Working with an Agent or Broker and Putting Your Insurance Program

Out to Bid

Derek S. Symer, CPCUSenior Vice President, AH&T Insurance

Overview

• What is an insurance agent/broker? How are they compensated?

• What is the role of an agent or broker?• Helping the broker to help you• Evaluating your agent or broker• When it’s time to make a change

– Bidding Approaches

• Summary

What is an Agent? What is a Broker?

• Agents (independent)– Represent the carriers with which they have

appointments (contractual relationships)– Serve clients by placing coverage with appropriate

carriers and maintain relationships with multiple markets

• Brokers– Potential to approach any insurer– Serve clients by placing coverage with appropriate

carriers and maintaining relationships with multiple markets

How are Agents and Brokers compensated?

Compensation Categories:• Carrier-paid Commissions• Client-paid fees for services• Carrier-paid incentives (contingency fees)

Typical Commission Ranges• Property/General Liability: 10% - 15%• Workers Compensation: 3% - 7%• Directors & Officers: 10% - 15%• Other Professional: 10% - 15%

Compensation

Fees• Can not be combined with commission unless

fully disclosed.• Specific fee agreement language must be

used.• Usually used when large premiums are

involved.

Compensation, continued

Contingencies• Rewards for profitable business.• Do not apply to specific accounts.• New rules based on past performance.• Not service agreements.

What is the role of an agent or broker?

Role of the Agent/Broker• Risk Analysis

The agent/broker must become familiar with the organization and its exposure.

• Coverage EvaluationInsurance coverage should be frequently evaluated in light of existing exposures and market pricing.

Agent/Broker Role, continued

• Carrier NegotiationServe as an advocate for the insured where dealing with the

carrier.

• Claims AssistanceBe ready and willing to assist in claim settlement situations.

The $25K Question: What’s a Fair Price for Insurance?

• Your exposures• Your risk financing strategy and priorities• Your “insurance program”• Affordability• Carrier willingness and ability to pay

Lowest Price does not usually equal best coverage

• When there are large variations in pricing from multiple carriers for the same product, ask questions!

• Is the coverage different? Is there coverage missing?

• Does the premium include claims handling?• Is the carrier rating acceptable? Will the carrier

be there in the long term to pay claims?• What happens to your organization if the

carrier is unable to pay the claim?

Broker Services

• If your agent/broker cannot give you specifics on pricing variations and differences in coverage, then they do not understand the coverage well enough to place the line of business for your organization.

Determining Service Needs and Your Expectations

• The culture of your nonprofit or company• The size and complexity of your insurance

program• The broker as a “business partner”• Range of services• Your top issues and concerns

Not all Agents/Brokers know all lines of business

• There is a big difference in coverage expertise for different lines of insurance coverage

• Agents/Brokers specialize in certain lines of business

• Lack of knowledge by an agent/broker ultimately leads only to a price purchase and may result in your organization purchasing substandard insurance coverage

Helping the Broker to help you

Meetings• Agree to frequent meetings• Eliminate distractions• Invite appropriate staff members• Prepare in advance

Helping the Broker to help you

The Need for Information• Changes in Status

1. New Locations

2. New Property

3. New Activities

• Renewal Information in a Timely Fashion

How much will I pay for insurance?

Your Formula

• Past Losses x Exposure x Market Presentation = Cost

Helping the Broker to help you

Proper Claims Reporting• Understand the reporting rules for “claims

made” policies.• Trust the Broker with information.• Learn claim reporting procedures and share with

others in the organization.

Helping the Broker to help you

Treat the Broker as a Professional• Part of your Management Team.• Allow the Broker to confer with other

professionals.• Respect the Broker’s time.• Insurance isn’t a commodity; don’t treat it as

such.

Evaluate Your Provider

• Responsiveness• Timeliness• Credibility• Commitment• Claims handling• Accuracy• Results

Using a Scorecard

• Up to 10 points in each category?• 50+: meets expectations• 31-49: partially meets expectations• 30 or less: does not meet expectations

Choosing a New Provider

• Choose an approach to obtaining bidsInformal:– Referral from a peer or referral partner

Formal:– Open bidding– Market assignment– Conceptual proposal

If a formal approach is selected…

• Prepare specifications (“specs”)• Determine proposal requirements

– Be specific!

Open Bidding

• Specs provided to several bidders• Interested bidders approach insurance markets

and return to the nonprofit with a complete proposal

• Buyer (nonprofit) tries to accept best bid; lowest price for required/desired coverage

• Downsides: potential time-waster for skilled agent/ broker; “winner” may not have skills you require

Market Assignment

• Select agent/broker bidders (based on referrals, incumbent, etc.) and assign markets to approach on your behalf– This generally involves asking brokers to select markets,

taking turns

• Each bidder needs detailed information on your insurance program in order to proceed– An RFP or document containing specifications will be

needed

Market Assignment, continued

• Upside of this approach: you may receive complete proposals for the full package of services/coverage you need

• Downsides: you can’t separate proposal components (e.g., select carrier without broker)

Conceptual Competition

• Choose your advisor first, through a process that will help you match your needs with the skills and abilities of an agent or broker

• Integrity in your process leads to the best result• “Leap of faith” required—the “winning” bidder will

be able to secure the coverage your nonprofit requires at a price you can afford

Conceptual Competition: Dos and Don’ts

• Do be forthcoming about your insurance needs and current program

• Do strive for fairness (each bidder receives same information, stick to deadlines)

• Don’t be intimidated by a bidder and stray from your process

• Do be explicit with bidders: tell them what they can, can’t, should and shouldn’t do

Service Provider Agreement

What’s included?• Duties and responsibilities (both parties)• Compensation• Financial security of carriers• Feedback and reporting processes

Measuring Performance

• Objective review of performance based on criteria in the broker services agreement

• Revisit the selection criteria you used at the outset of the relationship: how has the broker measured up?

Summary

Agent/Broker Role• The broker has the responsibility to be a

proactive advisor and advocate.• You, the client, have the responsibility to be

cooperative and respectful of the relationship.• An atmosphere of mutual trust is necessary to

maximize the benefits of the client/broker experience.

Summary

If it’s time to make a change…– Remember that you have several approaches– The feasibility of putting your program out to bid may

depend on the size of your insurance program– Many small nonprofits & companies change

providers based on an endorsement or recommendation from a peer or association

– If you choose a “conceptual competition,” plan your work and then work your plan

Thank You!

• Contact information:– Derek S. Symer

dsymer@ahtins.com

(703) 669-1121