IRMI Update—Issue #154
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
February 7, 2007
In This Issue
Message from the Editor
Colleague,
It is common for even long-time IRMI customers to have a misunderstanding
as to how IRMI develops and maintains the vast reference library it makes available
to insurance and risk management professionals (25,000-plus pages of analysis,
not counting sample policy forms). Since I'm frequently asked about this, I
thought it would be worthwhile to spend an issue of IRMI Update explaining how
we approach this important task.
About 80 percent of what we publish is researched and compiled or written
by the IRMI research team. At 10 research analysts, this team is the largest
in the U.S. property casualty insurance and risk management reference publishing
field. It is also probably the most experienced team, having spent a combined
277 years working as underwriters, risk managers, consultants, agents, brokers,
attorneys, and, of course, risk and insurance researchers. As you would guess,
the team's educational accomplishments are also impressive. Collectively, the
IRMI research team holds 10 undergraduate college degrees, 8 graduate level
degrees, and 32 CPCU and other industry designations. Additionally, the team
members have received many accolades, honors, and awards.
The other 20 percent or so of our publications are written by experienced
and often well-known industry practitioners. We carefully select our contributors
based on their unique expertise and communication ability. Then we work with
them to provide the high quality information that you've come to expect from
IRMI.
I am very proud of this internal and external team, and am continually wowed
by the quality and quantity of the high-caliber, cutting-edge work these folks
produce. When you subscribe to IRMI publications (whether in print, IRMI Online,
or SilverPlume Sage), you are putting the very best research team available
to work for your organization. Nowhere else will you find the breadth and depth
of risk and insurance information as that available in the IRMI library, and
using it gives you a competitive advantage that no other publisher can provide.
If you would like to learn more about the IRMI research team, you can review
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Additionally, if you are interested in joining our team in Dallas, we have
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Learn more about this position here.
Thank you for subscribing to IRMI Update. Have a great day.
Jack
Jack P. Gibson, CPCU, CRIS, ARM
President
IRMI
Risk Tip
Converting Insurance Broker to a Fee—In the
wake of high level investigations by insurance regulators into broker compensation,
many risk managers have demanded not only full disclosure of all compensation
to the broker, but also conversion of compensation arrangements to "fee for
services."
This has benefits for both parties, if handled properly and within an atmosphere
of "full disclosure." Of course the full disclosure philosophy should also apply
to the relationship between the insurance company underwriter and the placing
broker. A reality of this relationship is that an underwriter will often reduce
the amount of quoted premium by the amount of commission otherwise payable.
However, in the real world, this reduction is sometimes not made when the underwriter
knows that the broker is compensated on a fee arrangement prior to releasing
the quote.
Therefore, it can benefit both the risk manager and the broker if the underwriter
is told that the broker is being fee compensated after the underwriter releases
the quotation for the insurance in question, rather than before. This disclosure
and request for an appropriate offset of premium after the quote is received
maintains a relationship of "utmost good faith," and removes any temptation
that some underwriters may have to omit the reduction from their quotes. The
bottom line is that it may provide a significant financial benefit to the buyer
if the complete disclosure is made after the quote is released rather than before.
By: Richard Clarke, CPCU, CIC, RPLU
Senior VP and Corporate Resource
J. Smith Lanier
& Co.
Atlanta
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 Dick.
What's New in Your IRMI Library
We have recently updated a number of the reference manuals in the IRMI library
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For IRMI
Online and Print subscribers
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New Expert Commentary
There are now over 800 risk management and insurance articles on IRMI.com.
Below you'll find summaries of some recent additions with links to the articles.
New Online Version of the Classification Cross-Reference
Always popular because it saves huge amounts of time when selecting or verifying
the correct classification codes, this powerful reference has been upgraded
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here.
Your View—Improving Service
In IRMI Update 153, Jack Gibson related Joe
Plumeri's keynote speech, given at the 26th IRMI Construction Risk Conference,
urging the industry to change its seemingly lackadaisical approach to policy
issuance and claims service. In response, readers provided their thoughts on
the problem and possible solutions, some of which are reprinted below.
