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find themselves on the hook for massive bills totaling thousands or even millions of dollars if their policies are rescinded or voided because a broker misrepresents them or fails to secure adequate coverage.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

This director of risk management sees cyber, IP and reputation risks as evolving threats, but more formal education may make emerging risk professionals better prepared.
By: | June 1, 2018 • 4 min read

R&I: What was your first job?

My first non-professional job was working at Burger King in high school. I learned some valuable life lessons there.

R&I: How did you come to work in risk management?

After taking some accounting classes in high school, I originally thought I wanted to be an accountant. After working on a few Widgets Inc. projects in college, I figured out that wasn’t what I really wanted to do. Risk management found me. The rest is history. Looking back, I am pleased with how things worked out.

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

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I think we do a nice job on post graduate education. I think the ARM and CPCU designations give credibility to the profession. Plus, formal college risk management degrees are becoming more popular these days. I know The University of Akron just launched a new risk management bachelor’s program in the fall of 2017 within the business school.

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

I think we could do a better job with streamlining certificates of insurance or, better yet, evaluating if they are even necessary. It just seems to me that there is a significant amount of time and expense around generating certificates. There has to be a more efficient way.

R&I: What was the best location and year for the RIMS conference and why?

Selfishly, I prefer a destination with a direct flight when possible. RIMS does a nice job of selecting various locations throughout the country. It is a big job to successfully pull off a conference of that size.

Curt Gross, Director of Risk Management, Parker Hannifin Corp.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

Definitely the change in nontraditional property & casualty exposures such as intellectual property and reputational risk. Those exposures existed way back when but in different ways. As computer networks become more and more connected and news travels at a more rapid pace, it just amplifies these types of exposures. Sometimes we have to think like the perpetrator, which can be difficult to do.

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

I hate to sound cliché — it’s quite the buzz these days — but I would have to say cyber. It’s such a complex risk involving nontraditional players and motives. Definitely a challenging exposure to get your arms around. Unfortunately, I don’t think we’ll really know the true exposure until there is more claim development.

R&I: What insurance carrier do you have the highest opinion of?

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Our captive insurance company. I’ve been fortunate to work for several companies with a captive, each one with a different operating objective. I view a captive as an essential tool for a successful risk management program.

R&I: Who is your mentor and why?

I can’t point to just one. I have and continue to be lucky to work for really good managers throughout my career. Each one has taken the time and interest to develop me as a professional. I certainly haven’t arrived yet and welcome feedback to continue to try to be the best I can be every day.

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

I would like to think I have and continue to bring meaningful value to my company. However, I would have to say my family is my proudest accomplishment.

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

Favorite movie is definitely “Good Will Hunting.”

R&I: What’s the best restaurant you’ve ever eaten at?

Tough question to narrow down. If my wife ran a restaurant, it would be hers. We try to have dinner as a family as much as possible. If I had to pick one restaurant though, I would say Fire Food & Drink in Cleveland, Ohio. Chef Katz is a culinary genius.

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

The Grand Canyon. It is just so vast. A close second is Stonehenge.

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

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A few, actually. Up until a few years ago, I owned a sport bike (motorcycle). Of course, I wore the proper gear, took a safety course and read a motorcycle safety book. Also, I have taken a few laps in a NASCAR [race car] around Daytona International Speedway at 180 mph. Most recently, trying to ride my daughter’s skateboard.

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

The Dalai Lama. A world full of compassion, tolerance and patience and free of discrimination, racism and violence, while perhaps idealistic, sounds like a wonderful place to me.

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

I really enjoy the company I work for and my role, because I get the opportunity to work with various functions. For example, while mostly finance, I get to interact with legal, human resources, employee health and safety, to name a few.

R&I: What do your friends and family think you do?

I asked my son. He said, “Risk management and insurance.” (He’s had the benefit of bring-your-kid-to-work day.)

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