In today’s challenging economy, businesses need every competitive advantage possible not only to thrive but also to survive.
“Choosing the right insurance brokerage firm can result in major cost savings and important balance sheet protection,” says Dave Schaake, resident sales director of Aon Risk Services Central Inc. “The wrong choice can lead to paying too much for your insurance costs or, even worse, result in major gaps in coverage which can lead to significant financial loss.”
Smart Business spoke with Schaake about insurance and how to find the broker that’s right for you and your business.
How can you decide what type of insurance broker is right for your individual needs?
Begin with the premise that having insurance brokerage firms competing in a very limited insurer marketplace does not always produce the anticipated results. Market competitions often lead to insurers declining to participate, resulting in fewer options, not more.
The key to selecting a broker is to have a well-thought-out plan that includes an audit of your existing insurance program, an interview process and/or a request for proposal.
A program audit may involve a single line of coverage (property, casualty, management liability or benefits), or it may involve a review of your entire program. Depending on the scope of the audit and the time invested, the insurance broker may request an upfront fee for these services. Generally, however, the broker will offset this cost if awarded the business.
It is important for the scope of the audit to be fully understood, including deliverables. When selecting a broker to audit your program, consider whether the firm has clients of similar size and complexity and whether it has the benchmarking capabilities to provide you with a credible review.
The interview process is generally less formal, involving a meeting with the management and the proposed account service team of the insurance broker(s). This would be based more on the capabilities of the insurance brokerage firm.
A request for proposal is a more formalized process whereby a set of questions is developed and the insurance brokers are asked to provide a written response. This may include elements of an audit and/or the interview process.
If you are pursuing this process because of service concerns involving your current broker, you may elect not to include them in this process. If the service issues are serious enough, the decision to change brokers should be made upfront and prior to engaging other brokers in this process.
You should also consider limiting the number of brokers to those whom you know are qualified to handle your risk. Because of the time and effort involved, if a broker has no real opportunity to win your business, you are doing yourself and the brokers a disservice by including them in the process.
What should a business look for in an insurance brokerage firm?
There are major differences from one brokerage firm to another. First and foremost, the firm’s financial condition should be an important consideration. A thriving, well-managed firm will continue to invest in its people and other resources, which will ultimately drive value to its clients. Conversely, some brokers have undergone significant restructurings, including staff reductions, which have led to disruptions in client service.
You should ask the broker about its commitment to revenue transparency and have it provide a copy of its transparency policy. Does the brokerage firm have industry and product practice groups? Recognize that having one or two individuals in a single office does not constitute an industry practice.
As businesses continue to expand globally, ask about the broker’s international capabilities. An owned network of offices means the broker has made the commitment to serving the global needs of its clients. If the firm is working through an affiliated network, the broker is unable to effectively manage the quality of service being provided.
It’s also a good idea to request client references from similar-sized organizations. In doing so, ask what value the insurance brokerage firm has driven into their organizations. Ask whether their benchmarking capabilities include cost issues, limits, retention levels, etc.
A strong working relationship with underwriters is also important. What amount of premium does the firm funnel into the insurance marketplace? A relatively low volume could impact their ability to negotiate the most cost-effective insurance program.
Other questions to ask include, ‘What is the firm’s process for keeping clients up to date on insurer solvency issues? What has the firm’s experience been in reducing total cost of risk for its clients? What risk management information systems does it offer?’
How can you build a strong relationship with your insurance broker?
You should consider your insurance broker a trusted business adviser. To be effective, they should understand your firm’s short- and long-term goals. They should also have some form of access to the most senior levels of your firm. A good opportunity for this is during the annual stewardship meeting.
Having an open and positive relationship with your insurance broker will create value and, ultimately, deliver great results for you both today and in the future.
Dave Schaake is resident sales director of Aon Risk Services Central Inc. Reach him at (314) 854-0821 or David_Schaake@ars.aon.com.