By Stan Sauerwein
The three little magic words brokers and insurance companies have always lived by as business partners - Upmost Good Faith - seem to have lost some of their power lately, thanks to technology.
With the advent of transactional filing for personal lines policies, most software user agreements being required by insurers seem to be diluting that traditional bond of trust, according to Steve Sache, of Atkinson & Terry Insurance Brokers and chair of the IBABC Insurer Contract Review Committee.
They may even create devastating financial burdens for brokers.
The current committee is made up of Sache; David Keen, Vanguard Insurance Brokers Ltd.; Joe Stonehouse, Archibald Clarke & Defieux Insurance Services Ltd.; and, Conrad Speirs, Can-Sure Underwriting Ltd. The committee is in the process of devising a checklist for members to use when evaluating contracts. At the top of the watch list brokers should consider before signing, are clauses that deal with electronic data transfer and requirements for using company software.
The situation may be inadvertent and is fixable, Sache thinks, but brokers will need to band together if they harbour any hope of convincing insurers to change the onerous wordings he's been finding in most software user agreements.
"Sometimes it seems the IT departments at some of the insurers have overruled the normal contracts that we have. They are very heavy-handed and tend to be somewhat one-sided."
"There are some real issues we're getting into with these agreements and we have to act enmass to make sure there are some changes." Broker agreements that have a separate Web use contract "seem to be harsher", he says.
"I appreciate when I sign up with Microsoft, I don't have any recourse if there are problems with their software. But, having said that, Microsoft is not really my business partner. I need their product to do business, but the insurance companies are my business partners and such one-sided agreements don't serve anyone well."
It is still early in the Committee's assessment process, but Sache says the confounding clauses they've noted boil down to a few major issues.
The first is damages.
"Companies are putting more pressure on brokers to be more automated and use less of their company resources like underwriting and processing. On top of that brokers may be responsible for any damages to their (company) systems and they are basically responsible for nothing to (the broker.)"
Generally, the contracts in question make brokers responsible for any damage to company computers created in the upload process. "I think what they are getting at is viruses," Sache observes. If a broker uploads a virus that damages a company computer, the broker may be responsible to effect repairs "and that could be financially devastating."
"There are viruses out there these days that are beyond our best anti-virus software, so what would be more reasonable is to say you'll employ up-to-date current anti-virus software."
As a cost-saving strategy, Sache understands why companies are driving more use of the Web thereby eliminating some underwriting questions. However, while companies are pushing the technology, many are still reluctant to guarantee the rating accuracy on their website systems.
For quoting, "some companies are saying if you can print it out you are good to go, but that isn't the case with all of them. They want you to do everything and they're forcing you to do it online. You are responsible for it but on the other hand they might not guarantee what's in the system, so what's the point?"
Another issue that concerns the Committee is access restrictions imbedded in the agreements. Companies want brokers to be responsible for employees if they have been given access with user ids and passwords. At least one insurer requires an update every time a broker hires or fires an employee.
That agreement's appendix has an ultra restrictive covenant that reads 'we agree that we shall keep broker and broker staff passwords confidential and immediately notify the insurer of all changes relating to the status of the broker and its staff on such matters as new hires, terminations of employees, and access to systems no longer required.'
"I can appreciate that if I have someone leaves my employment the company would want to remove access," Sache says, but requiring staffing reports is "impractical".
"We're getting inundated with passwords and user ids and unfortunately the more companies you represent, the more you need access to gain policy information for your clients," he points out. Sache says brokers already realize they must be responsible for removing system access to former employees, but it is the method of control that is arguable.
"Brokers need to have someone on staff responsible for removing or disabling those user ids and passwords. We think that is realistic, but to actually give companies notification of who we hire and fire isn't."
Committee member, David Keen, agrees. As the former committee chairman and a past association president, he has been intimately involved in assessing broker contracts for many years. "We've seen an addendum to an agreement where it stated that the broker shall be responsible for their staff even when they are not working in the broker's office on their own time. Well, I can't be responsible for that. If an employee goes on the system with another computer at home, I don't know it could be happening. How could I stop it?"
It does come down to trust, says Keen. "If you aren't acting in upmost good faith then basically you shouldn't be in business. Don't make a wording so restrictive that the broker can't work within the confines of it. That's what we are saying."
Sache is also concerned about the ownership of data brokers are supplying to the companies electronically. He doesn't believe companies would utilize gathered data to approach an insured directly, but nonetheless that possibility exists. "That's why it is important we watch what we sign. Ultimately we are keying in the info and they are keeping it on file. We are offloading it on their systems as opposed to keeping it on our systems, which is what concerns me."
He uses a common prospect inquiry as an example. If a prospect approaches a broker for quotes and the broker gets rates from several companies by using company systems, the data on the prospect now resides in the company computer. If the prospect then decides to use another broker, who owns the data? Should the prospect be considered a "customer" of the first broker and his data then considered the property of the broker? Or is that data now free to be used by the company in a direct insurance appeal? Or does it remain unuseable by either because the prospect is not a paying customer of either the broker or the companies who do not write a policy?
Brokers also have to be aware of hidden costs that eat at their bottom line as a result of using company e-filing systems. One is training.
"Companies may absorb the actual hard cost of training, but there's the soft cost brokers see that our insurance partners seem to forget. You have to pay the person's wages for the day if they are gone to a course. If it's a senior person, you might bring in someone else behind them to help out. When you start doing that for all your insurance companies, multiple times a year, it becomes a real cost."
Sache recently noted an agreement that appears to have a perpetual acceptance clause built into the wording. "It says this agreement can change at any time. In essence anytime one of your staff members logs on to the system and uses it, you'll have agreed to any changes that are posted on the site. That could mean an agreement the brokers sign once only is going to be amended simply by an employee logging on to a website. I think we should be careful with those kinds of agreements."
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