-
This past renewal, we received all of our primary and excess casualty
policies within 90 days of renewal. This is attributable to the efforts
of our broker, our department, and the creation, by our department, of a
prompt policy delivery award. Underwriters do compete to receive the award.
Next year our stated goal is to receive all casualty policies within 60
days.
—Mark Ryan, Director—Casualty Insurance, Occidental
Petroleum Corporation, Dallas
-
Here is the "Policy Delivery Incentive" in our current broker service
agreement. This is the first year we tried it. I am not expecting much,
but one must start somewhere.
-
For each policy for which [broker] negotiates a "99%:1% Premium Payment,"
[client] will pay [broker] a $500 Policy Delivery Incentive Bonus. A
"99%:1% Premium Payment" is where [client] pays 99% of the quoted premium,
or the quoted premium minus $1,000, whichever is less, within the insurer's
normal payment period and the other 1% or $1,000, whichever is greater,
only if [broker] receives a reasonably acceptable policy from the insurer
within 45 calendar days of the policy inception date. Policy Delivery
Incentive Bonuses payable by [client] will be billed as line items on
the Quarterly Installments of the Base Fee.
Evaluating an insurer's claim payment philosophy and claim administration
competence is mainly subjective. It must be a formal component of each insurance
purchase decision, with the results compared to the price differences among
insurers.
—Greg Dodd, Risk Manager, Perot Systems Corporation,
Plano, TX
-
I cannot respond to the claims side but find the carriers are really
much better at issuing policies than they used to be. Most of the policies
arrive at the agent’s or broker’s office quickly. The hang up is having
staff review the policies and getting them out to the insureds. Agency and
broker staffs are trying to take care of marketing new and renewal business
and handling the day-to-day needs of their insureds, so checking policies
often gets put on the back burner. It has been this way since I started
in the business 25 years ago.
—Nikki Grimes, Quality Control Manager, Allied North
America, Fremont, CA
-
Please continue to put the press on the insurance community about the
shabby work product policy issuance has become. It's an embarrassment.
In Issue #67, in response to your customer service inquiry, I voiced
my opinion about the "unintended (?)" consequences of delayed policy delivery
and the 80/20 rule that might work to the benefit of insurers; and my disbelief
that the efforts of conscientious underwriters, brokers, and insurance buyers
are undermined by sloppy insurance company practices. Perhaps insurance
commissioners need to enforce their binder extension regulations and crack
down on claims practices.
I don't think it is productive or fair to put the squeeze on the brokers
for timely policy issuance or use them as whipping boys for a situation
that is out of their control. Agents may be a different story. All brokers
(including the nationals) I have dealt with are frustrated with the dead
air that follows binder issuance and premium collection. They are well aware
of their fiduciary duty to their clients, their professional responsibilities,
and the E&O exposure that brews if they don't follow up and through.
With the current data base technology and easy exchange of electronic
files in Word and Excel spreadsheets, wouldn't you think that once a risk
has been quoted the agreed upon named insureds, additional insureds, location
schedule, policy forms and coverage enhancements would be a click away from
a local laser printer? I even suspect that the hassles of verification of
additional insureds and their notification of policy cancellation would
be remedied by a data base registration under the policy number. Judging
by the typos and disregard for the negotiated coverage terms and conditions
that are delivered as the policy, I can't help but wonder if the hard copy
specs and quotes aren't sent off to some policy typing drone to figure out.
The question then is why are insurance companies not using technology
to provide service? The capability is out there. Business savvy and forward
thinking IT professionals who engage in designing Service Oriented Architecture
can make it happen. It is evident that insurance companies are using technology—but
in support of objectives other than customer service.
How can we make insurance companies explain themselves on this issue?
The silence is deafening.
—Robin Foorman, CPCU, ARM, Consultant, Walnut Creek,
CA
-
Plumeri's keynote speech at the IRMI Construction Risk Conference is
right on target! Thank you for mentioning the industrywide inefficiencies.
I recently read in an insurance publication (The
Leaders Edge) that technology is at the bottom of both broker's and
insurers priorities.
