Broker Liability

Target Advice to Minimize Risk

Selective recommendations can protect brokers and their clients from hidden risk.
By: | December 14, 2017 • 2 min read

Few brokers today simply place coverages for clients; most offer a range of services, even acting as de facto risk managers. Many are deeply involved in their clients’ purchasing decisions.

Jessica Brewer, senior VP, account services, Benefitfocus

But becoming so deeply embedded in an organization may create what courts consider a “special relationship” between client and broker — a gray area legally, which can leave brokers vulnerable to claims of negligence, breach of fiduciary duty and more.

For benefits brokers, the problem can be quite acute. The maze of labor and benefits regulations employers navigate is complex and constantly changing. The right fit saves an employer time, money and improves employee retention. The wrong fit damages morale and even leads to heavy fines for noncompliance.

With COBRA administration, for example, there are numerous notification requirements with which employers comply. If notifications aren’t sent out in accordance with regulations, it can cost employers $300 per day, per violation. If multiple employees are affected, that quickly turns into a significant fine.

Could a broker be held accountable if the systems they helped put in place worked to the detriment of the client? Past rulings signal an openness to consider the changing nature of the broker relationship.

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Courts noted that a broker may assume liability when: Fees are received for consulting services in addition to the payment of premiums; the client delegates decision making to a broker; or the broker assumes additional duties by either express agreement or by “holding himself out” as having expertise in a given field.

As far back as the late ’90s, courts noted that unique situations could arise where brokers might assume duties beyond placing insurance, and would thereby be taking on additional liability risk.

These situations are no longer unique. Brokers now routinely offer advice and services beyond placing insurance, permanently altering the level of professional risk they assume.

Less Risk, More Value

The more benefit programs can be streamlined, the less chance of error, and the easier it is for employers to manage.

With multiple third-party systems, the risk lies “in keeping the systems in sync, communicating with one another, interacting with one another and having multiple contacts. It’s very time consuming and a challenge,” said Jessica Brewer, senior VP, account services, Benefitfocus.

Having a single vendor-partner also eliminates the need for brokers to vet multiple vendors and develop expertise in multiple systems.

In addition to minimizing risk, inclusive systems add value for employers. Benefit accounts with a single log-in provide a positive user experience, helping employers boost morale and retention. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

As a professor of business, Jack Hampton knows firsthand the positive impact education has on risk managers as they tackle growing risks.
By: | April 9, 2018 • 4 min read

R&I: Who is your mentor and why?

Ellen Thrower, president (retired), The College of Insurance, introduced me to the importance of insurance as a component of risk management. Further, she encouraged me to explore strategic and operational risk as foundation topics shaping the role of the modern risk manager.

Chris Mandel, former president of RIMS and Risk Manager of the Year, introduced me to the emerging area of enterprise risk management. He helped me recognize the need to align hazard, strategic, operational and financial risk into a single framework. He gave me the perspective of ERM in a high-tech environment, using USAA as a model program that later won an excellence award for innovation.

Bob Morrell, founder and former CEO of Riskonnect, showed me how technology could be applied to solving serious risk management and governance problems. He created a platform that made some of my ideas practical and extended them into a highly-successful enterprise that served risk and governance management needs of major corporations.

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

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From a background in corporate finance and commercial banking, I accepted the position of provost of The College of Insurance. Recognizing my limited prior knowledge in the field, I became a student of insurance and risk management leading to authorship of books on hazard and financial risk. This led to industry consulting, as well as to the development of graduate-level courses and concentrations in MBA programs.

R&I: What was your first job?

The provost position was the first job I had in the industry, after serving as dean of the Seton Hall University School of Business and founding The Princeton Consulting Group. Earlier positions were in business development with Marine Transport Lines, consulting in commercial banking and college professorships.

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

Creating a risk management concentration in the MBA program at Saint Peter’s, co-founding the Russian Risk Management Society (RUSRISK), and writing “Fundamentals of Enterprise Risk Management” and the “AMA Handbook of Financial Risk Management.”

A few years ago, I expanded into risk management in higher education. From 2017 into 2018, Rowman and Littlefield published my four books that address risks facing colleges and universities, professors, students and parents.

Jack Hampton, Professor of Business, St. Peter’s University

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

The Godfather. I see it as a story of managing risk, even as the behavior of its leading characters create risk for others.

R&I: What is your favorite drink?

Jameson’s Irish whiskey. Mixed with a little ice, it is a serious rival for Johnny Walker Gold scotch and Jack Daniel’s Tennessee whiskey.

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

Mount Etna, Taormina, and Agrigento, Sicily. I actually supervised an MBA program in Siracusa and learned about risk from a new perspective.

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

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Army Airborne training and jumping out of an airplane. Fortunately, I never had to do it in combat even though I served in Vietnam.

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

George C. Marshall, one of the most decorated military leaders in American history, architect of the economic recovery program for Europe after World War II, and recipient of the 1953 Nobel Peace Prize. For Marshall, it was not just about winning the war. It was also about winning the peace.

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

Sharing lessons with colleagues and students by writing, publishing and teaching. A professor with a knowledge of risk management does not only share lessons. The professor is also a student when MBA candidates talk about the risks they manage every day.

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

Sensitizing for-profit, nonprofit and governmental agencies to the exposures and complexities facing their organizations. Sometimes we focus too much on strategies that sound good but do not withstand closer examination. Risk managers help organizations make better decisions.

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

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Developing executive training programs to help risk managers assume C-suite positions in organizations. Insurance may be a good place to start but so is an MBA degree. The Risk and Insurance Management Society recognizes the importance of a wide range of risk knowledge. Colleges and universities need to catch up with RIMS.

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

Cyber risk and its impact on hazard, operational and financial strategies. A terrorist can take down a building. A cyber-criminal can take down much more.

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

My family members think I’m a professor. They do not seem to be too interested in my views on risk management.




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