Instructor’s Manual with Transparency Masters to accompany Introduction to Risk Management and Insurance, 7E - Dorfman © 2002 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle, NJ Chapter 5: Insurance Occupations

Instructor’s Manual with Transparency Masters to accompany Introduction to Risk Management and Insurance, 7E - Dorfman © 2002 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle, NJ INSURANCE OCCUPATIONS Insurance Agent Insurance Agent Loss Adjuster Loss Adjuster Underwriter Underwriter Actuary Actuary Lawyer Lawyer Other Occupations Other Occupations

Instructor’s Manual with Transparency Masters to accompany Introduction to Risk Management and Insurance, 7E - Dorfman © 2002 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle, NJ INSURANCE AGENT Usual link between the consumer and the insurance company for personal lines. Usual link between the consumer and the insurance company for personal lines. Commercial insurance often involves brokers. Commercial insurance often involves brokers. The agency relationship is controlled by agency law The agency relationship is controlled by agency law

Instructor’s Manual with Transparency Masters to accompany Introduction to Risk Management and Insurance, 7E - Dorfman © 2002 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle, NJ LAW OF AGENCY (Common Law) Agent is a person authorized to act on behalf of another person (principal). Agent is a person authorized to act on behalf of another person (principal). Duties of the agent: Duties of the agent: Loyalty Loyalty Duty not to be negligent Duty not to be negligent Duty to obey instructions Duty to obey instructions Duties of the principal: Duties of the principal: Pay the agent for services rendered Pay the agent for services rendered Meet other contractual obligations (training, expense reimbursement, etc.) Meet other contractual obligations (training, expense reimbursement, etc.)

Instructor’s Manual with Transparency Masters to accompany Introduction to Risk Management and Insurance, 7E - Dorfman © 2002 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle, NJ Agent’s Authority Agents receive authority from principals in several ways Agents receive authority from principals in several ways Agency agreement (contract) Agency agreement (contract) Ratification Ratification Apparent authority Apparent authority Scope of authority can be established in the Agency Agreement - contract between agent and the company Scope of authority can be established in the Agency Agreement - contract between agent and the company Agency agreement spells out extent of authority and all the contract particulars. Agency agreement spells out extent of authority and all the contract particulars.

Instructor’s Manual with Transparency Masters to accompany Introduction to Risk Management and Insurance, 7E - Dorfman © 2002 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle, NJ Types of Insurance Agents In Property and Liability In Property and Liability When limited to soliciting business - called "special" or "soliciting" agent When limited to soliciting business - called "special" or "soliciting" agent When agent able to bind principal then called "general agent" When agent able to bind principal then called "general agent" In Life Insurance In Life Insurance Insurance agents are soliciting agents because they do not have the power to bind. Insurance agents are soliciting agents because they do not have the power to bind. General agents (branch managers) are hired to develop a geographic territory. General agents (branch managers) are hired to develop a geographic territory.

Instructor’s Manual with Transparency Masters to accompany Introduction to Risk Management and Insurance, 7E - Dorfman © 2002 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle, NJ Insurance Brokers Brokers also market insurance in both life and health and property and liability insurance Brokers also market insurance in both life and health and property and liability insurance Brokers do not have the power to bind Brokers do not have the power to bind Broker is agent of the consumer - not the company Broker is agent of the consumer - not the company

Instructor’s Manual with Transparency Masters to accompany Introduction to Risk Management and Insurance, 7E - Dorfman © 2002 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle, NJ Comparison of Agents and Brokers AGENCY RELATIONSHIP AGENCY RELATIONSHIP Consumer agent Company Consumer agent Company BROKERAGE RELATIONSHIP BROKERAGE RELATIONSHIP Consumer BrokerCompany Consumer BrokerCompany QUESTION: WHO DOES THE AGENT WORK FOR? QUESTION: WHO DOES THE AGENT WORK FOR?

