Brokerage

Diligence Can Help Ward Off Agency Fraud

It's incumbent upon risk managers to understand exactly what their agents are doing — or not doing — on their behalf.
By: | May 16, 2017 • 4 min read

Insureds could find themselves on the hook for massive bills totaling thousands or even millions of dollars if their policies are rescinded or voided because a broker misrepresents them or fails to secure adequate coverage.

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That was the situation one of claims manager Beth Ossino’s clients found themselves in after their property burnt to the ground and her firm, Golden Bear Insurance company, discovered only after the event that all of the information on the application was incorrect, apart from the name and address.

“When we went out there, we found there were all of these issues with the property that we had no prior knowledge of, that meant we would never have insured it if we had known about them,” she said.

“Initially we thought that the insured must have falsified their application and then burnt the house down, and so we took it to the district attorney and presented it as a case of insurance fraud.

“They sent out an investigator to the insured’s agent’s office and the customer service representative who dealt with them basically admitted that she had made everything up in the application.”

As a result, the broker lost its binding authority and it was reported to the California Department of Insurance, said Ossino, claims manager with Golden Bear.

Thankfully, though, it was a happy ending for the client as Golden Bear covered all of its losses. However, there have been cases where the carrier didn’t pay out when the insured lied on the application, or the broker failed to secure adequate coverage, she added.

Vet Partners Thoroughly

Ossino said it is imperative that risk managers and their organizations educate themselves thoroughly and do their research when they are selecting a broker or seeking coverage for a particular risk.

Beth Ossino, claims manager, Golden Bear Insurance Co.

“Any time you do business with somebody new, you should thoroughly vet them first, make sure they have the proper license and ensure that they haven’t had any disciplinary action taken against them,” she said.

“Most of that information is available online through your local department of insurance website where you can check the status of an agent or broker.”

Christopher Boggs, Big “I” Virtual University executive director, said that it is a risk manager’s job to analyze and present their exposures, and then work with the agent or broker to draw up the appropriate coverage.

“It’s the risk manager’s job to check the policies against the exposures and program developed,” he said. “Confirm the policies are what you requested. Don’t assume. As a matter of fact, reviewing and understanding policies is the risk manager’s job.”

One major obstacle for many risk managers, said Boggs, is not being able to verify that the company is being properly represented to the carrier. If an organization has concerns, Boggs recommends calling a meeting with the underwriter.

“Unless they are in the room or on the call, there is no real way for them to know,” he said. “The policy is the contract between the insurance carrier and its insured. If the agent or broker hasn’t, doesn’t or won’t bring the policy — there is a problem.”

“It’s the risk manager’s job to check the policies against the exposures and program developed. Confirm the policies are what you requested. Don’t assume.” — Christopher Boggs, executive director, Big “I” Virtual University

In some cases, when a misrepresentation is made, Boggs said that an errors and omissions claim may have to be made by the insured or the carrier.

“An unintentional error is wholly different,” he said. “Some carriers might reform the policy in the event of a mistake.

“If it’s fraud, it depends on the relationship between the parties. A material misrepresentation, concealment or fraud will void coverage.”

Andrew Barile, founder/president/CEO, Andrew Barile Consulting Corporation

Andrew Barile, founder, president and CEO of Andrew Barile Consulting Corporation, said that risk managers need to make sure they fully understand the agreement they are entering into before signing it and that the brokers have given them the necessary information to know what they are covered for.

“Agreements now extend much further than just the simple one-page broker of record letter,” he said.

“Another area that can result in denial of claims is where the insured themselves fails to sign the application, so it’s imperative they get their broker to sit down and go through the agreement with them thoroughly so that they fully understand it.

“A lot of litigation occurs when the insured doesn’t follow the specific guidelines in the application forms.”

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For their part, retail agents and brokers looking to place a risk that they are unfamiliar with should enlist the help of a wholesale broker that has intimate knowledge of that line of business, said Ossino.

“Particularly if their client has something unique to their business, they should seek out an agent or broker that has written similar policies and is aware of the specific exposures to ensure they secure adequate coverage,” she said. “They also need to keep abreast of the latest emerging risks pertinent to that business.”

