IRMI Update—Issue #67
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
June 17, 2003
In This Issue
Colleague,
The increasing use of filters in the fight against unwanted e-mail is posing
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This varies by filter, but generally you must simply add
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(but, of course, we will only send those for which you register). Refer to your
computer expert if you have any questions about this "whitelisting" practice.
If you're thinking about attending next week's seminar on captive solutions
for middle market companies in Chicago, you still have time to register. This
program is for anyone who is considering joining or starting a single-parent,
group, or protected cell captive. We've set it up for busy professionals—only
2 days out of the office and 1 night in a hotel near the airport. To view speaker
biographies, dates, and locations, the agenda, and other information, go to
this web page or, to register, phone 800-827-4242
and ask for the seminar coordinator.
Thank you for subscribing to IRMI Update and for recommending it to others.
All the best,
Jack
Jack P. Gibson
President
IRMI
Safety Responsibility Lies with Each Individual—Who
is ultimately responsible for the safety of your work environment? Who gets
the blame when there is an accident? Is it the responsibility of management
or the employee? The answer is: responsibility for safety belongs to everyone.
Management is responsible for ensuring that workplace safety policies are
in place and enforced. Employees must be aware of these policies and procedures
and incorporate them in their daily activities.
Encourage employees to take ownership of their workplace to ensure potential
safety hazards are identified and corrected. In this manner, an employee can
find a potentially hazardous situation and correct it before it becomes a problem.
When employees look out for themselves and co-workers, they increase their safety
awareness, which leads to a safer workplace.
So when one of your colleagues is asked who is responsible for maintaining
a safe work environment, his or her answer should be: "I am." With everyone
from top-level management to the newest employee keeping an eye on safety, the
number and severity of workplace accidents will decrease ... and productivity
will climb.
By: Marcia DeWitt
President and CEO
GuilfordPare
Baltimore, MD
Suggest a Risk Tip.
Future issues of IRMI Update will include more risk tips from our readers. Send
us a practical tip (less than 300 words) for identifying and managing risks,
buying insurance, managing claims, or filling gaps in insurance coverages. We'll
give you credit for your contribution.
There are now 423 articles on IRMI.com, and many more are in production.
Below you'll find summaries of some recent additions with links to the articles.
-
Security Requirements
in a Privacy World—Legal security requirements are increasing
at a rapid pace, with Gramm-Leach-Bliley and the HIPAA as two recent examples.
Kara Spooner and Gary Clayton explain.
-
Implementing Enterprise
Risk Management—Jerry Miccolis examines ERM fundamentals—objectives,
scope, organization, and tools—that companies can use to establish an ERM
framework and implementation plan.
-
A Lien Is a Lien
Is a Lien, but a Maritime Lien Is Not—In his maritime legal trends
column, Michael Orlando discusses maritime liens—what they are and what
they are not—and a recent disturbing decision by the Fifth Circuit Court
of Appeals.
-
Log Notes, E-Mails,
and Bad Faith Lawsuits—Gary Blake explains how poor writing skills
can often be a determining factor in deciding whether an insurer has shown
vexatious, unreasonable, or outrageous conduct in its claims handling.
-
Can You Swim?—Does
drowning sound more appealing than asking clients for referrals? Frank Lee
examines Referral Aversion Sales Call Reluctance and how salespeople can
recognize it.
Terrorism Insurance Update
2003—From RIMS and through conversations with many risk managers
and underwriters, IRMI President Jack Gibson concluded that the terrorism risk
can be managed and at least some of the risk is insurable. Here, he explains
the current options.
Mark Your Calendar
Today To Reserve November 17-20, 2003—Join us at the 23rd IRMI Construction
Risk Conference in Chicago and find out how to improve your insurance, bonding,
and risk management programs. Nowhere but at the annual IRMI Construction Risk
Conference will you find such an offering of great ideas. We invite you to share
this educational experience with us; network with many construction risk management,
insurance, and bonding experts; and enjoy the Chicago nightlife. For more information,
go to the Conference Web site.
In IRMI Update #66, Jack asked readers whether
insurers have improved the timeliness of issuing policies in the past decade
and, if not what problems have occurred as a result of delayed issuance. His
editorial hit nerves, and there was a considerable amount of finger pointing
in the responses. Below is a sampling.
- I agree that late issuance of commercial policies has gotten out of
hand. You correctly point out with all the technology available there is
simply no excuse for this dilemma.
