The Importance of Detailed and Properly Completed Applications of Insurance

The Importance of Detailed and Properly Completed Applications of Insurance

Brokers and agents are intermediaries of insurance, it is their responsibility to be honest and provide full disclosure. They must pass on all vital information to the insurer. Failing to advise the insurer of some material fact can lead to serious consequences should a loss occur.
They have the professional responsibility to ensure the utmost good faith is held.

A written application is always wise to avoid misunderstandings and if the policy is to become part of the policy. Misunderstandings arise in the event of a loss. If there is a dispute and no written application, it would be the insured’s word against the insurers’. Should that go to court, the court would generally rule in favor of the insured.
A detailed application will also help in preventing fraud and misrepresentation. Should the insured lie in the application to be able to prove this, the insurer would need to prove this. The Insurance Act states that the insurer is required to prove there was misrepresentation.

What should be included in the content of the application?
The insurer will ask questions about:
Physical and moral hazard
The potential clients name, address, previous insurance history and previous claims / loss history
It will also identify the risk and rate it

Once the application is completed, it will be referred to an underwriter for assessment which then it may be
a) accepted, rated and the policy issued
b) accepted but subject to a certain condition
c) rejected

2. Temporary or Interim insurance must be documented. Discuss in detail the problems that can arise if a loss occurs before a policy is issued. Also comment on who would be likely to loose should a dispute arise.

A temporary coverage may be done with either a binder or a cover note. Some issues that can arise with these are (especially oral):
Was the contract actually made? The applicant may be under the impression that the coverage was effective immediately when the intermediary says they would try to obtain the coverage as soon as possible
Does the intermediary have authority? Some do and some don’t. If they do not have the authority to bind coverage, the applicants may not be covered. The insured may take civil action against intermediary due to their carelessness. If that was to happen, again the courts would side with the insured as the intermediary should know is they have the authority and would be responsible for confirming the insured is aware of same.
What are the provisions of the contract? The broker / agent should always deliver something in writing to the insured. It would contain the following information:
- name and address of the insured
- address of the location covered (is applicable)
- date and time the policy is in effect
- date and time the policy expires
- description of the property insured
- amount of insurance bound
- name of the insurer bound
- exact type and form of contract
- any special terms such as the deductibles

Courts will favor the insured. It is the responsibility of the insurer to explain the contract and its terminology to the insured. If no terms have been expressed then only the statutory conditions or the Quebec general conditions apply.

And lastly the terms must be clearly stated; this can be done in writing or incorporated into provisions.

3. Briefly explain the following and give an example of each as it relates to the handling of insurance claims

a) Estoppel: keeps a person by law from denying the truth of a statement previously made by him Ex. A claims analyst tells a client they have rental coverage while their vehicle is being repaired, when in fact the adjuster read the coverage wrong and the insured does not have coverage. The insured is already in the rental. When the bill comes in the adjuster would have to pay same.
b) Prescription: time after which cause of action ceases. Ex. Client has a year from the DOL to report their claim / damages. Non-waiver agreement: an agreement between 2 parties recognizing there is a possible right for one but in the interest of both parties a note will be made of it and matter will proceed on WOP basis to either party. Ex. Insurer investigates into a loss with out accepting liability where alcohol was involved, or the insured might be involved in possible fraud
c) Proximate cause: immediate and effective cause of loss or damage not necessarily the last even before the occurrence Ex. Three car chain reaction where everyone feels one impact. The rear vehicle was the proximate cause who hit the car in front of him and pushed the middle vehicle in to the front vehicle
d) Subrogation: the right of an insurer after paying a loss to assume the rights of the insured to recover from the responsible party. Ex. TP2 rear ends my insured. Once we pay out to cover my insured’s damages, I could send my subrogation documents to the AF insurance company and have them pay me back (issue recovery)
e) Statement of claim: is a written statement by the plaintiff detailing facts which support the claim against the defendant and relief sought Ex. An insurance company files a statement of claim to protect the limitation date if the file is not concluded. A good example would be, on September 8, a vehicle rear-ended mine while I stopped at a stop sign. No major damage was done to either vehicle and no claim was made. Two months later I started to experience sharp pains in my neck. I decided to get my lawyer to draw up a statement of claim to the third party claiming my medical expenses. It is believed that my neck pain was as a result of the accident.

4. State 3 reasons why insurers reinsure and in each case show how reinsurance meets the particular objective.

1) Increases the insurers capacity to write business; it does so by sharing the risk with others. They are more securely able to handle the loss financially (especially with a catastrophe) and if they didn’t share the risk with others they would risk loosing business. When the insurance company writes more business, they have a better chance at being profitable.
2) Maintain proper reserve / liability balance. Under the Insurance Act all insurers are required to maintain reserves for unearned premiums, pay out for those who have suffered a loss, reserves for outstanding losses and to manage the pot. When the company reinsures more of its new business, this would decrease the amount that they would require in their reserves by transferring the liability to the reinsurer.
3) Reduce the effect of catastrophic loss. Every insurer expects ordinary losses, but should a massive storm hit (or some other disaster) the insurer would struggle financially on its own. Reinsuring on a CAT basis is available.

5. Outline the activities carried out by the IBC.
- Advocate industry positions with consumers, government, members and other stakeholders
- Identifying and monitoring issues. Develop policy positions and respond to legal developments
- Staying on top of strategic issues that are important to the industry

IBC membership is voluntary but companies that join can join for some of all of the following:

Issues management – campaigns a range of issues to reduce the companies losses and increase public understanding of P&C insurance. Also includes agreements with each company that is signatory to the agreement for smoother and faster claims handling
Investigative services – detecting and preventing insurance related crimes
Insurance information – IBC collects stores and analyzes a wide range of information in a variety of formats.

6. As a consumer of insurance, what are your major criticisms of the insurance industry? How should they be addressed?
As a consumer, my major criticisms are that some agents don’t fully explain the terminology. For example, indemnifying; you think that you suffer a loss, and that you should be “repaid”.
With a vehicle loss you may not understand what the ACV is and how that was decided. We all believe our vehicle is worth more than what it might be. We all think that ours is in better shape then the one it was compared to. Or that we paid more then the amount given so why am I only being offered that amount back? There is confusion on the insured’s end more so because this is not something we consider when buying insurance and even if we are told, we might not necessarily remember it should a loss occur.

During the claims process I think a lot of phone adjusters forget that the insured may not know what is happening or going to happen next. People who work in claims deal with losses and deductibles and body shops or contractors all the time. They know the process and they know what is going to happen and how long it may take. The client may not. Especially if they have never suffered a loss, an insured doesn’t know the ins and outs of liability and what happens to them next. We basically want everything to be fixed and then wonder what will happen with our premiums.

I think when a policy is issued that it should come with “Insurance for dummies” book of a sort. If a client gets into an accident, they should get “claims for dummies” sent to them so they can follow along and have a better understanding of what will happen next. We see all these commercials for “keeping you legal for less” but what people don’t understand is you get what you pay for. If you get into an accident and you are at fault, chances are you don’t have collision coverage. There is a misconception that just because you have insurance, means that you will be covered for anything. In those commercials, it should tell you that, it should explain the fact that you only have coverage for liability or if you have collision that you have a high standing deductible which you would need to pay out. Most people don’t even understand what a deductible is when they should if they are agreeing to pay it.

The insurance industry is definitely misunderstood and that is my major concern. There needs to be more information put out there for people to get a better understanding of the whole process and concept. I think these commercials that we see are just adding to the misconception, they need to be more educational. I would like to see more positive information being circulated. Very good thought process.