Brokers tread fine line on loss control

Insurers are asking brokers to provide more education about loss control to their clients. But at what point does ‘education’ turn into loss control advice for which brokers are on the hook…?

Insurance companies are asking brokers to help educate their clients about loss control, but that may be easier said than done, since many brokers observe a fine line that they do not want to cross when it comes to engaging clients on the topic.

The insurers’ interest in having brokers engage their clients on the subject of loss control has to do with the companies’ financial situation. 
On the whole, Canadian property and casualty insurers posted relatively strong results at the end of 2012, marked by a return on equity (ROE) higher than 11% -- the first time the industry’s ROE broke into the two-digit territory since 2007, as noted by Joel Baker of MSA Research. But low interest rates, poor investment returns, and the volatility of results in Ontario’s private auto insurance market have conspired to make insurers focus on loss control measures.
Garth Neher, president of the Insurance Brokers Association of Saskatchewan (IBAS), said insurers are now talking to brokers about the urgency of loss control measures.
“They want to use data more effectively to match risk and price; put more focus on loss control; and enhance the overall customer experience by being more responsive, accessible and streamlined in their product selections,” Neher wrote of a recent meeting insurers had with association representatives. “They also want brokers to play an even larger role in educating customers about risk and loss control.” (continued.)


Interpreted generally, brokers say this doesn’t mean insurers expect brokers to do the loss control, but rather to share more information with underwriters.
For example, “insurers who might not have their own loss prevention services would be requiring more detailed information from brokers,” said Jack Lee of BFL Canada. “In addition to the usual descriptions of the property, they want us to address environmental surroundings such as proximity to bodies of water or wooded areas. Water damage and flooding are of concern as is forest or brush fires.  Finally the reports often provide an unofficial estimate of replacement values as well.” 
Most insurance companies have access to IAO actuarial or engineering reports that provide detailed analyses and valuations of insurance policy liabilities. Insurance companies that do not have access to these resources may call upon brokers to share any knowledge they may have.
But while brokers will share information about their clients’ exposures with company underwriters, they are profoundly uncomfortable with the notion of providing loss control “advice” to clients. 
“If the underwriter wants to know what alarm system is in the building and the kind of sprinklers they have, those are questions that we answer,” said Brenda Rose of FCA Insurance. “If the underwriter wants to know if there is a sump pump in the house, we can answer that question. 
“If we want to give the client advice about how they could mitigate their risk exposures, we have to be very careful that we make it clear that we are not experts. Aside from general common sense advice, they really should engage the services of engineering firms and proper risk management firms.”
Deborah Ridsdill of Hull Insurance Ltd. is adamant that brokers are not qualified to provide loss control advice to clients. “In what regard would an insurance broker be qualified to get involved in loss control?” she said.  
“I can go in and see the sprinkler heads are on and have a certificate on them, but I wouldn’t be the one to be able to say, ‘The sprinkler density is not great enough.’ But an insurance company can, because they send out civil engineers, stationary engineers, or people who are qualified to do this. I would never, ever put myself in that position. I’m not qualified, so no. I have to tell you, no.”
Ridsdill said that where loss control is concerned, one role for brokers is to help resolve communication issues arising between clients and insurers. 
For example, a client looking for a cut rate may refuse to do something in an assessment undertaken by an insurance company’s loss control department. Or a company’s loss control recommendations may be out of touch with the business reality of the broker’s client.
In these instances, a broker may step in to help resolve the dispute.

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