Insurance buyers are both better educated about the insurance business and far more sophisticated in their insurance demands than ever before. Today, the buyer of insurance—whether an individual providing for a family's needs or a risk manager of a corporation—knows that an integrated program of insurance protection consisting of property, casualty, life, and health insurance is needed.

Account selling—based on a thorough insurance survey—is an accepted, professional method of providing a complete program of protection. The account selling program is designed by the agent to show the insurance buyer how best to discover exposures to loss; how best to protect against them; and to help make those decisions that involve insuring or accepting the risk, i.e., leaving uninsured an unavoidable exposure.

Expanded survey work necessarily involves a substantial investment of an agent's time and money for the client, at least initially. The material within these pages is designed to help an insurance agent develop the most thorough and economical survey method. Thus, it is important that the steps, procedures, and checking points mentioned here not be used slavishly or unimaginatively. An agent should view this material as a foundation and modify it to suit personal methods, clients, and problems. As will be obvious, this material is not intended as a substitute for survey worksheets and forms available through various publishers and insurance companies. It is suggested, in fact, that such forms be utilized to the greatest possible extent, since the better ones are decidedly helpful and time-saving.

However arranged, a complete survey involves five basic steps. Many experts in survey work believe that these elements of a survey should be completed in the order given here, but a good survey is not impossible following some other order, as long as each is given proper attention.

The five steps of an insurance survey are:

1.     Analyze the risk.

2.     Identify loss exposures.

3.     Develop a basic insurance program.

4.     Examine and integrate existing contracts.

5.     Prepare and present the survey report and the proposed insurance solutions.

Large accounts may require the integration of risk management techniques that often treat exposures more efficiently than insurance. An introduction to some of these techniques is presented later in these pages.

This phase of survey work can be the most time consuming and expensive until experience is developed in gathering facts with a minimum of wasted motion.

To obtain necessary information about the risk, the use of some type of fact-finder or questionnaire is recommended. Numerous such forms are available through publishers and insurance companies. Most are quite satisfactory. However, the form should be studied carefully before beginning a survey to see whether it develops all of the information that will be needed. In addition, ready familiarity with the questionnaire or fact-finder will definitely cut down on the time spent in this phase of survey work. Note: several survey forms are available in the Guide to Policies volumes.

Studying a risk also involves making a physical inspection of the client's properties, during which time diagrams and notes are made. Photos—of buildings, equipment, and other property—taken during the inspection are extremely helpful later when outlining loss exposures. Using a tape or video recorder can also be helpful as information is gathered.

The ability to prepare a thorough inspection can have a positive effect on the relationship between an agent and an insurance company. Complete written inspections with photographs are a welcome addition to the information ultimately submitted to company underwriters for review. In fact, if it is clear an agent is adept at gathering necessary details with respect to a client's operation, it is possible that an underwriter will not require a loss control inspection to be done by a company representative, thereby saving time and money and shortening the response time for quotes from the underwriter back to the agent.

The second phase in a survey is the identification and listing of loss exposures that are inherent in the insured's operation. These potential sources of loss should be examined in light of the three major methods of dealing with risk: avoidance; retention; and transfer. Avoidance means ceasing the activity that gives rise to the risk. Retention is continuing the activity but planning to pay for resulting losses out of pocket or out of an accumulated fund. Transfer of risk includes both insurance and various types of hold-harmless agreements.

Of course, those exposures that will be transferred to an insurance program are of the most concern, but the knowledgeable agent will take the time to evaluate all existing exposures with regard to those that might be avoided or retained by the insured. Any that can be legitimately handled by those methods should be suggested to the insured or the insured's risk manager. This is an excellent opportunity to establish the agent's credibility as an adviser in matters of risk management. Suggestions for implementing a successful risk management program are presented later in these pages.

As preparation for the task of identifying exposures of clients, some agents have found it helpful to draw up their own lists of common exposures for major classes of risks (mercantile, service, manufacturing, contracting, professional, institutional, agricultural and personal), with a list of corresponding contracts necessary for insuring them. The list of insurance contracts can be broken down into those providing basic insurance protection, those contracts needed if an unusual exposure exists, and those forms of protection that may be desirable according to the needs of the particular client. These listings of insurance coverage may further be subdivided to indicate contracts that cover a variety of exposures in one policy.