In February of this year we received a request for renewal information
on a policy expiring 07/01/03. This request demanded the information within
5 business days from the date of the letter (which arrived 6 days after
it was dated). I found this request ludicrous in that we had not yet received
the 07/01/02 renewal policy!
In connection with another renewal policy that is over 4 months past-due,
we have a claim that will probably be denied by the company and will end
up in court because the former policy did cover the claim while the renewal
policy (which we have not yet received) purports to exclude the claim. Who
do you think is going to win?
—Robert K. Fredrickson, Jr., CPCU, McKinney & Allen,
Inc., Sioux Falls, SD
- Commercial insurance in many instances is the most primeval activities
of business. The focus is on the "kill" (getting it bound by the renewal
date). Once that is done, it's off to the next potential "kill." That's
where the laurel wreaths are won or lost—not in cleaning up the details.
It's the thrill of victory and the agony of defeat that motivates. Quickly
and professionally cleaning up the details of a placement at the expense
of the next "kill" earns comments like "he or she can't keep their eye on
the ball." In this kind of climate, one quickly learns to move on to the
next kill or get left in the backwater or worse.
Even more important to me and other old fossils in this business is that
for a good part of our time in this business, you could look a "gentleman"
in the eye and make a deal both knowing what the terms and conditions were
in the event of a loss before everything was committed to paper. There were
houses where resources were devoted equally to production and the back office
process. Along came the bean counters with short-sited "revenue per se targets."
Many of their bonuses are still based on this or other irrelevant figure
at the expense of service and what use to be called professionalism.
—John Becconsall
- It seems to me that our industry is so entrenched in tradition, that
even the process of issuing a policy annually is maintained in spite of
obvious burden of overhead expenses and underwriter burnout. One simple
solution that would eliminate an incredible amount of redundancy, while
maintaining the integrity of the coverages originally negotiated, is to
issue policies that provide continuous coverage until canceled. Renewals
are seamless. Policy forms can be changed by endorsement. Customer relations
are enhanced. If a major ISO edition is necessary to implement, provide
reasonable notice, then issue midterm at the time of initiation, rather
than wait for some self-imposed anniversary date. When this discussion has
arisen to date, all kinds of reasons it won't work are thrown up, including
rate filings, accounting issues regarding earned premium, etc., and policy
form challenges. None of those challenges are insurmountable and, in fact,
most are easily amended.
Re-underwriting every 12 months is so horribly expensive and unnecessary
that it blows me away to think we can't see our way to make simple, but
profound changes that would have an immediate and positive effect on the
bottom lines of every carrier and broker/agent in the industry. It's like
dying of thirst while standing knee-deep in water.
If there's a task force created to plant the seed of such change, sign
me up.
—Jeff Brown, Garrett-Stotz Company, Louisville, KY
- I, too, think policy service stinks, but I have found that you have
to qualify what you say. Ask any company executive about the problem, and
you will undoubtedly receive a veritable fusillade of statistics that seek
to convince you that the problem is really not all that bad. And, statistically,
they're probably right.
Of the millions of commercial policies issued each year, we should ask
what percentage are under $5,000 in annualized premium and what percentage
are above that figure. Then we should ask what the time service is on the
over $5,000 versus the under $5,000. Would it surprise you to find out that
the small policies are being shipped well in advance of renewal and the
larger ones, on average, at a later date? And if we limited our study to
policies with premium in excess of $50,000, what do you think the stats
would say? I bet they would tell us that the higher the premium, the longer
it takes to negotiate the deal; and the longer the deal takes to negotiate,
the later the policy gets issued.
As a former company employee on the underwriting side, I was always amazed
to find myself negotiating reinsurance terms well after the reinsurance
contract had expired! But for primary lines, I found that BOPs, nonfleet
auto, monoline inland marine, and small business workers compensation were
almost always pumped out 60 days prior to renewal (or whatever the date
in order to conform to statutory regs). Larger lines and policies, I found,
were another story entirely.
Of course it is inexcusable for at least some service to be so poor,
but understand for a moment some of the current dynamics. Most commercial
lines policies are issued on a direct bill basis, meaning that as long as
the policy is unissued, the possibility exists that nothing is billed. Commercial
lines insureds and their agents/brokers actually like this and have learned
to take advantage of the cash flow (agents/brokers can always issue an estimated
bill for a binder without having to pay the company). So one of the reasons
that this "inexcusable" practice continues is that at least two of the three
players in the game might actually favor delays. Another contributing factor
is state-based policy renewal requirements. If major premium increases and
coverage reductions are to be effective on renewal, the paperwork must be
current. Otherwise, the changes become pro-rated into the next policy period.
