How to Avoid Additional Insurance Premiums
Insulate Your Company from Rising Health Insurance Costs
Evaluating and Renewing Employee Health Insurance Plan
Service Department Costs
How to Select Your Commercial Insurance Broker
Often times the CFO of a company has the responsibility for making the decisions regarding the commercial insurance coverages for their company. Normally this is an additional duty thrust upon them and typically is one for which the CFO has had little or no training. It is like this author going to buy a new computer at one of the computer super stores. I know what I want the computer to do, but I am at the mercy of the 21 year old kid who looks at me like I am a relic from a long gone era. He barely tolerates my ignorance and then impatiently tells me what I need. Therefore, in the absence of any training, it is approached with the skills used in making any major purchase for their company. The “bid process”, as comedians say, “Goes a little something like this”:
1. Three or more brokers are identified who want to bid.
2. Each are be provided the data that they need (this alone can be mind numbing because while they do want some common data, each seems to have their own special list).
3. Each broker will want to be assigned certain markets, but they all want the same ones (this will resemble refereeing a Little League baseball game).
4. You are then asked to answer an incredible number of questions that come in from the various underwriters and answering the same questions multiple times to different brokers.
5. You then have to expedite each broker to make certain that their bid is received in time to give you ample time to analyze each of their proposals (by the way, they will all want to present last).
6. Each broker will make an in person presentation.
7. You are then faced with the impossible task of spread sheeting each bid to make sure you have “apples to apples”. (Insurance companies make sure that this is an exercise in futility by putting all sorts of special extensions and exclusions of coverage in their quotes).
8. You then have to go back to each broker to get specific questions answered so your “apples to apples” comparison will work.
9. The unsuccessful bidders will have to be notified of the outcome. (Each unsuccessful broker will make the impassioned plea to “Let me have one last chance to get the right price. What do I have to beat?”)
10. You will notifying the winner (finally you get to do something that is pleasurable, or at least a relief).
11. You have to rush the new broker to get insurance binders, auto ID cards and Certificates of Insurance out on time.
12. And finally, the fruits of your labor will show up as an invoice the next day and your policies a half of a year later.
The main problem with this process is that it does not always guarantee the desired result is achieved. You should have some kind of warm fuzzy feeling that your company has been taken care of for the money you are paying, but typically you are just relieved that the process is over.
What is the desired result of the insurance purchasing process? Simply put it is to:
1. Identify the exposures your company has which could lead to a possible loss.
2. Identify those exposure which you want to consider insuring. (Not all exposures need to be insured – the can also be avoided, retained, or transferred to others. All of these are preferable to insurance.)
3. Procure that insurance at a fair price.
4. Allow you to sleep at night knowing you have proactively addressed the main areas which would keep you awake after watching the ten o’clock news and seeing what is happening to other companies.
The good news is that there is a way to achieve this result. A much, much, much better way. And not only is it better, it is easier. And not only is it better and easier, it is more professional.
So, let me begin this by making a few assumptions.
• The total premium you pay for your commercial insurance (property, general liability, business auto, workers compensation, umbrella, directors and officers, crime, professional liability, etc.) represents a major expense item to your company.
• If you take 10% of the total premiums paid above for your insurance (which is the average compensation your broker is receiving for their services to your company), your insurance broker is one of the most highly paid consultants your company employs.
• The CPA and Legal relationships of your company are NOT one that you put out for bids on a regular basis.
So here is the basic question:
Does it make sense to put the fate of your company’s survival in the event of a catastrophic event and the hiring of one of the most highly compensated consultants your company hires into the hands of the insurance companies in the marketplace? After all, if you conduct the bid process as described above that is exactly what you are doing. You are letting the insurance company with the lowest bid select your agent for you.
As promised, there is a better way. Simply put – YOU TAKE CONTROL. Here are the facts:
1. There are only a few insurance companies that are willing to competitively write your company’s insurance.
2. Most agencies, that are independent agencies and are of the size to handle your company’s business, represent all of them.
3. If the current insurance program design is not re-thought EVERY year, then the odds of it responding as you want in the event of a loss are very slim.
4. If you ask for “apples to apples’ then you are going to get no innovative thought from the brokers as to how to improve your program’s design.
5. If you use multiple brokers to approach the insurance markets, then you are letting the insurance companies pick your broker.
So, this is how it should work. This is the method to use to select the best broker for your company.
1. Begin this process 5-6 months prior to your expiration date.
2. Select the brokers you would like to consider for your risk management consultant (formerly referred to as your broker). This list can come from:
b) business advisors,
c) brokers you have met and gotten to know over the years
d) industry association meetings,
3. Narrow the field to not more than three brokers.
4. Notify each broker, tell them of your intent to open a broker competition, tell them they are invited to make a presentation, and ask them to send you a list of what they will need in order to make their presentation. Each will begin to immediately to demonstrate their professionalism and differentiate themselves by the questions and data they ask for.
5. Do not be surprised by the amount of data you are asked to provide. It could range from nothing (in other words they have it canned) to a list that would include the following:
a) Copies of all policies
b) Copies of loss runs for the past 3-5 years
c) Information on your company
d) Interviews with the key people
Typically, the more data the broker asks for the more thorough the job is they are going to do.
6. Have them schedule their presentation with you a minimum of 130 days prior to your expiration date.
7. Allow each broker up to one hour to make their presentation and thirty minutes for questions from you and your team.
8. The winning brokers presentation will include, as a minimum, the following components:
a) The broker will bring their whole team that will be working with your account and your personnel and present their qualifications.
b) They will discuss the design of your current insurance program, ask questions about how it evolved, and discuss design options they have come up with that you may want to consider.
c) They will discuss your current pricing and offer their opinion as to where it fits in the marketplace.
d) They will discuss their marketing strategy for your upcoming renewal which as a minimum will include the insurance companies they are going to go to and their timeline for the renewal.
e) They will discuss your company’s ongoing service standards to make certain that your company will be receiving the service it needs.
f) They will be prepared to answer questions you and your team bring forward.
9. Schedule all presentations for the same day and then assemble your team at the end of all the presentations, narrow the field to the field to the final two, check their references, and then make your decision. The decision needs to be made 120 days prior to your expiration date so the change of brokers can be most effectively and efficiently made.
This process will seem strange to you, however the result will provide the following:
1. You will have a broker that will be a valued business advisor and not just a vendor of insurance.
2. You will go to bed at night knowing the risks of loss to your company have been proactively addressed.
3. You will have an insurance program designed for your company for the way it is now, and not the way it was in previous years.
4. You will know your company has selected the best risk management and insurance program and has the most competitive price for that design.
5. You and your team will be selecting your broker and NOT delegating that to the low bidding insurance company.
6. You will have entered the realm of professionally managing the risk management of your company.
As was stated earlier, companies tend to view their insurance broker as a VENDOR of the insurance. The truth is, the broker puts the price on nothing. Your company should be selecting your insurance designer and your insurance negotiator. This is a professional relationship more like your CPA firm and your legal firm, not like your copier firm.