From the information gathered through personal inspection and the use of a questionnaire or fact-finder, the insurance agent isolates and outlines exposures to loss. This constitutes preparation for setting up a basic program of insurance protection of the risk.

Note that there has been no reference thus far to a study of the client's existing insurance contracts. A majority of those who have used the survey method with success favor leaving the examination of existing contracts until after a rough program of protection has been created. However, others maintain that examining existing contracts helps to work out the basic program of protection, since the current policies can serve as convenient sources of additional information.

Undoubtedly, the most desirable objective in examining existing contracts is to integrate them into the recommended program of insurance to the maximum degree commensurate with adequate and proper protection of the client and reasonable cost. Nonconcurrencies—either those created because of the newly recommended basic program or those generated by the previously existing one—should be sought and eliminated. Borderline and questionable situations should be resolved. Changes that should be made in existing contracts should be suggested.

Following the discussion of implementing a successful risk management program, a section entitled “General Guide for Auditing Policies” is presented. It covers items applicable to an examination of most property and casualty insurance policies.

The insurance agent who prepares a survey is striving for a substantial amount of the client's insurance. However, it is sometimes advisable to allow existing contracts to stand until expiration, perhaps with certain changes that may or may not generate additional premium. Stated simply, the agent who has carefully worked out an insurance program may want to suggest bringing existing contracts into line with the recommendations until their expiration, especially where it would involve considerable extra cost in short-rate cancellation penalties for the client if these were canceled. The good will that can be generated by this approach is worth the effort. Others believe in making a “clean sweep” whenever possible.

A question that frequently arises is, when should the client's existing insurance policies be requested? Many agents wanting to minimize the number of necessary visits to the client, ask for these when the survey is arranged. Others prefer to emphasize that their first steps are to arrive at a basic and independent program of protection and ask for the policies only after they have completed all but the last two phases of their survey. Certainly, this is a matter for individual decision. No matter when and how these policies are received, however, the insured should be given a reasonably detailed receipt for them. Most publishers and insurance companies that distribute fact-finding questionnaires include receipt forms for this purpose.

Preparation of the final report and proposal should involve no less care than other phases of the survey. It is, after all, the only means by which the client may judge all the work and study that has gone into the survey. Thus, it should be complete and professionally done. Also, the report and the proposal should be as nontechnical as seems reasonable. Since the objective of a good survey is to reveal to the client exposures to loss and how to protect against them, it is obvious the final report and proposal will be successful only if the client is able to understand them. The language used cannot be entirely nontechnical, but, where it is necessary to use terms like “insurance to value”, “coinsurance”, “umbrella”, “claims-made”, etc., the terms should be explained, unless it has been established that the client does not need an explanation.

The final presentation of the report and the proposal should never be a casual matter. It should be by specific appointment, with the client given clearly to understand that the report and the proposal are of great significance and require ample time for presentation and discussion. Leaving the report and the proposal with the client or mailing them—postponing any visit concerning them until some time in the future—is not recommended. In addition to the fact that this method fails to emphasize the importance of the survey, there is the concern that many clients will allow other agents to review the report and the proposal before they do their homework. While there is nothing wrong with the client's permitting another insurance agent to go over the report and the proposal, and even to criticize them, this should never precede a discussion with the agent who prepared them.

Understanding risk management principles is as important an ingredient in identifying loss exposures as it is a necessary part of implementing a successful risk management program. The astute insurance agent will, therefore, use risk management principles in preparing the insurance survey. The following list of risk management principles was compiled from among the submissions of an international group of professional risk managers and insurance educators and edited by Mr. Thomas V. Hallett. The list was first made public under the auspices of the Risk and Insurance Management Society. It is reprinted here with the permission of the editor.

1.     An organization's risk management program must be tailored to its overall objectives and should change when those objectives change.

2.     If it is a “safe” business (relatively immune from depression, bankruptcy, or shifts in products markets), the risk management program can be more “risky” and less costly.

3.     Do not risk more than you can afford to lose.

4.     Do not risk a lot for a little.

5.     Consider the odds of an occurrence.

6.     Have clearly defined objectives that are consistent with corporate objectives.

7.     The risk management department, as a user of services, should award business on the basis of ability to perform.

8.     For any significant loss exposure, neither loss control nor loss financing alone is enough; control and financing must be combined in the right proportion.