Delaying negotiations and policy issuance is one way to postpone the inevitable.
On the company side, service budgets are usually accurate vis-a-vis active
policy counts as long as one assumes 100% staffing. The minute a vacancy
occurs, all bets are off. Thus, most companies have an inherent and contradictory
flaw that gives lie to their stated desires to provide superior service.
In addition, no company would want to get tough on the larger accounts by
insisting on adherence to rigid time standards. The account might find a
home somewhere else.
To review, I do believe that automation has improved small account servicing
immensely. I also believe that we have to be quick to keep reinsurance transactions
out of the mix. If the primary property/casualty practices are "inexcusable,"
I have no idea what level of Purgatory the reinsurance business occupies.
—Richard E. Schmidt, Insurance and Risk Management Consulting,
Redmond, WA
- As a broker, I shared your feelings on the delay in issuing policies.
Now, as a captive manager, I understand where some of those delays come
from. Despite going to reinsurers with a proposed policy wording, most reinsurers
will only offer quotes/cover based on their revised version of that wording.
It then takes months for us or the reinsurance broker to negotiate and
cajole the reinsurers into agreeing on a single wording. Recently, there
have even been a number of instances where a single policy had to be issued
containing a number of different versions of the same clauses and endorsements,
each relating to the portion of cover provided by a different reinsurer.
The inflexibility of reinsurers, two or three in particular, causes most
of the delays for us.
—Tanguy Gaidoni, ACII, ARM, Senior Insurance Coordinator,
Aon Insurance Managers (Dublin) Ltd., Dublin, Ireland
- Thanks to our automated issuance systems, we are able to issue policies
for our middle market construction business within minutes of having a firm
order. Policies are routinely issued within a few days.
—Larry Ronhaar, Travelers Construction
- I can only offer, as a relative newcomer to the risk management field,
that I am aghast at the length of time it takes to receive policies. Whether
it has been a renewal endorsement, new policy, or other endorsement, it
can be "agreed" upon and yet take months, even a year or more, to receive
the documents. As someone who deals in risk for a large residential builder
and property manager, I cannot accept these lags in service and yet I am
told that they are "routine." Nowhere else have I experienced such a lax
attitude coupled with complete impunity.
You are, indeed, not blowing the issue out of proportion.
—Norah Lindsay, Technical Assistant - Risk Management,
Minto Developments Inc., Ottawa, Ontario, Canada
- I couldn't agree more that the lack of timely policy issuance is a disgrace.
I used to tell my general contractors responsible for erecting multi million
dollar buildings that it was conceivable the building would be done before
the policy paper could be delivered and, sadly, that sometimes proved to
be the case.
I think a large part of the problem is our insurers who have poor service
standards to begin with then compare themselves to each other and the downward
spiral continues. What about quality standards: we often insist that the
manufacturers we insure be ISO certified—what about such quality standard
certifications for the insurers?
—Donna Lee, Marketer, Companies Agency Inc./Wausau, Milwaukee,
WI
- Your commentary strikes a nerve with me. My company is a consumer-owned
utility in the Upper Midwest with about $1 billion in gross revenue.
I have been around the industry since 1969, and I echo your comments.
I do not for the life of me understand why policies cannot be accurately
delivered by the renewal date or certainly within 30 days. Back in the days
when I was a company underwriter, we routinely worked 30 days out so the
policy was in the agent's hands well before the renewal date. We did that
with typewriters and no copy machines well before the advent of electronic
document preparation.
I am still a proponent of the old school which holds the premium is not
due until the paper is delivered, but I feel like I am a dinosaur holding
to that seemingly archaic concept. Trying to enforce that is next to impossible.
Carriers argue they are obligated to pay beginning at inception, but that
begs the question on what basis if the policy is not in hand?
A corollary issue that annoys me is carrier difficulty in getting it
right the first time. Our brokers catch most of the inaccuracies and have
them fixed prior to delivery, but that only adds time to the delivery delay.
Given the wonders of electronic communication, why couldn't the carrier
post a draft policy to their web site allowing the customer an opportunity
to review and correct it before final issue? They are going to prepare the
policy electronically anyway. It shouldn't be that difficult to post it
allowing the client to at least fix most of the obvious errors. It would
have to be in some version of read only access that would allow changes
to be captured. The carrier would retain control of the final product so
the client could not create unintended extensions without final approval
by underwriters.
