IRMI Update—Issue #126
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
December 14, 2005
In This Issue
Colleague,
Have all the headlines regarding stolen customer data and the possibility
of class action suits made you wonder if your clients' (or company's) insurance
programs were structured properly to respond? Are you confused about whether
the special insurance policies for property and liability risks associated with
the Internet, computer technology, media, and privacy are necessary? Are you
concerned about the proper use of indemnity agreements and insurance requirements
in technology-related contracts? If so, you should attend Tech-eRisk 2006.
This is an updated version of the highly acclaimed seminars we held in 2004
and 2005, and it will be held in three cities across the U.S. in March. Register
before January 7 to get more than $100 off the regular price. Learn more about
the agenda, dates, locations, and the dynamic program presenter here.
Best wishes from all of us at IRMI for happiness and good health during the
holiday season.
All the best,
Jack
Jack P. Gibson, CPCU, CRIS, ARM
President
IRMI
Don't Let "and/or" Creep into Your Contracts—We've
all seen it, and probably used it. The phrase "and/or" is everywhere. One place
it should not be is in your contracts and insurance policies. My dictionary
defines "and/or" as "'either' and or 'or,' according to what is meant." Not
really a word, not really a phrase, it can be deemed ambiguous.
As risk managers and insurance professionals have seen in too many contexts,
notably in environmental and toxic tort cases, courts can find even the most
clear-seeming terms ambiguous. In any legal contract, including insurance policy
endorsements, clarity is the goal. And in coverage disputes, insurers are bound
by the rule of construction known as "contra proferentem," Latin for "against
the offeror." If the policy language is ambiguous, it must be construed against
the insurer, who drafted it. Why invite problems by using a term in your contract
or manuscript endorsement that is ambiguous on its face?
Better to hone in on what you truly want to say in your contract or endorsement.
For instance, an administrative rule at the heart of an Oregon Appellate Court
case about workers comp benefits said that if a worker's injury prevented him
or her from walking "and/or" standing for a total of more than 2 hours in an
8 hour period, he or she would get a certain award. The workers compensation
insurer interpreted "and/or" as meaning "and," while the claimant, and the court,
interpreted "and/or" as meaning "or." The claimant couldn't walk more than 2
hours, but he could stand for at least that long. He argued that the rule applied,
since he couldn't do one or the other of the activities. The comp carrier argued
that the claimant should only get an award if the injury prevented him from
both walking and standing. The court found the claimant's interpretation more
persuasive.
If you mean that for a condition to occur, either x or y must happen, use
"or." If you mean that both x and y must happen, use "and." And if either x
or y or both can happen, just say that. If you find the dreaded "and/or" in
any of your contracts or endorsements, insist that your lawyer or contract drafter
replace it with the right word or words.
By Betsy Palmieri, JD, FCLS
President, Jupiter Risk Management LLC
Weatogue, CT
E-mail: betsy.palmieri@jupiterriskpros.com
http://www.jupiterriskpros.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 Betsy.
We have recently updated a number of the reference manuals in the IRMI library
and published new issues of
The Risk Report and
Captive Insurance Company
Reports. To make sure you don't miss any of this new information
take 30 seconds to scan the "What's New" summary page.
For IRMI
Online and Print Subscribers.
For SilverPlume
Sage subscribers.
There are now 739 risk management and insurance articles on IRMI.com. Below
you'll find summaries of some recent additions with links to the articles.
Register online before January 7 for one of IRMI's most highly rated seminars
and get a 15% discount. Tech-eRisk 2006 will help you manage and properly insure
the potentially catastrophic technology, media, and e-business risks faced by
companies in any industry. If you are worried that your company may not be properly
protected against these risks—or you think you're missing out on lucrative insurance
sales opportunities because you don't understand these new coverages—you should
attend this seminar. See a full description of what you’ll learn, plus the agenda,
dates and locations.
In IRMI Update 125, Jack Gibson discussed
how trust is the key to successful partnerships between agents/brokers and their
clients. He asked readers for steps an agency/brokerage can take to gain their
clients' trust.
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For a broker/agent to gain trust with their client, there must be a willing
partnership established. The broker must put forth substantial effort to
understand the client's business and be willing to work collaboratively
towards solutions without pushing/selling a product. Contractual language
on disclosure in and of itself will not build trust. Working relationships
will.