9.     Review financial statements to help identify and measure risks.

10.     Use flow charts to identify sole source suppliers or other contingent business interruption exposures.

11.     To more fully identify and assess risks, visit the plants and relate to operational people.

12.     A reliable data base of past losses is essential to estimate probability and severity of future losses.

13.     Accurate and timely risk information reduces risk, in and of itself.

14.     The risk manager should be involved in the purchase or design of any new operation to insure that there are no built-in risk management problems.

15.     Be certain that environmental risks are evaluated in mergers, acquisitions, and joint ventures.

16.     Select hazardous waste contractors based on their risk control measures and their financial stability or insurance protection.

17.     Look for incidental involvement in critical risk areas (i.e., aircraft and nuclear products, medical malpractice, engineering design, etc.).

18.     Loss control works. It is cost effective and helps control local operating costs.

19.     The first (and incontrovertible) reason for loss control is the preservation of life.

20.     Be mindful that key plants and sole source suppliers may need protection above and beyond normal highly protected risk (HPR) requirements.

21.     Use the loss control services of your broker and carrier as an extension of your corporate program.

22.     Quality control should not be a substitute for a full product liability control program. Quality control assures only that the product is made according to specifications, whether good or bad.

23.     Most of the safety-related “standards” of governmental agencies should be considered as minimum requirements.

24.     Duplicate and separately store valuable papers and back-up data processing media.

25.     Avoid travel by several key executives in a single aircraft or automobile.

26.     Risk management should focus on two separate areas of risk delineated by the maximum dollar loss the company can survive from a single occurrence:

     a. Below this level—optimize the use of insurance and non-insurance risk financing techniques based on their relative present values.

     b. Above this level—transfer risk (usually insurance) to maximum extent possible. Cost effectiveness is not a criterion in this zone; survival is.

27.     An entity with an unlimited budget can benefit from adopting risk management measures when the expected present value of their benefits exceed the expected present value of their costs.

28.     When, for budgetary or practical reasons, an entity must choose between mutually exclusive risk management measures, it should choose that measure that offers the greatest excess of benefits over costs, when both benefits and costs are expressed as expected present values.

29.     To prevent market disruption, competitive bidding involving too many insurance companies should be avoided.

30.     Never depend solely on someone else's insurance.

31.     Retrospective rating plans of more than one year hamper flexibility.

32.     A tax advantage should be considered a “plus”—not a principle reason for a risk financing decision.

33.     Risk-taking presents an opportunity for economic gain.

34.     The risk manager should be notified immediately (within 24 hours) of any major loss or potential loss.

35.     Major liability claims should be reviewed for adequacy of investigation and accuracy of the reserve.

36.     Be careful of local plant involvement in property and liability claims. Local personnel may be too defensive to properly review a major claim.

37.     Request early advance payments on large property and business interruption losses.

38.     Secure several estimates on vehicle physical damage losses.

39.     Aggressive claims subrogation (insured and self-insured) reduces costs.

40.     A claim and disability management program, directed toward getting the employee back to work as soon as possible, can save money even though the employee cannot do all phases of the job.

41.     Periodically audit claims reserves of insurers and self-insurance administrators.

42.     The provisions and costs of employee benefit programs should be clearly and frequently communicated to employees.

43.     When installing a new benefit plan, remember that it is harder to later reduce benefits than to improve them.

44.     A poor employee benefit program can generate more employee relations problems than no plan at all.

45.     Employee contributions, even small ones, can help assess the real popularity of a benefit plan.

46.     Know the benefit plans of the companies with which you compete for labor.

47.     Benefit consultants and brokers are not efficient replacements for in-house staff functions.

48.     Collective bargaining of employee benefits should involve corporate benefit professionals.

49.     The ultimate cost of any pension plan is equal to the benefits paid, plus the cost of administration, less any investment earnings of the fund.

50.     Clearly identify corporate objectives with respect to the retirement program.

51.     Recognize that retirement plans are long-term obligations that will span many political, economic, and social environments.

52.     Identify the nature and extent of pension liability prior to any acquisition or divestiture.

53.     Establish formal investment objectives for pension funds that define risk, diversification, and absolute performance parameters.

54.     Monitor the performance of pension funds in the context of investment objectives.

55.     Identify and monitor corporate exposure as a result of participation in any industry-wide multi-employer pension plans.

56.     Establish a worldwide risk and insurance management program; do not rely totally on a Difference in Conditions approach.

