By Carl Santa Maria
If you are responsible for the risk management function in your company a major responsibility includes the development of insurance programs, managing your broker, deciding on what to buy, how much to pay, handling of claims, and satisfying insurance requirements of customers.
By definition a broker is different than an agent. While both can have contracts with insurance companies a broker represents the insured and an agent represents the insurance company.
A broker’s job is to help identify threats to client businesses, evaluate the risks and design programs to deal with these issues in the most effective and cost efficient ways. Often the best ideas don’t involve insurance but the elimination of coverages that may not be necessary and, instead, target on mitigating, reducing, or eliminating the threat entirely.
When insurance is needed, it is important to consider a number of variables. Do the terms of the policy adequately provide protection? Are the limits purchased appropriate? Is the cost of the insurance competitive? Is the insurance company of sufficient financial strength to deliver on its responsibilities? Does the insurance company have a reputation for handling claims fairly and efficiently? These are just a few.
The insurance company seeks to write policies for risks that are well managed, for companies that are well run, and which offer a reasonable opportunity to earn a profit. When there is a fair exchange of value that is a good thing. Evaluating this existence of this equilibrium is very difficult.
A top broker works to create a program model, vet it thoroughly with his client, and search for a product that most closely conforms to the model. This approach changes the paradigm of the process from supplier (insurance company) control to buyer (client control) and will produce better outcomes consistently over time. The client decides what he will pay and at what cost and the supplier will either agree or offer alternatives.
Disturbances in the market can occur. This is particularly true if the broker is not aggressively monitoring the marketplace or merely renewing programs automatically, often at the last minute. The market can change quickly.
Recently, a company which had been insured by the same broker and carrier for a number of years was concerned about unexpected premium increases. The business was aware that its competitors had far lower costs. After the renewal was issued (at the 11th hour), the company reached out to another advisor for a program review. Not surprisingly the program costs could be reduced significantly, without reduction in quality, by moving the program to another insurance company. The savings was significant even after incurring a cancellation penalty. The holding insurance company was very upset that it lost the business and felt that the new broker had treated it unfairly. So the insurance company was mad at the broker for responding to an unsolicited inquiry, developing a better option, and replacing a program that was uncompetitive. It seems that the responsibility resides with the former broker and to some extent, the underwriter who priced the renewal.
Similarly, an insurer was undecided about continuing to insure a segment of a company’s operation. The insurer alerted its intent to cancel the coverage mid-term. The broker appealed and delivered risk improvement information. Never the less the carrier insisted that the broker try to find another market for the exposure. Another carrier was agreeable to picking up coverage on the condition that the entire account be moved to them. The new carrier provided a very competitive package, including the problematic exposure. At the last minute the holding carrier relented on the cancellation, but the difference in coverage and cost resulted in the replacement of the account with a new carrier. The new carrier was only brought in at the insistence of the holding insurance company. The insurance carrier was mad at the broker for the change.
The overriding principle is responsibility to the client. If the broker hadn’t acted in the best interest of his client he would have been derelict in his duty. If the carriers had not forced the issues they would not have lost the business.
Business is best conducted as if the process and result could be shown on the 6 o’clock news. Would the insurance company or broker be most uncomfortable with those optics?
Maybe it’s okay for your insurance company to be mad at your broker!