Choosing the right insurance broker sounds easy on the face of it, but quite often it is a more difficult task than you imagine. Very often price is seen as the determining factor in assessing a company’s insurance needs, but competent CEOs and CFOs know that this is only one part of the overall review process. Nevertheless, CEOs and CFOs are often under pressure from shareholders and other stakeholders to make decisions along these lines in order to produce short term results, and their approach to the topic of insurance is often limited to a line item on an income statement. Successful managers know, however, that much like other line items that include tax planning, auditing, marketing etc., a qualitative approach to risk and insurance is often more important than a quantitative one.
The purchase of insurance is only a part of the entire risk management process to mitigate the adverse effect of risk on your organizational performance. Your insurance broker is an extension to your team. One role is to negotiate the best insurance terms and pricing on your behalf and they must have the necessary market presence and knowledge both locally and internationally to achieve this end. Before this, however, your broker must have a comprehensive understanding of the intricacies of your risk exposures, advising on the optimal solutions to manage these before considering what risks remain and need to be insured. As a result, the selection process of your insurance broker needs to factor in a number of variables ranging from their market reputation and stability, experience with not only insurance but the entire risk management process and ability to provide quality advice, geographic presence, relationship with the insurance-market and a team of risk, insurance and claims experts.
The Barbadian insurance market has seen the development of a number of new insurance broking entrants providing both commercial and private customers alike a range of options. Price has been a primary consumer driver in recent times between the selection of brokers and insurers, but there has been a tradeoff between price and the sacrifice of sound advice, service and security which are the preliminary requirements for insurance purchase in the first place. Whereas pricing must be competitive the challenge is that all areas are vital and must be considered as part of the broker selection criteria. There are a lot of vital elements to broking service and risk advice with your objective being the long-term success of your business in the face of adverse risks. These thought provoking points should therefore be considered:
Who are the owners and/or shareholders of your insurance broker? Does your insurance broker have any contractual relationships with an insurer that extends beyond standard commission or fee based remuneration? What proportion of your broker’s business is placed with various insurers in the marketplace? What is the basis of your broker’s remuneration and have you ever enquired how and what they are paid? Has your broker ever proposed any illegal transaction to you such as rebating any of their commission or quoted you a premium that was less than that quoted by the insurer? The answers to these questions are very simple, and some of the answers are easy to verify, so in this age of complex business dealings don’t be afraid to ask tough questions and consider carefully the answers!
Despite all of the advances in marketing and the spin put on certain situations, it is difficult to gain an esteemed reputation in any industry. Be sure to enquire of your associates locally and internationally about their experiences with a particular broking company and/or their global affiliates. Look beyond price and ask if your associates have had a major claim and what role did the broker play in the negotiations? In addition, you need to enquire from the insurance market about the reputation of your broker. It is essential that your broker has a good professional relationship with the insurance industry from whom the products and services are purchased, so make enquiries of insurers about any potential brokers. How often are you in contact with your broker and what is the quality of advice offered?
How competent are your insurance brokers to represent you in respect of your various insurance and risk management needs? What are the qualifications of key staff and/or how much practical experience do they have in dealing with complex contractual planning and claims disputes? What other clients does a broker have, and what is their collective experience with clients in industries such as yours? What large claims has a broker handled previously? What is your broker’s disaster and business continuity plan and their ability to function in a catastrophe situation? Over what geographical range can your broker offer you the services that you need? Does your broker have any affiliation to any international brokers and their range of products and services? What experience does your broker have in the international markets that you are trading in? The reality is that experience counts, since even formal education may not outweigh practical experience in defining a company’s ability to identify, assess and analyze risks and formulate practical solutions.
How secure is your insurance broker? How long has your insurance broker been in business and what has been their impact on the insurance market? What is your broker’s procedure for handling your premiums: Do they have segregated accounts and what is the timeline for payment to insurers? What is your insurer’s position relative to the late payment of your premiums to a particular broker? If your broker is offering you credit terms, are these credit terms sanctioned by your insurer without affecting your cover? Can your insurance broker meet their financial obligations to you and others? For example, the Insurance Act requires registered brokers to carry only $1,000,000.00 in Professional Indemnity Insurance. Reflect on the risks handled by your broker and decide if this is adequate to compensate you for a mistake by them on the placement of cover for many of your assets or potential liabilities. Additionally, what about the financial reliability of potential insurers? Has your broker commented on the rating of the companies approached as provided by rating agencies such as Standard & Poors or AM Best?
What is the range of services that your broker offers you? Does your broker offer risk management advice from qualified risk managers? Do they have access to international risk management resources and best practice? Does your broker offer employee benefits advice? Do they have access to alternative risk financing resources and expertise? What role does your broker play in the settlement of your claims?
Finally, your insurance brokers must work for YOU. Like any relationship this one needs to be nurtured and developed. It should come as no surprise therefore that some insurers approach you directly and knowingly circumvent this relationship. Prudence, however, should immediately demand whether the particular insurer is uncomfortable falling under the scrutiny of competent independent advice, or to avoid competition. Business owners too should approach the subject from a qualitative side and appreciate that their CEOs and CFOs may have a good working knowledge of insurance, but it is unrealistic to expect that they will have the time or experience to deal with the complexities of all your insurance and risk management needs. Hence, using a competent broker will add value to a company while at the same time reducing the need to have these skills on your payroll. Hence, regardless of the size of the firm, even large firms with paid risk managers on their staff still employ the services of competent insurance brokers because they appreciate the value of sound independent advice.
James Peirce is a Director of Lynch Insurance Brokers Ltd. with 23 years experience in the field and specializes in commercial insurance broking, placement, claims negotiations and program structure. He is active in the broking field as Account Executive for several of Barbados’ largest companies, and is also the Director of Business Development. Apart from holding a Bachelors Degree in Marketing, he also holds a Diploma in Insurance from the Chartered Insurance Institute of the UK.
James can be contacted by telephone at 246 230-2684 or by email at email@example.com
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