57.     A combination of admitted and non admitted insurance usually provides the best overall international program.

58.     Avoid the use of long-term insurance policies overseas.

59.     Be sensitive to and do not underestimate the impact of nationalism when implementing a worldwide risk management program.

60.     Do not ignore local objections to worldwide programs.

61.     Establish a level of authority via a risk management policy statement.

62.     Prepare and universally distribute a corporate risk management manual.

63.     Set up realistic annual objectives with brokers, underwriters, and vendors and measure their accomplishments and results.

64.     Verify the accuracy of all relevant information received.

65.     Read every insurance policy carefully.

66.     Keep program design simple.

67.     Develop record retention procedures.

68.     Keep intercompany premium allocations confidential.

69.     Establish administrative procedures in writing.

70.     Insurance policy provisions should be uniform as to named insured, notice and cancellation clauses, territory, etc.

71.     The notice provision in all insurance policies should be modified to mean notice to a specific individual.

72.     Primary policies with annual aggregates should have policy periods that coincide with excess policies.

73.     Joint loss agreements should be obtained from fire and boiler and machinery insurers.

74.     Add “drive other car” protection to corporate automobile insurance.

75.     Eliminate coinsurance clauses.

76.     Know the implications of and differences between “indemnity” and “pay on behalf of” liability contracts.

77.     Risks accepted under contracts are not necessarily covered under contractual liability coverage.

78.     Add employees as insureds to liability contracts. Use discretionary language to avoid defending hostile persons.

79.     All communication providing or requesting information should be expressed in clear, objective language, leaving no room for individual interpretation.

80.     All communications and relationships should be conducted with due consideration to the proprietary information of the client.

81.     Communicate effectively up and down and avoid management surprises.

82.     Do not     tell senior management anything—ask them, counsel them, inform them.

83.     Communicate in business language; avoid insurance jargon.

84.     Obtain letters of intent or interpretations regarding agreements (coverage or administrative) that are outside of or in addition to actual insurance or service contracts. Never rely on verbal agreements.

85.     The immediate supervisor of the risk management function should be educated in the principles of risk management.

86.     Communicate every insurance exclusion and noninsurance implication to management.

87.     In competitive bidding situations, advise each competitor that the first bid is the only bid and stick to it.

88.     Risk managers should meet with underwriters of the company rather than relying totally on others for the market communications.

89.     The risk manager should avoid developing the reputation of a “shopper” or “market burner.” This reputation can be detrimental to the corporation's best interests and the risk manager's credibility.

90.     Determine your personal level of risk aversion and temper intuitive judgments up or down accordingly.

91.     Program design will always be a function of current practicalities tempered by management's level of risk aversion.

92.     Everyone is in business to make a fair profit.

93.     Long-term, good-faith relationships are not obsolete.

The following guide provides a series of notes to be consulted in auditing existing policies of insurance as a part of a risk analysis and insurance survey. This material will also be useful in cross checking the existing program for possible omissions or duplications.

While each separate type of insurance has its own special list of exposures and coverage treatments to be considered, there are a number of items that are applicable to virtually all property and casualty insurance policies; checking the following points should be an automatic and routine procedure:

1.     Legal name of insured—is it correct and complete?

2.     Legal status of insured—individual, individual and spouse, sole proprietor, partnership (are all partners included?), corporation, limited liability company, limited liability partnership, trustee or other fiduciary, joint tenants, tenants in common, etc.

3.     Locations and addresses—correct and complete?

4.     Amounts of insurance or limits of liability relative to values or exposures?

5.     Additional interests to be included—affiliates or subsidiaries, additional family members, mortgages, loss payees, persons or firms with a contractual or financial interest, etc.

6.     Inception and expiration dates and mode of premium payment.

7.     Accuracy and completeness of policy declarations.

8.     What deductibles apply?

9.     Presence of—and compliance with—policy warranties, agreements or stipulations.

10.     Language of policies, in terms of current recommendations or standard provisions.

11.     Concurrency with all other policies—contributory, or primary/excess, including effect, if any, of “other insurance” clauses requiring or restricting other insurance.

12.     Any duplications of coverage among the policies?

13.     Rates, classifications, premiums—are they proper and complete? Have proper credits been allowed for experience, size, dispersion of risk, deductibles, etc.?

14.     What is loss experience a) on which present policy rates or premiums are based, and b) for current policies?

15.     Insurance requirements or implications of any leases or other contracts, which should be considered in connection with the insurance policies?