Here are five examples that illustrate the flow of emotions and the variety of approaches to selecting an insurance broker.
1. Disappointment at first but then a happy ending. At the very beginning of the hard market cycle, in the summer of the year 2000, we acted as a coach and counselor to the property manager of an owner/manager of shopping centers. Spurred to action by poor representation in a claim dispute with their insurance company, this customer wanted to make a change. With our advice, they invited four brokers to compete in a broker-bid.
The insurance company assignments were easy, each broker asking for an adequate number of different insurance companies to make it a competitive game. The results were disappointing, however,because the broker with the lowest property quote had the highest liability rate and the broker with the highest property quote had the lowest umbrella rate. The other two brokers delivered quotes that didn’t make any sense. We were surprised how scattered the rates were.
As we know now, this was the beginning of the hard market of the new millennium. Undeterred, we advised our customer to pare the list of brokers down to two – and to select the one with the best conceptual proposal. After making the selection, the new broker was awarded the business via a broker of record letter. Our customer reconciled herself to staying with the same insurance company despite an unresolved claim dispute. The amount of the claim dispute was far less than the increase in rates they would have had to pay going to another carrier. Happiness and humility were the emotions at the end.
2. Rebuff and resolve. Fast forward to 2002, we advised an association of non-profit agencies on the selection of an insurance broker to put together an insurance program for their members. The cornerstone of a sponsored insurance program is the support of reinsurers who provide the capacity to the licensed insurance company that sets the rates, issues the policies and pays the claims. Sponsored programs are usually accessed through an exclusive arrangement with a wholesaler or insurance broker.
We commenced the assignment by identifying the available programs. We did this by visiting the Web site of the Risk Retention Group Association. Why start there? Because most program business is underwritten by risk purchasing groups organized under the federal Liability Risk Retention Act. Risk purchasing groups may solicit commercial general liability, professional liability and other types of liability insurance (not workers compensation or automobile), either directly or through agents. While property insurance may not be written by a risk retention group, the sponsors sometimes negotiate the exclusive right to sell property insurance through a national insurance carrier.
Our non-profit group was disappointed when they were greeted with a cold shoulder by the brokers with risk retention group programs, because the policy-issuing carriers had lost their reinsurance capacity. They were rationing the dwindling supply of insurance to their long-standing customers.
Our client’s disappointed changed to resolve. They made the bold decision to embark on their own and form their own risk retention group. A conceptual broker selection process was utilized to select the firm with the best array of program design, actuarial pricing, program administrative services, reinsurance placement and market introduction capabilities.
At this time the non-profit group is raising capital to form an insurance company to reinsure its members’ property exposures. A risk purchasing group is planned to provide commercial general liability insurance.
3. Desperately seeking coverage. A division of a large corporation purchased by one of our investment companies was unable to get the seller’s broker to provide continuation of property/casualty coverage on a stand-alone basis.
We were fortunate to help this harried customer find and select a local agent who placed the property/casualty business in time for closing — but at much higher rates. We were all the more fortunate to place their health insurance at much lower rates.
4. Delicate situation. We recently advised another client in a conceptual broker selection due to internal problems at their brokerage firm. A conceptual approach was necessitated by the unique nature of their exposures and narrow market channel through which their business was placed. Considerable political capital was placed on the line by this client’s risk manager due to ties between competing brokers and upper management.
Having us as an independent and objective advisor assured senior management that the selection process was fair. Visit our Free Tools section to download the same kind of broker selection template we used in this assignment.
5. Thrill of victory. In yet another example, we pitted three brokers against the incumbent who has an exclusive insurance program built around a risk retention group. One broker withdrew, unable to get quotes. The second broker came in with one startlingly high quote. Undaunted, the one remaining broker pressed forward. Late on Friday he delivered his quotes – this was a Sunday night expiration. His quotes were 20% less than the incumbent’s. Our client asked for higher deductibles, which lowered the rates further. On Monday morning the new broker bound the coverage, backdating the coverage to midnight Sunday
