How To Select An Insurance Broker
Today’s competitive market place is forcing many businesses to examine both the prices they pay for their products/services and the companies that they buy them from. Insurance and risk management services are no exception. Traditionally, many midsize companies have held the belief that the best way to drive down costs is by conducting a bid process. Under this process, multiple brokers/agents are invited to compete and submit bids for the company’s insurance. In today’s insurance marketplace, the bidding process is no longer the best way to achieve the best results.
Weaknesses in the Bid Approach
Pricing obtained through a bid process rarely represents the best the marketplace will offer
In today’s competitive market, underwriters don’t have time to give every account their best effort. They are forced to choose the new business opportunities they work on very carefully.
If an underwriter sees more than one broker or agent is shopping an account throughout the marketplace, they feel the chances of winning the business are slim and have little motivation to give the account their best effort.
Diminished Leverage in the Marketplace
Some buyers assign specific brokers/agents to specific markets. While this does reduce market chaos to a certain degree, there are drawbacks to this approach. By assigning insurers, the buyer may not match the brokers/agents with the markets with whom they have the strongest relationships and thus limit the ability to negotiate the best possible terms leveraging quotes against each other.
Increased Potential for Coverage Gaps or Deficiencies
When brokers/agents are asked to bid, coverage is often compromised to reduce the price. All too often, it becomes the job of the client to then decipher the coverage gaps or deficiencies and makes it very difficult to then compare proposals on an apples-to apples basis.
Often the Focus Shifts from “Total Cost of Risk” to Premium
In a competitive bid situation, the underlying emphasis becomes bottom line premium cost. While it is important to consider the premium cost, it more important to understand and stay focused on the “total cost of risk”. “Total cost of risk” considers all those costs associated with a company’s insurance and risk management program. These expenses include smaller losses that fall below the company’s deductible or the lost productivity and retraining expense. Often, premium cost is only a percentage of a company’s total insurance cost. Many times, the lowest premium now will result in a higher total cost in the future.
How to get the Best Results?
Businesses should look at the selection process in two steps. The first step is choosing the broker/agent and the second is picking the insurer. Some buyers may have concerns that the sequential approach slows and complicates the process. In fact, it streamlines the process. By selecting a broker/agent first, they handle much of the fact gathering, coordination and analysis that would normally fall to the buyer.
Choosing the right Broker/Agent
All brokers/agents are not the same. To help obtain the best results for the company the buyer should develop an evaluation process to compare the potential broker/agents who are competing for the business. By doing this, the buyer will have the opportunity to focus on what each broker/agent can bring to the table and which one can best respond to the company’s needs.
What to Focus on in Broker/Agent Selection
- Knowledge of the insured’s industry
- Understanding of the client’s individual business
- Rapport between the account team and the client
- Quality and depth of personnel
- Leverage in the marketplace
- Program design and innovation
- Scope of services provided
- Quality of service
- Relationship with carriers
- Willingness to be held accountable for results
- Ability to communicate clearly and concisely
- Cost of service
Once a broker/agent is selected, then they can work with the buyer to conduct competition amongst the carriers.
The brokers’/agents’ responsibility is to:
- Orchestrate the competition
- Structure the proposal and evaluation process in a manner that facilitates an apples-to-apples comparison of carriers
- Make sure all markets receive the same information
- Present the client’s business to insurers in the most effective way
- Use their marketplace knowledge and relationships to negotiate the optimum terms and conditions from each carrier
- Provide additional insight on carriers’ strengths and weaknesses and past performance.
Relationship with your carrier
Underwriters are no different than any other service provider. They form relationships and devote greater resources to clients / prospects they know and trust. If a strong partnership exists, an organization will realize the benefit of that relationship— and likely more consistent insurance pricing. What’s more, a long-term relationship encourages the insurance company to provide greater risk control consultation and better claim servicing.
Competition between brokers/agents as well as insurance companies is a good thing for a company and an essential way for businesses to learn what is available in the marketplace. However, to gain the best competitive edge and the best value a company must have a properly managed the broker/agent competition. Once a broker/agent is selected, then they can work with the buyer to conduct competition amongst the carriers.
Article Written by Ric Valentino, Producer