—Kevin Gehrmann, Wisconsin Department of Transportation,
Risk Manager, Madison, WI
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The broker or agent issue of gaining and maintaining the trust of their
clients rests in large part with their ability to be a risk management partner
to their clients, not just insurance salespeople. The partnership that should
develop and exist between brokers and their clients means that clients can
rely on their brokers to offer straightforward and honest information about
risk transfer and management solutions within and outside the insurance
marketplace. If the broker is doing more to earn their place in that relationship,
the trust will be there on both sides.
—Michelle Luster, Rudolph and Sletten, Assistant
Risk Manager, Redwood City, CA
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Brokers earn my trust by being proactive and upfront about their plans
and intentions to market our business and earn their fees. We have to have
honest and open discussion about this that includes a detailed written outline
of what lines require the most effort and how the premiums map to the proposed
compensation. Beyond the written documentation, there should also be a warm
and open relationship that allows for honest feedback (both ways) and a
true desire to improve the aspects that might impair that necessary sense
of trust. Sounds like a marriage, doesn't it? As a private company, we are
not comfortable with frequent change in business partners who are so intimately
familiar with the details of our business, so we try to choose carefully
and monitor the relationship to make sure that it continues to meet our
standards. I cannot imagine having ongoing brokerage relationships with
an adversarial or suspicious undercurrent; that would be counter-productive
to the goal we should both have to make the best insurance recommendations
and decisions for the insured.
—Mari-Jo Hill, SAS Institute Inc., Director of Risk
Management, Cary, NC
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Inasmuch as broker compensation is such a hot topic in the financial
services industry, our agency has transcended the usual compensation disclosure
methods by carefully enumerating our commission and/or fees on all of our
original quotes or proposals. Many of the quotes provided by the insurers
or MGAs outline commission and fees, which we also tender to the prospect.
We have found that this procedure has shown our personal regard and loyalty
to our customers, and also leaves little room for mistrust. Most professional
customers understand that agents don't work for free, and respect us for
the disclosure of any and all fees we receive for our work. This has not
been an arduous process by any means, and I hope other agents follow suit,
if they haven't already done so.
—Lucy Harris, CIC, CPCU, AU, RPLU, SCF Insurance
Services, Inc., Producer, La Mesa, CA
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We quote most of our clients on a fee basis and enter into client service
agreements that address the services provided for the agreed fee amount.
This pricing model is beneficial to both the client and broker as the account
revenue is not tied to the premium negotiated on the client's behalf and
the services are both measurable from a results and activity standpoint.
—Robert Bookhammer, Palmer & Cay, a Wachovia company,
Senior Client Executive, Dallas
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The bottom line fortunately and unfortunately is what guides business
in this industry. And because of this there is often potential for a used
car salesman approach to any given broker-client relationship. This is a
given. One can only hope that the broker cares enough about breadth and
depth to get beyond the "getting over" tactics that satisfy the first couple
of commissions but in the long run may very well loose the customer for
good.
—Heather Wallace, Gothic Landscape, Inc., Corporate
Claims Administrator, Valencia, CA
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Spitzer's activities have given all insurance buyers a reason to mistrust
their sellers. It will take some time for this institutional suspicion to
dissipate. Question: Do brokers feel that insurance buyers are forthright
in their disclosure of their exposure bases and competitive pricing sets?
Trust is built and maintained by both parties in the relationship. Both
sides have to want it. The amount on my commission disclosure form makes
for little more than spirited dinner conversation when the client knows
the contract has been done right, with the client's best interest in mind
and that should the winds blow, we've got each other's back. You get what
you give. Unfortunately, Spitzer has trained a whole class of insurance
buyers to think what we brokers are giving them is a good screwing, which
makes for a harsher environment in which to establish the trusting relationships
so essential to this business.
—Tom Bobrowski, Rothschild Agency, Producer, Merrillville,
IN
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It is not yet accepted practice for insurance salespeople to reveal their
commission and/or contingency income to clients. In the current environment,
insurance agents/brokers are judged no differently than any other sales
professionals ... when is the last time you asked the shoe store salesperson
what their mark-up was for the shoes they just sold you? I don't believe
that we should set standards for our industry on anything other than an
"all for one and one for all" basis. So why don't you get the ball rolling
and call for all insurance salespeople, large and small, to reveal their
income to clients at the point of sale? This includes personal lines as
well.
—Richard E. Schmidt, Richard E. Schmidt Insurance
and Risk Management Consulting, Proprietor, Ithaca, NY
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