I don't intend to paint all carriers with the same brush, because a number
of ours do very well. Others still have ways to go.
—Evan Mandigo, CPCU, ARM, Insurance and Risk Administrator,
Basin Electric Power Cooperative
- You always seem to bring up some of the most annoying
issues in the practice of insurance ... and that's a good thing. Generally
speaking, some of my smaller/regional carriers have dramatically improved
the turn-around time in the issuance of policies from binding date to actual
receipt of the policy. Many of the nationally based carriers still don't
have their act together, so that you could get a policy in 30, 60, or even
90 days.
The problem, as I see it, is they have downsized so much they don't have
the staff, and are not automated enough to handle their paper flow, AND
most of all, no one in staff underwriting has ANY authority do anything.
Only a few "managers" have the authority, and they don't want to make a
decision, so nothing gets done. Layers and layers of management, and not
enough real workers with authority are the fundamental problems. , The "good
old days" were far from perfect, but for the most part underwriters were
really underwriters, and not essentially raters, and their careers rose
and fell with their decisions, which were still approved by management.
If a company is willing to pay an underwriter $50,000, $60,000, $70,000
but not willing to give them meaningful authority, they are overpaying for
the rating work that is being done.
—Thomas W. Davis, CIC, Davis American, Ltd.
- I have worked in the underwriting side of commercial lines for 30 years,
and I currently manage a Commercial Lines Dept. We are a small company that
prides itself on having positive and personal working relationships with
our independent agents. We continue to work toward automating as much of
our operation as we can. We have a dedicated and hard working staff. However,
finding qualified staff is often difficult and at times is actually some
of the reason why delivery of policies is not as timely as we would like.
The current market has new business pouring through our doors just about
faster than we can log it in, let alone underwrite, rate, and process. In
my opinion though, the biggest contributor to preventing prompt issuance
of policies is inadequate information provided by the Independent Agent
on the application. For the type of business we write, a completed Acord
Application most often provides all the information we need to properly
underwrite, rate, and issue. The key in the previous sentence is the word
"completed." It is the rare occasion all information is provided on the
application. The failure to provide something as simple as the address for
a mortgagee delays issuance.
Last week I helped the underwriters prepare their new business issues
to be processed. In particular I worked on the older items dating back to
March and April. Each one of these older date items was still in our office
not issued because of inadequate or conflicting information.
We have in the past advised our agents incomplete applications will be
declined and for a period time there is some improvement. However this has
always been an ongoing challenge. If we don't specifically outline the information
we need in the initial declination, we end up providing it later when the
agent contacts us about it. Either way, the time spent assisting the agent
depletes the time for actually issuing.
Just a thought from my experience.
—Tessa Wilson, Umialik Insurance Company
- A cynic might say since nobody who buys a policy reads it until after
there's a loss, the point when the policy is issued is immaterial. I can
only speak for one insurance fleet, EMC Insurance, as far as actual policy-issuing
performance is concerned, and the improvement here since 1985 has been monumental,
mainly because of harnessing of computer power to generate premiums and
documents. We don't have the kind of delays you're addressing any more.
However, we pretty much work Main Street, and don't get into manuscript
policies and long negotiations, such as the World Trade Center property
coverage. When brokers and risk managers are niggling over details for months,
it does tend to lead to questions about what the handshake meant and the
belated policy issue.
—John Koehler, Branch Underwriting Manager, EMC Insurance,
Minneapolis, MN
- As seems to be the case with many others, we have experienced difficulty
in getting our actual policies in a timely fashion. This difficulty should
be an area of great concern to the insurance industry, but it appears it
does not receive the attention it deserves. As an industry neophyte, I am
unfamiliar with all that needs to be done to produce a final policy. However,
I do find it unacceptable that you can receive a policy with barely enough
time to review it before preparing the renewal data for the successor policy.
Again, I stated that I am relatively new to the industry. I am looking
forward to hearing feedback from brokers, insurers, and others on this issue.
—Jason G. Booker, CPA, Financial Analyst, RBX Industries,
Inc., Roanoke, VA
- I agree completely that the delay SOME insurers force us to endure before
they issue policies is inexcusable. To take that a step further, why do
our customers have to wait until the day before their renewal to get pricing?
