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find themselves on the hook for massive bills totaling thousands or even millions of dollars if their policies are rescinded or voided because a broker misrepresents them or fails to secure adequate coverage.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

This senior risk manager values his role in helping Varian Medical Systems support research and technologies in the fight against cancer.
By: | September 12, 2017 • 5 min read

R&I: What was your first job?

When I was 15 years old I had a summer job working for the city of Plentywood, mowing grass in the parks and ballfields, emptying garbage cans, hauling waste to the dump, painting crosswalk lines.  A great job for a teenager but I thought getting a college degree and working in an air-conditioned office would be a good plan long term.

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

I was enrolled in the University of Montana as a general business student, and I wanted to declare a more specialized major during my sophomore year. I was working for my dad at his insurance agency over the summer, and taking new agent training coursework on property/casualty risks in my spare time, so I had an appreciation for insurance. My dad suggested I research risk management for a career, and I transferred sight unseen to the University of Georgia to enroll in their risk management program. I did an internship as a senior with the risk management department at Sulzer Medica, and they offered me a full time job.

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

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We need to do a better job of saying yes. We tend to want to say no to many risks, but there are upside benefits to some risks. If we initiate a collaborative exercise with the risk owners — people who may have unique knowledge about that particular risk — and include a cross section of people from other corporate functions, you can do an effective job of taking the risk apart to analyze it, figure out a way to manage that exposure, and then reap the upside benefits while reducing the downside exposure. That can be done with new products and new service offerings, when there isn’t coverage available for a risk. It’s asking, is there anything we can do to reduce the risk without transferring it?

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

Cyber liability. There’s so much at stake and the bad guys are getting more resourceful every day. At Varian, our first approach is to try to make our systems and products more resilient, so we’re trying to direct resources to preventing it from happening in the first place. It’s a huge reputation risk if one of our products or systems were compromised, so we want to avoid that at all costs.

We need to do a better job of saying yes. We tend to want to say no to many risks, but there are upside benefits to some risks.

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

I’ve worked with a number of great ones over the years. We’ve enjoyed a great property insurance relationship with Zurich. Their loss control services are very valuable to us. On the umbrella liability side, it’s been great partnering with companies like Swiss Re and Berkley Life Sciences because they’ve put in the time and effort to understand our unique risk exposures.

R&I: How much business do you do direct versus going through a broker?

One hundred percent through a broker. I view our broker as an extension of our risk management team. We benefit from each team member’s respective area of expertise and experience.

R&I: Is the contingent commission controversy overblown?

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I think so. The brokers were kind of villainized by Spitzer. I think it’s fair for brokers and insurers to make a reasonable profit, and if a portion of their profit came from contingent commissions, I’m fine with that. But I do appreciate the transparency and disclosure that came out as a result of the fiasco.

R&I: Are you optimistic about the US economy or pessimistic and why?

David Collins, Senior Manager, Risk Management, Varian Medical Systems Inc.

While we might be doing fine here in the U.S. from an economic perspective, the Middle East is a mess, and we’re living with nuclear threat from North Korea. But hope springs eternal, so I’m cautiously optimistic. I’m hoping saner minds prevail and our leaders throughout the world work together to make things better.

R&I: Who is your mentor and why?

My Dad got me started down the insurance and risk path. I’ve also been fortunate to work for or with a number of University of Georgia alumni who’ve been mentors for me. I’ve worked side by side with Karen Epermanis, Michael Rousseau, and Elisha Finney. And I’ve worked with Daniel Dean in his capacity as a broker.

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

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Raising my kids. I have a 15-year-old and 12-year-old, and they’re making mom and dad proud of the people they’re turning into.

On a professional level, a recent one would be the creation and implementation of our global travel risk program, which was a combined effort between security, travel and risk functions.

We have a huge team of service personnel around the world, traveling to customer sites to do maintenance and repair. We needed a way to track, monitor and communicate with them. We may need to make security arrangements or vet their lodging in some circumstances.

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

My 12-year-old son thought my job responsibilities could be summed up as a “professional worrier.” And that’s not too far off.

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

Varian’s mission is to focus energy on saving lives. Proper administration of the risk function puts the company in a better position to financially support research that improves products and capabilities, helps to educate health care providers and support cancer care in general. It means more lives saved from a terrible disease. I’m proud to contribute toward that.

When you meet someone whose cancer has been successfully treated with one of our products, it’s a powerful reward.




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