Your association strikes a marketing agreement with an insurance broker, which negotiates with an underwriter for extended coverage and special pricing for your members. Your association then markets this program to the members under a special banner, such as “the only XYZ-Association-Endorsed program for those in XYZ industry.” At the same time, the broker markets this program to both members and non-members of the association in the same industry, which helps to drive non-members to join the association as a means of saving money on their insurance. Everybody wins, right?
Well, not so fast. Presumably, your association will not release its membership list to the insurance broker or the underwriter. If it does, there’s no marketing benefit left for the association. So, instead, the onus of verifying membership in the association prior to enrollment in the branded insurance group falls on the shoulders of the insurance broker. This usually involves a process whereby the insurance broker asks to see an association member’s current membership card or dues receipt as proof of membership prior to enrolling the member or renewing them in the association-endorsed program.
This can work if your insurance broker is 100% honest, has the administrative systems in place to do it, and if they provide your association with accurate lists of “members” participating in the branded insurance group on a regular basis. But, never forget that the broker is compensated by the underwriter based on the number of policies they write, so there is automatically a significant financial disincentive to the broker actually doing the verification. It also adds to the complexity of the enrollment process and, depending on how much association dues cost, could cost the broker a sale each time they enforce your association’s membership policy.
What happens if the broker simply ignores the marketing agreement with the association and doesn’t enforce the membership policy? A lot of non-members will be part of your association’s insurance group, but won’t be paying membership dues. Not only will your association miss out on an important source of revenue, the claim costs of your insurance group could skyrocket. After all, if someone lies on an insurance application and claims to be a member of your association when they’re not just to get a break on their insurance premiums, why wouldn’t they file a false insurance claim? An insurance cheat is an insurance cheat.
If this kind of thing went on for a number of years and your association didn't realize it, but at some point the underwriter did, you would likely lose a very important selling point in terms of membership. There is also the question due diligence. Both the association and the insurance broker carry a level of responsibility for preventing such a circumstance in the first place. It would be a very simple matter for a judge to requisition your association membership lists for the time periods in question. If it were established that non-members were responsible for the lion’s share of claim costs in your branded insurance group and this wound up costing the underwriter money, it is conceivable that both the broker and the association could wind up in a civil lawsuit. As a volunteer board member, how would you prove that you were not negligent in this regard? Presuming you could, it may still take weeks or months and cost your association thousands of dollars in legal fees just to clear your good name.
The Association Expert offers simple, affordable solutions for preventing these kinds of challenges from undermining your volunteer efforts.