Our agency primarily serves the middle market ($50,000-$500,000 premiums).
When we deliver complete submissions to carriers 90-120 days prior to expiration,
what possible excuse is there for not responding with a quote at least 30
days before renewal? I think it's mainly fear—that another carrier will
get to see their price; and an inability to get on top of their paper flow.
Our new goal is to deliver proposals to our clients 45 days before expiration—complete
with binders, invoices, and any other required paperwork.
—Brad Poggi, Producer, Pinnacle Insurance Partners, LLC,
Grand Rapids, MI
- I've been in this industry slightly longer than you've admitted to and
worked for an insurance company, brokerage, and for the last 15 years consulted.
I totally agree with your observations about delivery time of policies and
endorsements—and the detriment to coverage accuracy. Perhaps the 80/20 rule
is guiding insurance company expense and overhead decision-making concerning
policy issuance and endorsement processing. No matter that the policy issued
doesn't match the binder and specifications—let the buyer beware. If there's
no loss, then what's the big deal? If there's a loss, well, then we'll just
have to duke it out.
Rarely have I ever received an inaccurate policy that is in the insured's
favor—generally it's the extensions of coverage and refinements negotiated
at renewal that seem to get left off. The policies are received so late
in the term that the corrections never materialize and repeated follow-up
requests vanish into the ether. At a certain point you're still trying to
correct an expired insurance policy—and that certainly doesn't capture anyone's
attention (especially if you've changed carriers), and there is definitely
an errors and omissions exposure established and a lot of time invested
in "CYA."
Maybe the thinking goes like this: Why spend a lot of time processing
endorsements? If it's a property coverage, and there's no loss, why fuss
over details that don't count after 12:01 am? So what if the demolition
and increased cost of construction or replacement cost was left off, even
though it was paid for. Catch you next time.
General liability coverages are another matter altogether—as all of us
IRMI devotees know—and it never fails that it's the additional insured,
named insured, and enduring coverage elements that get totally screwed up
and never amended. So who comes up short in the long run when the adjuster
consults the policy a couple of years from now and says, "Sorry there's
no endorsement here for that"? It's so infuriating to see the diligent efforts
of conscientious insurance brokers, insureds, and even dedicated underwriters
to put together solution-oriented insurance programs only to have them undermined
by insurance company home office operations whose work product demonstrates
a total disregard for and lack of interest/pride in the very product they're
selling. Package policies are the biggest offenders. I've had better results
with workers comp, D&O, E&O, and specialty coverages.
Until insurance companies' feet are put to the fire over the issue of
timely policy issuance and responsiveness to correction requests, I don't
see any incentive for them to change. I think there are some hidden advantages
to foot-dragging. Other financial services industries have mandated turnaround
times. Maybe insurers are playing into the hands of legislators.
—Robin Foorman, CPCU, ARM, Consultant, Piedmont, CA
- I firmly agree with you! Commercial insurance customer service is terrible.
Most personal lines insurers deliver policies within days not months. My
recent experience lies with both the carrier and the broker. The carrier
issues policies incorrectly, the broker audits the policy and requests corrections.
The corrections take forever and have to be confirmed by the underwriter.
They are made and result in more errors which now require more corrections.
I had one policy delivered on the day of expiration. They average about
4 months to deliver.
—Jim Shiflett
- There is absolutely no reason for a delay in the issuance of policies.
The insurance carrier CEOs should hold managers to the fire for policy issuance
delays. One only has to look at the delay and the ensuing problems with
the September 11 disaster.
—Alan Doloboff, Director, Frank Crystal & Co., Inc.,
New York, NY
- I completely agree about the long delays being a problem. Not having
been a commercial underwriter, I know I should tread lightly. As a personal
lines underwriter, however, I worked with a company to reduce personal lines
policy turnaround from 72 to 14 days, and this was well before automation
and the Internet. It's amazing to me that technology hasn't solved this,
but technology will only speed up the mess you already have if you don't
have good workflows at the beginning.
I love the insurance industry and have a life-long career here. Your
point, though, brings me to my pet peeve: the reluctance to hire professional
managers in our industry is hurting us. We tend to promote salespersons
and underwriters, and as a whole don't do enough to hire or train in the
area of management. Good managers could streamline processes and keep employees
well trained. Agency owners tend to want to manage the shop, when they should
be out selling. Underwriters, claims adjusters, and others understandably
want promotions, and yet they are allowed to become "managers" with no formal
training in the management field.
