Sample Risk Management Plan
Risk management contents
A risk management program must have commitment and approval at the highest level of your organisation.
It should be developed by senior personnel:
- Show reporting lines risk issues;
- Describe risks that affect your business activities and licence obligations;
- Outline procedures and systems to control risks;
- Explain obligiations to report and record breachesand MSK failures;
- Risk management review process; and
- Educate all staff and promote the risk management program.
Include details of the responsible officer overseeing the risk management program:
- Experience and qualifications;
- Duty statement;
- Process and timing of reports to highest level in the business.
Assessing and prioritising business risks
Describe:
- How and when risk circumstances generally arise in your brokerage – see checklist below;
- The likelihood of the risk occurring and the consequences if it does.
The management program has two components: implementing procedures and reviewing effectiveness of the program.
Implementing risk management procedures
Prioritise your risk areas and indicate your implementation. For example you may:
- Monitor low rated risks;
- Implement specific procedures to reduce the impact of high-level risks; or
- Take steps to lower the likelihood of occurrence.
Reviewing and auditing your risk management plan
Give details of:
- Who does the review, and their methodology;
- How the results of both your annual and external reviews are used to make improvements in your program;
- How you educate staff on any new procedures that result from your review.
Risk management training
Detail the range of educational and staff communication activities to keep staff aware of risk management issues.
Checklist of brokerage risks
The following list contains common risk areas for brokerages and examples of some of the measures you can put in place to manage these risks. As you work through the list identify other risk factors that you need to take into account that occur due to the particular aspects of your business operation. These relate to how your staff and business functions are structured and managed. This in turn affects how information and finances flow internally from one area of the business to another and between your business and external providers and representatives. Risks relate to:
Management and maintenance client files
Brokers must keep control over records and files. You will need to set standards for:
- Timing and method for reviewing insurance files and claims files, e.g. complete a review once a month;
- File administration to allow ease of access and use;
- Tidiness of the filing area.
Additional standards should be set for the organisation of filing such that:
- Copies of policy documents are on a separate file to general correspondence;
- General correspondence is filed in chronological order;
- The front of your file contain the following:
- Client name
- Type of cover
- Limit of Indemnity
- Policy Period
- Other insurers, e.g. excess layers;
- Separate policy and correspondence files are kept for each of client’s risks;
- Updating filing.
Time-sensitive matters
Brokers are responsible for establishing and maintaining a system that copes with time-sensitive matters including renewals. Establish procedures for:
- Ensuring the client is aware of policy provisions with regard to time limits and notification deadlines;
- The use of reminder systems for renewal activities for all types of policies – not just 12-month policies.
Staff control
Quality control and supervision of staff is vital. Establish procedures for:
- Preparing and disseminating job specification, duties, responsibilities and obligations for all staff;
- Customer support staff regarding limits to client work or advising.
Brokers must not undertake a job for which they have no experience or appropriate qualifications. It is not possible in today’s business world to be a specialist in every type of insurance. Establish procedures for:
- Provision of insurance advice to clients;
- Referral to:
- Another broker in the office or even to an outside broker
- A solicitor or other service provider.
Include procedures or processes that provide for staff to:
- Discuss work with others;
- Obtain a second opinion.
All staff in a broker’s office should undergo formal continuing education. The education program should include:
- Attendance at educational programs including those on ethics;
- Subscription to magazines and circulars.
Include a time allowance or policy for staff to keep up to date with developments in the profession.
Mail, telephone, fax and email communications
Introduce and maintain an email/mail system irrespective of the size of your practice. Establish procedures for handling:
- Incoming mail including couriered documents that encompasses checking and distribution;
- Any letters of complaint;
- Unidentified mail;
- Facsimiles/emails including checking the outgoing message is accurately recorded, and distribution of incoming facsimiles.
Professional indemnity coverage
Professional indemnity insurance is the final defence prevention mechanism in your risk management program. While problems cannot be totally eliminated they can be dramatically reduced if you use specific risk management.
Brokers must understand the nature of their professional indemnity policy and the obligations that arise under it. The policy is a claims made policy. Establish standards for:
- Notifying claims immediately in writing to your broker or insurer including circumstance that could give rise to a claim;
- Confirm claim reported verbally in writing later.
Other issues that you should include in your business risks program are measure to deal with:
- Fraud and dishonesty;
- Privacy policies.
Client management risks relating to broking
These risks arise from your sales, marketing and advisory activities. Generally brokers and intermediaries find out about problems when the insurer rejects the client’s claim or a consumer complains about the quality of the information given to them by the representative. Risks relate to:
Failure to obtain clear client instructions
Brokers are not providing a professional service unless they are absolutely clear as to what it is that is required of them. Taking and confirming client instructions is key risk area.
Establish procedures for:
- Making written notes of instructions at the time they are given;
- Confirming initial instructions with clients in writing;
- Obtaining client’s approval to vary instructions;
- Making written notes of additional client instructions during the course of a particular job;
- Timing for the review of client instructions over the course of relationship.
