
VA
-
Ethical considerations are always important. I do believe that we are
looking at a bit of an overreaction to a situation in the press. What we
have in this current investigation is very coercive behavior by very large
carriers and brokers who control too much of the commercial marketplace.
This same kind of hubris occurs whenever a few large companies control an
industry. A little antitrust goes a long way.
I have been in the business for 40 years, and my father was in it before
me. Contingent commissions or profit sharing agreements have been with us
forever. When they are based on producing the classes of business desired
by a particular market, and when that business grows and produces an underwriting
profit, I see nothing wrong with the concept. No one account makes a substantial
difference to a mid-sized broker's book over a period of time. In addition,
there are years where one or a series of large losses occur, and the producer
gets nothing.
These are not kickbacks or payments in advance for placing business with
a market. These arrangements are how a good broker or agent develops company
relationships over time that are meaningful and which benefit clients. A
producer with good relationships will, at the very least, get a hearing
by the carrier in the event of a problem or dispute. This is the only way
that a smaller producer can compete with the giants and regional brokers.
Although trite, it is true that the P&C business is still a people business,
and relationships can be very helpful in placing business and in building
trust with your markets.
—Charles Weisblum, Chairman, MLW Services, Inc.,
New York
-
... All the companies under investigation had a code of ethics.
—James Moore, President, J&L Risk Mgmt Consultants,
Inc., Raleigh, NC
-
I could not agree with you more. But maybe the trouble lies in the fact
that the money-grubbers of the world treat ethics and ethical behavior as
ancient history or kid stuff. What we have to do is start in kindergarten
and throughout the whole educational system teach these things and that
materialism is not the only form of wealth in this world.
—Marvin Sahl, Partner, Jaymar Associates, Palm Springs,
CA
-
Codes of ethics are chimeras. Hemingway blew his brains out when, after
a lifetime of trying, he discovered that such a code must be attached to
an absolute to work. Attempting to develop such a code where there is no
absolute idea of right and wrong is doomed to failure. Enron still happens
with a code of ethics.
When Christianity and Judaism are abandoned, the absolute moral base
is undermined and replaced with secular humanism. There is no absolute right
or wrong in such a system. It now permeates our society, government, courts,
and education system. Reject the absolute, and the code fails for want of
an anchor.
If there is no right and wrong, then a code is doomed to fail.
P.S. Under such a system, Mao is correct, if not right, when he said
all power flows from the barrel of a gun. Replace the gun with humanistic
law, and the same result ensues.
—Bill Ford, CPCU, CIC, ARM, AAI, JD, Owner, Ford
Consultants, Prattville, AL
-
I totally agree with the Editor that the insurance industry desperately
needs to focus on ethics and integrity, and I'm not just talking about contingency
fees, etc. As everyone knows, this is a highly competitive environment,
and you may even have a few brokers soliciting for business from the same
clients. However, in my country, you may even have some unscrupulous brokers
who, when faced with the possibility that the existing client may not renew
with them but may "jump ship to another broker," would go to the extent
of asking the client to write a letter to the effect that he (client) had
not seen any brokers, that he (the client) is basing on desk quotes and
being coerced, etc. In actual fact, the client has seen numerous other brokers
and considered all the alternatives provided to him! Call this "client rigging"
or what? The unprofessional behavior of a few "bad apples" definitely gives
the others in the industry a bad name.
—Lucille Chang, Senior Manager, Art Prophets Ltd.,
Singapore
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