Everything you need to know about your obligations when renewing a contract
Do I have to call all my clients every year at contract renewal time? If the insurer sends the renewal directly to my client, do I also have to contact him? What if I have trouble reaching a client? If I have not received the conditions for renewal from the insurer, is there anything I need to do?
Situations such as these raise many questions for brokers and agents at contract renewal time. The ChAD suggests a three-step process to ensure that you meet your ethical obligations in this regard.
Beforehand: Establish a Working Method
The legislation and your code of ethics 1 require you to act as a conscientious advisor, specifically by providing all necessary and useful information to your clients. Moreover, the fact that an insurer sends the renewal directly to the insured, even if it is done on your behalf or that of your firm, does not relieve you of your obligations as a certified professional.
Agents and brokers must take steps to ensure that the coverage provided in the contract always meets the client’s needs. However, in the real world, it is not always possible to do a comprehensive analysis of the insured’s needs before every renewal. The ChAD therefore encourages you to create a system that enables you to update the files of all your personal-lines insurance clients every three years, and ideally every year, for commercial-lines clients.
The goal is to identify client-files that may need updating. To do so, establish selection criteria such as the amount of premiums, or contracts that have certain specific or excluded risks. For example, since sewer backup is the most common claim, prioritize contracts that exclude this coverage in order to verify whether the client still agrees with this decision. A computerized system can also segment your clients according to the criteria you set and draw your attention to files that have been inactive for up to three years. Finally, follow up with insureds who have informed you that they do not wish to renew in order to make sure you have followed the correct procedures.
Commercial-lines insurance files must be updated annually. Moreover, if you suspect that the insurer will not renew a client’s contract, or intends to change the terms or increase the premium significantly, be proactive and promptly contact your client to share your concerns and comments on market developments. You and your client can then decide on a course of action and explore other insurers that could potentially underwrite the risk, or you may have to inform your client that he will have to take certain steps on his own to find another insurer, since you are not empowered to do so. Be transparent and vigilant in your approach: explain any potential consequences and be fully accountable for the actions you do take.
Whether you are dealing with personal-lines or commercial-lines insurance, it is important for you to update your files before the insurer sends the renewal notice. Starting the renewal process 60 to 90 days in advance means the insured will ideally receive the terms of renewal of his contract 30 days before it expires. Please note that in personal-lines automobile insurance, there is a required deadline for notification: when the insurer changes the premium or coverage, it must notify the insured in writing at least 30 days before the renewal of the contract2. Even though the legislation governing home and commercial-lines insurance does not specify a timeframe, the ChAD encourages you to be proactive in order to give insureds enough time to notify you of any changes to their needs, make enquiries with new insurers, and make an informed decision.
Having trouble reaching a client?
If you are unable to contact a client to obtain approval for certain changes to their contract, such as a change of insurer or the terms of renewal, send them a written note with an acknowledgement of receipt reminding them of the importance of contacting you to review their needs, discuss available coverage and accept it.
If you fail to obtain approval before the deadline, make a decision that minimizes any potential harm to the client. For example, do not cancel a contract without the client’s consent, in order to avoid the client being left without coverage.
Should you need to place the risk with a new insurer, send the contract to the client with the invoice, since you cannot transfer the client’s banking information to the new insurer to authorize direct debit 3 without the client’s consent.
Finally, note everything in the file in order to demonstrate that you took the necessary steps to try to reach the client.
Step 1: Analyze
Step 1: Verify the insured’s needs and then review them again. This step is not exclusive to renewals; if an insured calls you during the term of the contract for any reason—for example to add a driver to their automobile insurance contract or to notify you that renovations were done on their home—take advantage of this opportunity to update the information in their file and verify that their coverage still meets their needs.
The analysis can be done in any number of ways: telephone, mail, email or an online form. All means are valid, and none are mutually exclusive, so you can combine two approaches. That said, if you communicate in writing, the communication should draw the client’s attention to the importance of contacting you to report any changes to the risk. Furthermore, this invitation should not be limited to a sentence at the bottom of the contract or to the contract’s cover letter; rather, it should be a separate document or an explicit and visible paragraph. You can also use the questions the ChAD suggests in its article on Policy Renewals. Five model letters are available: automobile, home, commercial-lines, commercial-lines automobile and condominium.
If you prefer to communicate verbally, be sure to note in the client-file what was discussed, even if you also record your telephone conversations. These conversations do not replace your ethical obligation to keep a file on your client. Imagine if you had to take over a colleague’s file: you would need to be able to quickly read over the summary of conversations and do the necessary follow-up.
For commercial-lines insurance, it is recommended that you speak to your clients regularly. Such conversations allow you to note any changes that could affect the nature of the risks and review the amounts of insurance. A site visit is sometimes required to confirm the condition of the equipment, the protective measures in place or the surrounding risks. You can then update the insurance application and review the underwriting rules with the insurer.
Step 2: Advise
Step 2: Verify the coverage in force and advise the insured. Are there any changes to the endorsements, any new coverages available that would be better suited to the client’s needs, any coverages previously refused that might not be refused now, any exclusions provided for in the contract that are worthwhile re-explaining? Your duty to advise is at the heart of your profession. Make sure that you have provided all the necessary information and advice in relation to the client’s needs so that they can make an informed decision.
Examples of commercial-lines insurance advice
In 2020, many companies reviewed their operations to adapt to pandemic-related health restrictions. Make sure these changes have not created new insurance needs. For example, many restaurants have decided to add a meal-delivery option to their service offering: is commercial-lines auto insurance needed? A suit manufacturing company is now designing masks; a business had to temporarily lay off most of its staff; a distillery is now producing hand sanitizer and an antiseptic, antibacterial cleanser… in all these situations, it is worthwhile verifying the current coverage and advising your clients.