We are in an industry that works for technology and does not make technology
work for it. No wonder margins are shrinking, and the cost-saving tactic
of "more with less" is at the expense of service to the client and creating
an overstressed, overextended workforce.
And you are right, if you don't make the timing of policy delivery, claim
management, and claim payment (as well as many other services that are more
than expected in other service industries) a part of a service plan up-front,
and a part of the carrier choice/negotiation, it's all up in the air and
not a priority.
Your editor's letter spoke to me this morning when I read it. Thank you.
—Bailey J. Siegfried, Gallagher
-
Great comments on Joe Plumeri. I answered your question in October 2005
in my "Expert Commentary"
on quality in insurance. See Deming's Point #7 in which I quote Joe and
how his comments coincide with Dr. Edwards Deming's philosophy.
As you'll recall, the Quality Insurance Congress had its beginnings at
Willis—until Hank Greenberg and a few others withheld financial support
for QIC and RIMS's Quality Scorecard (that gave AIG a grade of "F," as I
recall). Mr. Plumeri personifies Deming's Point #7—"Adopt and Institute
Leadership." The other Deming points in my IRMI series expand on his (Deming's)
answer to your excellent question.
If CEOs were to review the Institutes' (American Institute for CPCU/Insurance
Institute of America) program in quality (AIS-25)—and then make it "required
reading" for all within their organization, the kind of transformation Joe
is characterizing could occur. Many of these CEOs serve with me on the board
of trustees of the Institutes, and I challenge each to do so (i.e., make
AIS-25 required reading), if they haven't done so already (some have!).
Thanks for raising this truly important question.
—John Pryor, CPCU, ARM, John Pryor Insurance Consulting,
Inc., Bakersfield, CA
-
Having experienced the frustration of delinquent
policy issuance for many years, especially as it relates to surplus lines
carriers, we devised a system that actually worked. Before submitting a
bind order, and in concert with the formal written order, we confirmed in
advance that there would be no premium payment until the policy was in hand.
Granted this is a bit heavy handed, but a well-deserved long time in
coming conclusion that would be the case in any other legitimate business.
After all, we retailers are typically requesting similar documents time
after time that include a dec sheet, terms, endorsements, conditions, limitations
and exclusions, each being quasi-similar to what the insurer[s] issued on
the policy right before yours!
Furthermore, in this age of electronics, the excuse for not issuing a
policy within 15 days of binding is all the more hollow. If it is something
that we are not doing or supplying, then by all means, let us all know what
that might be and we will accept full responsibility. As respects the accuracy
of the issuance, it is safe to say that the majority of policies are in
need of some attention so that what we as the retailer ordered is, in fact,
in compliance with the order.
This brings me to another point....the role of the wholesaler. Are wholesalers
primarily marketing conduits or do they offer quality services such as policy
checking, and coverage negotiations that may even exceed that which the
retailer has requested?
Ours is an industry in dire need of reform in these critical path areas.
Using the tool of premium withholding until you at least have the policy
in hand may seem as if we are holding the insurer[s] hostage, but what other
nonpolitical pressure can we apply as an industry? I'm all ears.
—Greg Econn, President, Guaranty California Insurance
Services, Los Angeles
-
Jack, this issue has been discussed for as long as I have been in the
business, 24 years. I really see two issues with this. The first regarding
use of technology to speed the process is correct. For the second, we have
to look in the mirror. We as brokers and insurance buyers have been trained
and teach that pushing the process to the end is the best way to get the
best price. How can we expect policy delivery when we bind then negotiate
and bind the placement a day or two before binding. This is the same reason
our industry has the reputation it does. My guess is that if we were more
open to managing time, process and treating all markets, agents, brokers,
and clients fairly and with respect, that this industry may change. The
reality is that the majority of the industry is driven by getting the deal
at all costs.
—John Ratelle, Sr. Vice President, Oswald Companies,
Minneapolis
-
RIMS has developed an interactive tool, under the Quality Improvement
Process, to assist in evaluating the relationship with service providers.