Our industry needs to catch up on this point with the rest of the world.
Why don't we have more management majors and MBAs in our agencies and companies?
The best coaches were not necessarily the best players; and the best players
are usually lousy coaches! Give technical folks a good technical track to
run on, promote them on the technical track, pay them well, and let managers
be managers. Good management would solve the problem you see with processing,
along with many other issues we have in the wonderful business in insurance.
—Lisa H. Harrington, CPCU, AAM, AAI, AIP, Vice President
of Education, Florida Association of Insurance Agents, Tallahassee, FL
- The insurance industry has been operating in a crisis mode for quite
a while, and the events surrounding September 11 certainly have not helped.
When something innovative is on occasion adopted in the business, it is
pretty much the equivalent of moving from the Iron Age into the Bronze Age.
We are not a trend-setting industry, nor are we innovative.
In defense of business-as-usual, it is extremely hard to hit "best efforts"
goals when training programs have for the most part disappeared, staff has
been thinned-out, profitability has disappeared, older staff has been offered
retirement packages, and a choice of insurance as a career is off the radar
scope. Some have observed that we are just recycling the same group of people
in the industry, when we honestly need to show some to the door. Yes, late
issuance of policies is common. It's an open secret, and even when the policies
are finally issued, they need corrections.
Taking corrective steps requires acknowledging a problem. Regretfully,
we are an industry in deep denial.
—E. Bernard McGlynn, Jr., Director, Claims & Surety Services,
Lewis-Chester Associates, Inc., Summit, NJ
- Surprisingly, this has improved a great deal. Back in the 1980s we would
take 3 months or more to get policies out of the Aetna. Now, at Travelers,
our national business has 90 percent of all policies out with 90 days. Even
AIG, which used to take 12 months, is much better. And the newer policies
are largely electronically published, with capability to send these to larger
brokers in the electronic form. Renewals are less an issue than is new business,
since forms and coverages more frequently are negotiated. Definitely an
improvement for large commercial accounts compared to the past.
—Tom Ackman
- As amazing as it may seem, the delay in issuing new policies or their
renewals is a very common problem. I believe it has spread worldwide like
SARS, and very much like it, can be deadly unless treated properly!!!
I have lived this problem with local, regional, European, and U.S. insurers.
If I were paranoid, I would think this is a strategy created by insurers
to show a false sense of burden in the policy management process to complicate
as much as possible their claims management process. I say this because
technology on one side, and standardization of policy wordings and risk
profiling on the other, should make it relatively simple to issue a valid
policy in a couple of days in the United States, London, Venezuelan or Japanese
insurance market.
The delayed issuance of a policy is a very real threat for insureds.
Not having the finally agreed policy wording means that the contractual
arrangement, required to enforce its terms and conditions under friendly
negotiations or fierce legal fights, does not exist. It is customary to
have cover notes, but these abide to very general wordings, thus the exact
term and conditions agreed are not there. This "black hole" is so harmful
that a claim for anything ranging from the anticipated cancellation of the
policy to a catastrophic claim, could be sucked into it without any idea
of when and what the outcome will be. I believe a lot of time and expenses
would be saved by insurers and insureds following the reduction in arbitrations
and suits caused by differences in the interpretation of coverages based
solely on cover notes. This could cause premium savings for the insureds
(nice joke on me!!!).
I have seen some insurers take charge for the consequences that the issuance
delays create during the claims management process, but I have never seen
one insurer pay a big amount of money without, at least, a deep technical
discussion.
—Gustavo A. Torres G., Petrolera Ameriven, Barcelona,
Venezuela
- Not only are policies and endorsements taking forever to get issued,
they are rarely CORRECT. How is it that brokers catch all the mistakes,
yet carriers continue to issue policies with mistakes and errors routinely?
The WASTED time and money spent on corrections must be enormous. With all
the consolidation within our industry the past few years, and the focus
on profit, automation, and cutting costs, the lag time for policy issuance
and endorsement issuance has increased across the board.
The carriers call timely issuance of contracts "service." I call it efficiency
which leads to profitability. If a carrier could promise prompt delivery
of accurate policies, wouldn't that be a niche?
