Vu White Paper Helps Agents & Brokers Manage Carrier Insolvency Issues
Alexandria, VA, Oct. 6—While independent agents and brokers cannot prevent carrier insolvency, a report issued by the Big “I” Virtual University (VU) offers ways for them to monitor carriers for financial distress indicators on an ongoing basis.
The VU is a state-of-the-art, online insurance educational and informational resource center offered by the Independent Insurance Agents & Brokers of America (the Big “I”).
The report, “What You Can Do About Insurer Insolvency,” written by VU Director Bill Wilson, is a featured white paper in the VU’s Research Library, a one-stop reference resource with hundreds of articles on a wide range of subjects and links to annotated ISO forms.
“This paper provides independent agents and brokers a practical methodology for examining the ongoing financial stability of their carriers,” says Wilson. “While this approach cannot prevent insolvency, it can help lessen the likelihood that agents, brokers and their clients will become unwilling participants.”
In the report, Wilson argues independent agents and brokers have an obligation to their clients to advise them as to their knowledge of financial indicators that may point to potential problems with a carrier. Wilson says that insurance providers often think they are protected from insurer insolvency because they have E&O insurance, their state has a guaranty fund or they rely on the Texas Higginbotham court case [Higginbotham & Associates, Inc. v. Greer, 738 S.W.2d 45 Tex. App. 1987], which implies that agents aren’t liable when an insurer becomes insolvent.
Wilson argues, however, that the Higginbotham case didn’t necessarily absolve agents and brokers of all responsibilities and that they owe it to their clients to reasonably monitor the financial status of their carriers.
“Some agents and brokers may ask ‘Why should I bother?’” says Wilson. “To answer a question with a question, agents should ask themselves if they would suggest to their insureds that they rely on only one, limited-risk management technique to address their exposures to loss.”
To monitor a carrier’s financial indicators, Wilson recommends that agents invest in fee services such as A.M. Best, Standard & Poor’s, Moody’s Investors Services, Duff & Phelps, Weiss Research and others. Additionally, financial information can be obtained from other sources such as annual statements and stockholder reports, insurance departments, trade periodicals, and other agents and brokers.
The Big “I” offers its members special discounted pricing on the 2004 Best’s Key Rating Guide as well as the CD-ROM software for $136 (includes taxes, shipping and handling) through www.independentagent.com/ambest. The package includes BestDirect, which provides a customizable, real-time notification and tracking service that provides e-mail alerts on rating changes, company reports, news and other company-specific information, and online access to customizable Best’s Key Rating Guide presentation reports.
To provide further assistance with the monitoring process, Wilson offers an insolvency checklist that can serve as another tool for reviewing the changes in a carrier’s financial status. The checklist, unlike others, does not require complex calculations or ratios and is instead presented in a simple yes-no answer format with fewer than 25 questions. Examples of the questions include:
· Has the company been in business for less than 15 years?
· Is the company’s primary line(s) of insurance private passenger auto, workers’ compensation or predominantly commercial or E&S/specialty?
Capitalization & growth factors
· Is current policyholders’ surplus (PHS) less than $5 million?
· Has there been an abnormal decline, or significant fluctuation, in PHS in the last three to five years?
Cash flow & profitability factors
· Have there been any cash flow problems (reflected by slow or low claims payments, unearned premium returns, commissions, etc.)?
· Have any significant combined ratios been abnormally high or increasing in the past three to five years?
· Have there been any major market withdrawals or changes or assumed books of business?
· Has the company (particularly if involuntarily) implemented any significant rate increases or decreases?
In the report, Wilson also provides access to a free, downloadable manual that provides a number of E&O steps agents and brokers can take to reduce their exposure to loss.
“While the checklist should not be used as a definitive indicator of insurer financial difficulty,” says Wilson, “agents and brokers can use the list and other tools to exercise reasonable care in evaluating a carrier’s financial status and thus minimize the likelihood of an E&O claim.”
“What You Can Do About Insurer Insolvency” and other VU white papers are available exclusively to Big “I” members and VU subscribers. Big “I” members get free, unlimited access to the VU as a member benefit.
Individual, non-Big “I” member subscriptions are available for a $395 annual fee. Non-Big “I” member groups can purchase 10 or more individual subscriptions at discount pricing of 10 percent off each when purchased together. Individuals from a group must purchase at the same time to be eligible to receive the discount. Payments must be by individual or group credit card. Those interested can download the bulk registration form in a PDF or Word format.
Individual subscriptions can be purchased online at the VU using a major credit card. To do so, visit www.independentagent.com and click on the “Virtual University” link.
VU subscriptions will not be required to access online insurance educational classes. The prices of these classes vary by topic and length. For more information about Big “I” membership and VU subscriptions, please visit www.independentagent.com.
Launched in 1999, the VU offers agents and brokers access to the most comprehensive and integrated learning system in the industry. Big “I” members and VU subscribers get unlimited access to more than 4,000 pages of timely industry information; a subscription to VUpoint, the biweekly VU e-newsletter and its fully searchable archives; immediate access to a library of “white papers” on hot insurance topics; and can use the VU “Ask an Expert” service.
Founded in 1896, the Big “I” is the nation’s oldest and largest national association of independent insurance agents and brokers, representing a network of more than 300,000 agents, brokers and their employees nationally. Its members are businesses that offer customers a choice of policies from a variety of insurance companies. Independent agents and brokers offer all lines of insurance—property, casualty, life and health—as well as employee benefit plans and retirement products. Web address: www.independentagent.com.