One of the measures of the interaction between both the broker and underwriter
is timely delivery of the policy. Not only can you outline your expectations,
but you can then use the tool to score how the service provider performed.
—David Riggs, Insurance Specialist, Asplundh Tree
Expert Co., Willow Grove, PA
-
When it comes to my opinion, "you are preaching to the choir." Anybody
that has talked to me very long about this knows how it will get me on my
soapbox. After 35 years in this business, with part of it on the company
side as a commercial underwriter, I have consistently preached that we (mainly
insurance companies) spend way too much on underwriter and other acquisition
costs and not near enough on claims handling, service, etc. I am sure I
make a few people angry when I tell people that if I walked into an insurance
company office and had to pick a group of people I wanted to work for me
that were trained in insurance, most of my team would come out of the underwriting
side. This is not really a knock on the claims people but a knock on the
companies in that they do not spend as much time or money in training of
the claims folks ... who are the people with the company checkbook. I could
go on and on, but I will get off my soapbox.
—Jim Sammons, Producer, Watkins Insurance Group,
Austin, TX
-
Your Editor's Message was a wonderful "call to arms." I am a former claims
adjuster, underwriter, and now broker, and I totally agreed with Joe's somewhat
"spirited" comments about our industry. I look forward to reviewing any
and all feedback you get from insurance buyers and others in the industry
on this fundamental issue. Thank you.
—Patrick Kennedy, Vice President Sales, Kraus-Anderson
Insurance, Minneapolis
-
Delayed policy issuance, and delayed claims payments, are the insurance
industry's dirty little secret. You go to a McDonalds, order a Big Mac,
fries, and a shake, you expect to pick-up your meal pretty much right away.
You shop at a Wal-Mart store, Target, or at K-Mart, you also expect to take
your purchases home with you. However, you spend $500,000 on a builders
risk policy and maybe, just maybe, it might get issued in the next 6 months;
and that's not to say it will arrive as ordered. Is this right? Are these
good industry or for that fact good business practices? Or has the industry
just deteriorated over time?
Part of the answer is that we have allowed this to happen.—all of us.
Go ahead and blame poor profitability, 9/11, and Hurricanes Katrina and
Rita, but otherwise bright, earnest, and well-compensated people have ignored
the fact that there is a retail customer, that we are selling something,
and that the brand, yes, the brand called insurance has become tarnished.
Allow me an example.
Direct-writing personal lines automobile insurers must have sat in a
room somewhere and figured out that if they just delivered what customers
wanted, note I did not say exceeded expectations, they could—and did—increase
market share. They understand that insurance is a brand, just like detergents,
automobiles, and carbonated soda. They figured out how to call attention
to themselves, and how to make purchasing insurance easy. And in the same
room they realized that prompt and fair claims payments also increase brand
value.
Anyone who is in charge of operations at a major [independent agency
system] insurer should be ashamed of themselves for allowing this to happen.
Besides the fact that you deselected the industry as the choice of top college
graduates, you also ruined the party for the rest of us on the front lines
having to deal with ever more demanding personal and commercial clients.
When you start to focus on insurance as a brand, you begin to put the
customer back into the picture. When was the last time you saw insurance
and "best practices" profiled in Fortune, Business Week, or any other business
publications, or been a case study at the Harvard Business School? The point
is that there was no one "big thing" to blame, and that it was nothing more
poor management practices in slow motion.
Like chronic alcoholics, we need to get beyond the denial stage, get
focused on the fact that we are in the business of creating positive feelings,
and find ways of uncomplicating our complicated business practices. Think
about this. Not too long ago, one of the daily national business newspapers
asked a discount airline executive what kind of business they were in. He
replied that they were in the customer satisfaction business and just happened
to be an airline. Right now our business model is just pissing people off.
Somehow we have to recognize that there is a customer in the insurance purchasing
process, and to quote the late advertising executive David Ogilvy, in the
best organizations, promises are always kept. Right now we are breaking
more promises than we are keeping.
—E. Bernard McGlynn, Jr., Director - Claims & Surety
Services, Lewis-Chester Associates, Inc., Summit, NJ
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