Instructor’s Manual with Transparency Masters to accompany Introduction to Risk Management and Insurance, 7E - Dorfman © 2002 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle, NJ DISTRIBUTION OF INSURANCE Property and Liability Direct WritersIndependent Agents Employee / Agent usually paid by salary + Commission. Lower Price Standard Contracts Represents several companies. Own the business Paid commissions More service Local help Select company

Instructor’s Manual with Transparency Masters to accompany Introduction to Risk Management and Insurance, 7E - Dorfman © 2002 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle, NJ DISTRIBUTION OF INSURANCE Life Insurance Branch manager has control of territory and recruits and trains soliciting or special agents Branch manager has control of territory and recruits and trains soliciting or special agents Life insurance agents can never bind coverage - authority limited power to bind remains at the home office Life insurance agents can never bind coverage - authority limited power to bind remains at the home office General Agent or Branch Manager Soliciting or Special Agents Company

Instructor’s Manual with Transparency Masters to accompany Introduction to Risk Management and Insurance, 7E - Dorfman © 2002 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle, NJ LOSS ADJUSTERS or Claims Investigator Loss adjusters make the product perform Loss adjusters make the product perform Steps in adjusting a claim Steps in adjusting a claim Investigate Investigate Determine if policy covers Determine if policy covers Determine amount of the loss Determine amount of the loss Pay the claim Pay the claim Independent Adjusters vs. Company Adjusters vs. Public Adjusters Independent Adjusters vs. Company Adjusters vs. Public Adjusters

Instructor’s Manual with Transparency Masters to accompany Introduction to Risk Management and Insurance, 7E - Dorfman © 2002 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle, NJ LOSS ADJUSTERS QUESTION: Why do insurance agents and loss adjusters have to be very careful what they tell insureds when they report a loss or deal with them? QUESTION: Why do insurance agents and loss adjusters have to be very careful what they tell insureds when they report a loss or deal with them? Waiver - voluntary relinquishment of a know right. Waiver - voluntary relinquishment of a know right. Estoppel - legal order to create consistent behavior. Estoppel - legal order to create consistent behavior.

Instructor’s Manual with Transparency Masters to accompany Introduction to Risk Management and Insurance, 7E - Dorfman © 2002 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle, NJ UNDERWRITER Job is to accept exposures at appropriate rate Job is to accept exposures at appropriate rate Reject application if underwriting rules do not allow acceptance Reject application if underwriting rules do not allow acceptance Must be a skillful judge of people Must be a skillful judge of people Goal is to produce a group of insureds by categories whose actual experience will approach expected. Goal is to produce a group of insureds by categories whose actual experience will approach expected. Goal is NOT to reject people going to have losses. Goal is NOT to reject people going to have losses.

Instructor’s Manual with Transparency Masters to accompany Introduction to Risk Management and Insurance, 7E - Dorfman © 2002 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle, NJ ACTUARY Develops statistics and classifications for insurance rates. Develops statistics and classifications for insurance rates. Reviews past and projected future results. Reviews past and projected future results. Involved in product development. Involved in product development. Regulatory compliance issues. Regulatory compliance issues. Calculation of participating dividends. Calculation of participating dividends.

Instructor’s Manual with Transparency Masters to accompany Introduction to Risk Management and Insurance, 7E - Dorfman © 2002 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle, NJ LAWYER Lawsuits Lawsuits Wording of insurance contracts Wording of insurance contracts Deal with regulatory agencies Deal with regulatory agencies General advice and counsel General advice and counsel

Instructor’s Manual with Transparency Masters to accompany Introduction to Risk Management and Insurance, 7E - Dorfman © 2002 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle, NJ Other Occupations Financial administrators Financial administrators Accountants Accountants Architects Architects Engineers Engineers Doctors Doctors Marketing, Advertising Marketing, Advertising Personnel Administrators Personnel Administrators Computer System Operators Computer System Operators