Many executives use great care when selecting important professional services partners such as an attorney, banker or accountant, but fail to exercise that same care when selecting an insurance broker.
“Don’t treat the selection of an insurance broker like a commodity,” says John L. Boss III, executive vice president at Aon Risk Solutions. “A poor decision in this area can be detrimental or even catastrophic to a business if a loss occurs and the contract of insurance does not provide the expected coverage.”
Smart Business spoke with Boss about what to look for in a broker and how to choose one that is right for your company.
What steps should a business take to ensure it selects the right broker for its needs?
In most cases, it is not the best approach to divide up the already limited insurance marketplace among several broker candidates and go with a competitive bid approach. If you use this approach, the broker who is aligned with the most aggressive insurance market will win your business. However, that firm will not necessarily be the best broker partner for you. You should first pick your broker and then give it full access to the insurance marketplace on your behalf.
One method of finding the best broker for your needs is by doing a program audit. This means providing your current program details (for one line of coverage or several) to a third-party broker to review. Usually this is done for a fee, with commitments made to move the program to the third-party broker if the findings of the audit are significant.
A second method is the formal request for proposal (RFP) process. This requires you to first select the team of individuals internally who will be involved in the evaluation process. This team should include representation from all areas within your firm that are affected by the decision, including the CFO or treasurer, safety manager, human resources, and risk or insurance manager. In smaller firms, this could include the president or CEO and individuals from operations.
How does the request for proposal work?
For the RFP, you will need to identify your specific service needs and provide details on your company, your current insurance program and your company’s loss history. You need to include questions regarding the broker’s qualifications, capabilities and fees. Ask how the broker would market your program and provide the requested services.
Ask for biographies of any proposed team members. Also, ask for references for companies that the broker represents within your size range and industry.
Make your selection criteria clear, as well as the timeline for your decision, such as when the written document is due, when interviews with finalists will take place and when you will make your final decision.
What are the key attributes of a good insurance broker?
Brokers differ greatly, so you really must understand your company’s needs and make sure that you’ve selected a partner who can properly address all of your needs. A company’s needs from a broker can differ greatly based on things such as industry, size and location. However, another important and sometimes overlooked consideration is the way your company handles the risk and insurance function.
For example, if you are a large, multinational company that has a risk manager, it will be critical for you to have a broker who has a worldwide network to ensure that you have coverage placed properly in all of the countries where you do business. In a smaller or medium-sized organization, the purchase of insurance is typically done by the controller, treasurer or CFO. This function represents only a fraction of this person’s overall job duties. Many times the focus is placed solely on obtaining the lowest cost. This can be a detrimental mistake. If your broker does not have the expertise to understand your company’s risk profile and the market clout to ensure that you obtain the right coverage, you could be leaving your organization exposed to unintended risk that, in some cases, might lead to the company having to close its doors.
In addition, a broker should have claims expertise for all of the different lines of coverage that it places. If you have a large property or employment practices loss, the relationship with the insurance company can change, and you need to be sure that you have selected a broker partner that has the expertise to get your claim handled in a timely and fair manner.
How can a business make sure that its relationship with its insurance broker stays strong over time?
As with any relationship, communication is the key. Your insurance broker needs to truly partner with you. This means having a deep understanding of your firm’s short- and long-term goals so it can anticipate future risks to your firm and direct you to ways to mitigate or transfer those risks.
It is also important to make sure that your broker has adequate bench strength. No matter how good your primary contact is, you should take the time to meet office leadership, as well as other members of the team. Otherwise, the result is often service dissatisfaction if your primary contact leaves.
Finally, be sure that, at least annually, you are having stewardship meetings that include more senior individuals from your company, as well as from the broker, to make sure that both firms have a clear understanding of what has been accomplished to date and that a clear plan is set going forward.
Selecting the right broker for your business takes some time and effort, but having the right partner when a loss occurs and coverage is called upon can be critical to your company’s success.
John L. Boss III is executive vice president with Aon Risk Solutions’ Health and Benefits Practice. Reach him at (317) 237-2411 or email@example.com.