Contractual risk transfer, ethics, WC and captives—four arenas that should be familiar

February 9, 2022

In the commercial-lines insurance industry, insurance agents are responsible for staying abreast of their clients’ risks and exposures, on industry trends and on best practices for representing their agency, their carriers and their customers.

Stay prepared

When it comes to their clients specifically, insurance agents must be prepared for myriad possibilities, including the following:

  • Has a client signed a contract that contains a hold harmless/indemnity agreement? And what coverage—if any—does their insurance policy provide?
  • Is the agent between a rock and a hard place (i.e., a carrier that won’t budge and a client who needs help)?
  • As a result of the pandemic, has a client’s workers’ compensation exposures changed?
  • Has a client ever asked you about coverage alternatives, like captives?

These questions and obstacles may seem specific, but they come from four major areas on which agents should stay up-to-date, including the following:

Contractual risk transfers. It’s standard risk-transfer practice for upper-tier contractors to require subcontractors (and their subcontractors) to sign indemnity agreements when subcontractors are hired to help with large projects. When upper-tier contractors do this, they often are attempting to transfer as much of their liability (as they can legally) onto the subcontractors. If third-party losses occur after indemnity agreements are signed, upper-tier contractors will look to the subcontractors’ insurance policies to defend and indemnify them, even if they are partially at-fault. And, even if a subcontractors’ policy won’t cover the loss, the subcontractor still has agreed to save, defend and hold-harmless the upper-tier contractor, so the subcontractor would have to do that without the help of insurance.

Ethics. Operating as a responsible, ethical insurance agent protects clients from exposure and prevents credibility and one’s reputation from being compromised. Ethics can be influenced by many things, including personal views about right and wrong, the law, societal expectations, etc. When facing ethical dilemmas, agents should approach decision-making carefully—and there are several approaches they can take when protecting their clients and making the right decision. However, deciding the approach is key in maintaining ethical standards.

Workers’ compensation. Currently, there are myriad factors that are affecting workers’ compensation policies, like staffing shortages, automation, the COVID-19 pandemic and federal regulatory changes. If a commercial client files a workers’ compensation claim, awareness of and preparation for these factors can help insurance agents when their commercial clients face these kinds of claims. Despite an eight-page policy, workers’ compensation is complicated—and they generate the largest number of errors-and-omissions claims for agents nationwide.

Captives. Captive insurance companies can be attractive to larger commercial clients because they’re a type of self-insurance—which means the insureds own and control the company. With a captive insurance company, business owners have certain economic and insurance advantages that are not available in the standard insurance marketplace. While captives aren’t for everyone, knowing when to explore the feasibility of creating or renting one maybe the difference between keeping and losing a large account. Independent insurance agents should be aware of this kind of insurance because if a commercial client asks about coverage alternatives like captives, agents need to be able to explain the differences between traditional and captive insurance—and the possible risks that could be associated with captives.

You can learn more

These are four important arenas that commercial insurance agents should understand fully—but do you know the latest on them? To learn the most recent takes on these, register for the Ruble Graduate Seminar, which takes place April 6-7, 2022, from 8 a.m.-5:15 p.m., at Harrah’s Resort Atlantic City in New Jersey, and via online webinar.

Learn from some the best, including Kevin John Brady, CIC; Robert Ford, CIC, CISR, CPIA, CLCS, MLIS; and Steve Lyon, CPCU, CIC, CRM, CRIS, AAI, ARM, AIS, MLIS, AFIS.

To be eligible to attend the seminar, agents must be dues-paid National Alliance Certified Insurance Counselor designees. The seminar is an opportunity for CIC agents to update the credits toward their CIC designation.

For more information, to keep up-to-date on the CE-approval process or to register for this seminar, see the PIA Northeast education schedule.

Alexandra Chouinard

Alexandra Chouinard has editing, writing, advertising and publishing experience from her Alma Mater, Loyola University, where she earned a dual Bachelor of Arts Degree in Writing and Communication.

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