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

Pinnacle Entertainment’s VP of enterprise risk management says he’s inspired by Disney’s approach to risk management.
By: | November 1, 2017 • 4 min read

R&I: What was your first job?

Bus boy at a fine dining restaurant.

R&I: How did you come to work in this industry?

I sent a résumé to Harrah’s Entertainment on a whim. It took over 30 hours of interviewing to get that job, but it was well worth it.

R&I: If the world has a modern hero, who is it and why?

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The Chinese citizen (never positively identified) who stood in front of a column of tanks in Tiananmen Square on June 5, 1989. That kind of courage is undeniable, and that image is unforgettable. I hope we can all be that passionate about something at least once in our lives.

R&I: What emerging commercial risk most concerns you?

Cyber risk, but more narrowly, cyber-extortion. I think state sponsored bad actors are getting more and more sophisticated, and the risk is that they find a way to control entire systems.

R&I: What is the riskiest activity you ever engaged in?

Training and breaking horses. When I was in high school, I worked on a lot of farms. I did everything from building fences to putting up hay. It was during this time that I found I had a knack for horses. They would tolerate me getting real close, so it was natural I started working more and more with them.

Eventually, I was putting a saddle on a few and before I knew it I was in that saddle riding a horse that had never been ridden before.

I admit I had some nervous moments, but I was never thrown off. It taught me that developing genuine trust early is very important and is needed by all involved. Nothing of any real value happens without it.

R&I: What about this work do you find the most fulfilling or rewarding?

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Setting very aggressive goals and then meeting and exceeding those goals with a team. Sharing team victories is the ultimate reward.

R&I: What is the most unusual/interesting place you have ever visited?

Disney World. The sheer size of the place is awe inspiring. And everything works like a finely tuned clock.

There is a reason that hospitality companies send their people there to be trained on guest service. Disney World does it better than anyone else.

As a hospitality executive, I always learn something new whenever I am there.

James Cunningham, vice president, enterprise risk management, Pinnacle Entertainment, Inc.

The risks that Disney World faces are very similar to mine — on a much larger scale. They are complex and across the board. From liability for the millions of people they host as their guests each year, to the physical location of the park, to their vendor partnerships; their approach to risk management has been and continues to be innovative and a model that I learn from and I think there are lessons there for everybody.

R&I: What is the risk management community doing right?

We are doing a much better job of getting involved in a meaningful way in our daily operations and demonstrating genuine value to our organizations.

R&I: What could the risk management community be doing a better job of?

Educating and promoting the career with young people.

R&I: What have you accomplished that you are proudest of?

Being able to tell the Pinnacle story. It’s a great one and it wasn’t being told. I believe that the insurance markets now understand who we are and what we stand for.

R&I: Who is your mentor and why?

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John Matthews, who is now retired, formerly with Aon and Caesar’s Palace. John is an exceptional leader who demonstrated the value of putting a top-shelf team together and then letting them do their best work. I model my management style after him.

R&I: What is your favorite book or movie?

I read mostly biographies and autobiographies. I like to read how successful people became successful by overcoming their own obstacles. Jay Leno, Jack Welch, Bill Harrah, etc. I also enjoyed the book and movie “Money Ball.”

R&I: What is your favorite drink?

Ice water when it’s hot, coffee when it’s cold, and an adult beverage when it’s called for.

R&I: What does your family think you do?

In my family, I’m the “Safety Geek.”

R&I:  What’s your favorite restaurant?

Vegas is a world-class restaurant town. No matter what you are hungry for, you can find it here. I have a few favorites that are my “go-to’s,” depending on the mood and who I am with.

If you’re in town, you should try to have at least one meal off the strip. For that, I would suggest you get reservations (you’ll need them) at Herbs and Rye. It’s a great little restaurant that is always lively. The food is tremendous, and the service is always on point. They make hand-crafted cocktails that are amazing.

My favorite Mexican restaurant is Lindo Michoacan. There are three in town, and I prefer the one in Henderson as it has the best view of the valley. For seafood, you can never go wrong with Joe’s in Caesar’s Palace.




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]