Claims handling
The broker’s duty of care to the client is a continuing one and does not come to an end when the insurance is placed and premium collected. Brokers owe clients a duty of care in the notification and handling of any claims that may arise. Failure to fully inform clients of claims procedures is another potential risk.
Establish procedures for making the client aware of the:
- Reporting and notification obligations pursuant to the policy;
- Any time limitations imposed in the policy with regard to reporting and notification of claims;
- The difference between “claims made” policies and “losses occurring” policies.
Also establish procedures for:
- Informing insurers immediately when a client notifies a claim;
- Notifying all interested and relevant insurers, e.g. excess layers, co-insurers, etc;
- Checking for any differences in the policy wordings where other insurers are involved;
- Checking whether any other insurance cover is applicable, e.g. in a public liability claim, where consideration must be given to whether the professional indemnity insurers should also be notified;
- Keeping your client informed on the progress of the claim;
- Following up the progress of the claim with the insurer;
- Advising the client whether to accept a settlement or sign a release form, e.g. when advice from a solicitor may be advisable.
Incorrect cover
Absence of cover can be due to:
- Failure to renew insurance cover;
- Failure to secure proper type of cover or scope of cover;
- Cover confirmed before completion.
Deficient cover can be due to failure to:
- Advise client of policy exclusions, coverage restrictions, and differences in policy wordings, and conflicts between layers;
- Obtain requested additional coverage or coverage for substitute or additional risks;
- Detect defects or mistakes in the slip or placing document;
- Detect defects in the policy wording;
- Advise warranties;
- Place with a financially stable company.
Binding authorities
Brokers who operate a binding authority must appreciate the potential for:
- A conflict of interest – insurer/client;
- A double exposure – insurer/client.
The regulatory regime imposes numerous obligations, particularly disclosure, on when acting under a binder and all staff must be aware of the statutory provisions.
Establish procedures required for:
- Adherence to the terms of the written agreement when placing insurance or handling claims under a “binder”, particularly the underwriting limitation;
- Acceptance of binding authorities and placement of any associated reinsurance;
- Informing the client where the broker is acting as agent of the insurer and not the insured in regards to both placement and claims settlement, where relevant.
Client communications
A number of key risk factors arise from failure to communicate effectively with the client at the point of sale and in the ongoing client relationship.
In the case of non-disclosure, refer to B9 for details of the ASIC requirements for retail client disclosure.
Letter of Appointment: Obtaining a letter of appointment prevents disputes with clients over perceived variations in the services the brokerage will provide. Letters of appointment are to be provided irrespective of how large or small the account is.
Establish procedures for:
- Obtaining a letter of appointment from your client or sending one to the client;
- Content:
- Nature and extent of your appointment;
- Scope of insurance to be placed for client;
- Acknowledging letters of appointment received from the client:
- Timing of reply;
- Clarification of any errors or misunderstanding as to the nature and extent of the appointment.
Confirmation
Brokers must confirm oral discussions or oral advice in writing with clients, insurers or third parties. Oral discussions can be in person or via telephone.
Establish procedures for recording and confirming:
- Content details in letters and file notes:
- Type of cover you have placed
- Policy limits, any applicable excess or deductible, any gaps in cover;
- Policy wording, exclusions, conditions, warranties, and any differences in policy wordings on excess layers;
- How the broker will send original policy document to them;
- Recommendations as to insurance cover;
- Client’s response back to the client, e.g. rejection of any insurance cover;
- Oral placements of insurance cover to the client and insurer;
- Any insurance cover not placed to the client and insurer;
- Oral agreement to “hold covered” to the insurer and client.
Establish procedures for:
- Checking policy documents and communicating any discrepancies with the client and insurer;
- Informing your client of the insurer’s requirements, questions, suggestions;
- Following up communication that has not been acknowledged.
Communication
Regular communication with all parties is an important part of brokerage practice. This should be more than once a year on renewal.
Goals of your communication program are to ensure your client knows:
- What you as their broker perceive your own role to be;
- You are acting as a broker and not an insurer;
- What you will do and in what timeframe and what you will not do;
- Progress of placement of their insurances;
- How and when to inform you of changes that may have taken place affecting their exposure, adequacy of cover or policy limits.
Proposal Forms
Brokers and their clients are under a duty to act with the utmost good faith towards the insurer.
Establish procedures for making sure the client:
- Is aware of the duty of disclosure before the proposal form is completed;
- Understands the duties and obligations of disclosure.
In addition you need procedures for making sure you do not:
- Complete a proposal form on behalf of the client;
- Sign a proposal form (or any other document) on behalf of a client.
Set standards for:
- Timing of submitting proposal forms to insurers to avoid outdated information being contained in the proposal;
- Checking the accuracy of the information and details before you submit it to the insurers, including:
- Accuracy of the claims history – especially where a new insurer is involved;
- Claims that may be notified for the first time on the proposal form;
- Keeping copies of proposal forms submitted to insurers on file.
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