See more examples of questions to ask in The 3-Step Renewal Checklist for Commercial-Lines Insurance.
Do I have a duty to advise on amounts of insurance?
You must review the amounts of insurance provided for in the contract with your client. However, it is the insured’s responsibility to determine the appropriate amounts, such as the cost of rebuilding, the value of their assets, loss of business-related income, or the inventory of a fleet of vehicles or farm machinery.
Though the courts have confirmed that this is not the responsibility of the broker or the agent, it is your duty to advise your client and make appropriate recommendations with respect to assessing the amounts of insurance. For example, you could suggest a professional appraisal. This approach was used to exonerate a broker who was asked to compensate an insured for the difference between the coverage set out in the contract and the cost of rebuilding: the Superior Court4 found that the broker properly advised his client by recommending that an appraisal be carried out and by adjusting the amount of insurance on the building based on the conclusions of the appraisal.
Furthermore, your duty is not limited to recommending the use of an appraiser. Another Quebec Court of Appeal decision5 serves as a reminder of your duty to proceed with diligence when dealing with the appraisal report that you receive. In that decision, the court found that the broker had failed to act on the report’s recommendations to adjust the amount of insurance.
In addition, every five years, condominium corporations (syndicates of co-ownership) are now required to have an appraiser who is a member of the Ordre professionnel des évaluateurs agréés du Québec carry out an evaluation of the cost of rebuilding the condominium building. In order to ensure that appraisers adequately estimate the cost of rebuilding a condominium, the Ordre des évaluateurs agréés du Québec, in collaboration with the IBC and the ChAD, has revised the list of factors (in French only) that appraisers mandated by a syndicate of co-ownership must include in their reports.
Finally, if you suspect that the amount the insured determined is insufficient, you must inform the insured, explain the co-insurance clause and the consequences in the event of a partial loss. You are not responsible for your clients’ choices, but make sure they have received all the information and advice they need to make an informed decision. Do not forget to scrupulously note your conversations in the client-file.
Rising Construction Costs
In recent years, and particularly since the beginning of the pandemic, prices for structural materials have increased considerably, mainly due to the increase in the cost of lumber. According to a recent survey6 , 22% of contractors estimate the increase to be in the range of 10 to 20%, while 42% estimate it to be over 20%. Will this trend continue, or will the construction market stabilise?
In the meantime, make sure your client realizes that this spike in costs has a direct effect on the cost of rebuilding their home in the event of a loss, and that an adjustment to the amount of insurance may be appropriate.
If you are using the insurer’s appraisal tool, make sure that indexation reflects the current economic conditions, or recommend that a professional appraisal be done.
Step 3: Renew
Step 3: Review the renewal and confirm the terms of payment. Ensure that renewals are error-free, and consistent with the discussions you had with your clients, the instructions given, and any changes requested.
In short, check the insurance contracts carefully before sending them to the insured. If you are responsible for entering the information directly into the insurer’s system, review the information before issuing the policy.
Unable to get the policy to your client right away? Advise them that they will receive it shortly and send them an insurance binder confirming the name of the insurer, the period of insurance, the coverages, the deductibles and the amounts of insurance. The ChAD has a procedure and model letters for this purpose.
Terms of payment
You must also confirm the terms of payment with the insured and the fees, if applicable. It is important to be transparent: advise your clients in advance of any fees that are not included in the premium amount7. In addition, according to the Regulation respecting information to be provided to consumers, you must disclose in writing the fees you intend to charge, with one exception.
Remember that brokers who replace certain risks with a new insurer must inform their clients. Written approval from the insureds is not required, but you must note in your records whether the clients agree to the transfer. In addition, you may not release their banking information until you have their consent to allow the new insurer to direct debit their account8.
If a book of business is being transferred to a new insurer, the firm must send a letter to its clients notifying them of the change, the consequences (adjustment of coverage, changes to automatic payments, etc.) and offering them the option to refuse. If necessary, you must help your client by explaining the options to him.
End of mandate
The fact that the insurer does not renew the insurance contract does not automatically result in the termination of the broker’s mandate with the insured. You must promptly notify your client of the steps you will be taking and the options available to him. However, if you are unable to offer a renewal that meets your client’s needs for any reason—unable to find another contract, difficult relationship, loss of trust—you must terminate the mandate without causing prejudice to your client. A termination of mandate letter is the best way to do this.
4. Gestion Ignièce inc. v. Les Souscripteurs du Lloyd’s, 2017 QCCS 1410
5. Maison Jean-Yves Lemay Assurances inc. v. Bar et spectacles Jules et Jim inc., 2016 QCCA 1494.
6. Léger Poll, commissioned by the Quebec Hardware and Building Association (AQMAT), February 11, 2021. [article in French only].
Refine your knowledge:
Renewing an Insurance Policy
Checklist: The 3-step Renewal - Personal-lines Insurance
Checklist: The 3-step Renewal - Commercial-lines Insurance
Home Insurance: Deadlines for renewal, cancellation and nullification of personal-lines insurance contracts
Automobile Insurance: Deadlines for renewal, cancellation and nullification of personal-lines insurance contracts
See all the renewal notices
Home, auto, condominium, commercial-lines or commercial-lines automobile insurance: the ChAD offers 5 insurance renewal notices including examples of key questions to ask your clients.