—Susan Ruvolo, CIC, Area Vice President, Arthur J. Gallagher
& Co., Glendale, CA
- If anything, the time from renewal or initiation of a commercial policy
has gotten even worse and the companies (some of them) are hiring outside
service providers to review and inspect the submissions prior to completion
of issue. The problem I find is that for the most part, many of these independent
inspectors do not have expertise in the related business practice and yet
they are there to inspect a risk for the company, supposedly to assure the
company underwriters that the writing agent is submitting a qualified risk.
My question is this: If the company underwriters do not trust the expertise
of the agent, why do business with the agent at all? Ours would be a better
business if the companies would simply stop doing business with any agent
or agency that submitted risks that were not as they actually were. After
all, those of us who truly make a living in the business have an obligation
to write quality business and to submit risks to the proper markets. Those
who don't wish to operate in a professional manor should go sell used cars
or go to law school.
Companies have an obligation to operate in a timely fashion and to support
the agents/brokers, not just leave us hanging out waiting to deliver contracts.
Or worse yet always looking for ways to cut commissions and close markets.
—Rex Caffall, Caro USA
- Further to the point made, unissued policies likely will invite coverage
disputes. Being that the courts generally look to the insurer as the "sophisticated
party," more often than not such disputes resolve to the detriment of the
carrier. In my company, we call this phenomenon Underwriting Leakage.
We discovered that there was no performance related carrot or stick to
reward or reinforce a policy issuance standard. To address the so called
leakage, staff underwriters and underwriting assistants have a measurement
included in their respective performance plans. Policy issuance results
have since improved considerably, whereby 90% of policies have been issued
within 30 days of inception and 97% within 60 days (or 3% Underwriting Leakage).
If it does not get measured, it does not get done!
This performance clearly gives us a competitive advantage and reduces
"Claim Leakage."
—Michael Biscan, Underwriting Manager, Zurich North America
- The late issuance of insurance policies is a horrible problem today
as it was 10, 20, and even 30 years ago! With all the improved technology,
I think the problem has gotten worse in the past 10 years. Unfortunately,
I think this problem is contrived and perpetuated by the insurance companies.
You've got to believe agents and brokers don't find this a problem, since
the late issuance of the policy practically eliminates competition—a competing
agent/broker can't take the insured's policy, on a timely basis, and improve
upon it—coverage terms and conditions and/or pricing.
In fact, the practice of agents and brokers "binder billing" a renewal
when they haven't been billed by the insurance company is another outrageous
practice. What is even more frustrating is that renewals are 3 and 4 months
late in being issued! The solution to the problem of late policy issuance
is a simple one: the insured doesn't pay the premium until a policy is delivered.
—David J. Skolsky, CPCU, Insurance Analysts & Consultants,
Avondale Estates, GA
- When I entered the business in 1966, commercial lines policies were
always delivered late—same situation as today. I recall that when Allstate
first entered the commercial lines business in the early 1980s, they touted
a less than 10-day turnaround on commercial lines policy issuance. I don't
know what they do now. I was once risk manager for a $2.5 billion company.
They had enough clout to tell the broker that they would not pay a dime
until the policies were delivered. In that case, the policies were promptly
delivered.
In my opinion (verified by observation), the brokers are almost always
the culprits, not the carriers. The brokers are late "sealing the deal"
with the underwriters; late delivering requested information to the underwriters;
late reviewing the coverage when it arrives from the carriers, and late
actually delivering to the client. On the other hand, brokers are very good
about canceling binders if the premium is not paid. It just depends on where
your focus is. If you experience late delivery, pull some of your Dec pages
and look for the date near the bottom that identifies when the policy was
typed, policies do not stay in the underwriters office following their being
typed. I bet you'll notice that policies routinely take 2-3 month from when
they are typed to be delivered to your door.
—Butch Taylor, Chief Counsel, Litigation and Insurance,
MWH Global, Inc., Denver, CO
- I couldn't agree with you more. It is truly an embarrassment that it
still takes carriers and brokers 10-12 months to deliver a policy. The WTC
loss is the perfect example of the difficulties a risk manager can and will
face when a loss occurs and a policy has not been issued.
The problem is further exacerbated when you have a layered program. Each
excess layer will in most cases insist on a copy of all the underlying policies
before they will issue their excess policy. If there are 10 layers to the
program, and you give each carrier 30 days to issue a policy, the best you
can hope for is having all your policies in hand before the whole program
expires. Corrections are a whole other story.
That being said all the carriers were paid within 30 days of binding.
—Ira E. Cohen, Corporate Risk Financing, Manager, TIAA-CREF,
New York, NY
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