How to Choose a Broker and a Carrier

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Competition between brokerage firms and competition among insurance companies are essential tools in helping businesses learn what is available in the marketplace. When properly managed, competition is the best way businesses can assure they receive the optimum value for their dollars, and thus gain the competitive edge they are striving to achieve.

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How to Choose a Broker and a Carrier

  1. 1. Gaining aCompetitive Edge –How to Choose aBroker and a CarrierBy Brandon GuestStrategic Employee Benefits AdvisorsA United Benefit Advisors Member FirmFor more information, contact us at(512) 478-8779 or info@rfg.com
  2. 2. The Existing Paradigm Today’s competitive pressures are forcing businesses to scrutinize the price they pay for the products and services they buy, and to evaluate professional relationships like never before. Insurance and Human Resource services are no exception. Traditionally, many midsize companies have held the belief that the best way to drive costs down is by conducting a bid process. Under this process, multiple brokers are invited to compete and submit bids for the company’s insurance. Competition is an essential tool in helping buyers evaluate professionals, identify new products and establish price/value relationships. But, in today’s insurance marketplace, the bidding process is no longer the best way to achieve the optimum results.Inherent Weaknesses in the Bid Approach Companies that rely on a bid process seldom achieve optimum results for their efforts because the system simply works against them. There are a number of reasons why. Pricing Obtained Through A Bid Process May Not Represent The Best the Marketplace Has To Offer Like most business, insurers are downsizing and looking for ways to decrease transactional costs. They are requiring their employees to do more with fewer resources. Underwriting departments are barely staffed and in a “hard” market cycle, the workload is heavy. The reality is the underwriters who decide whether or not to write your business and if so, under which terms and at what costs, simply don’t have time to give every account their best effort. They are forced to choose the new business opportunities they work on very carefully. If underwriters see a particular account is being shopped throughout the insurance marketplace by multiple brokers, they feel their chances of obtaining the business are slim. As a result, they have little motivation to give the account their best effort. “Come One, Come All” Approach Can Work Against The Buyer Most employee benefit carriers have a policy to work with contract and licensed brokers. Once “census information” is provided and a rate is established, each broker should receive the same quote. This practice is designed by the carrier to provide brokers with an even playing field. Unfortunately, this process does not provide any indication as to which broker will provide the substance necessary to service your account.Gaining a Competitive EdgePage 2
  3. 3. Diminished Leverage in the Marketplace To avoid the appearance that their business is being shopped throughout the marketplace, some buyers opt to assign specific brokers to specific markets. While this does reduce market chaos to a certain degree, there are drawbacks to this approach. By assigning insurers, the buyer may not match the broker with the markets with which they have the strongest relationships. Dividing the market limits the brokers’ ability to communicate with all of the insurers and thus negotiate the best terms possible. When insurance markets are allocated, the brokers lose the ability to leverage the most aggressive quotes against each other. Increased Potential for Coverage Deficiencies When brokers are asked to bid, benefits are often compromised in favor of price. All too often, it is incumbent upon the insurance buyer to pinpoint the coverage deficiencies. To compound the problem, proposals are typically presented in a way that precludes buyers from making apples-to-apples comparisons between programs. Often the Focus Shifts from “Total Cost of Risk” to Premium In competitive bid situations the emphasis is typically on premium. While it is important to take premium into consideration, it is critical for insurance buyers to understand and stay focused on the “total cost of risk.” “Total cost of risk” takes into account all those costs associated with a company’s insurance and risk management program. These expenses include losses that fall below a company’s deductible or within a self-insured retention; uncovered losses; and the administrative costs required to manage the program. It also encompasses lost productivity and retraining expense. The reality is - premium is only a percentage of a company’s total cost. Many times, the lowest premium ultimately results in the highest cost. TOTAL COST OF RISK EQUALS Premiums + Losses within a deductible or self-insured retention + Losses not covered or in excess of policy limits + Administrative costs to select and manage your program + Claims/loss control services + Lost productivity + Retraining costsGaining a Competitive EdgePage 3
  4. 4. How can Companies Obtain Optimum Results? In today’s marketplace, the best way to ensure optimum results is to “unbundle” the buying process. That means separating the broker decision from the insurance company decision. This gives the company the opportunity to ensure it has the freedom and flexibility to choose the best possible broker and the best possible insurer for its particular needs. Businesses should look at the selection process in two steps. The first step is choosing the broker and the second is picking the appropriate benefit plan. Some buyers may have concerns that the sequential approach slows and complicates the process. In reality, it streamlines the process. By selecting a broker first, they handle much of the fact gathering, coordination and analysis that would normally fall to the buyer.Choosing the Right Advisor/Broker All advisors/brokers are not “created equal.” To help obtain the optimum results from broker competition, there should be a structured evaluation process. This helps create a level playing field and facilitates an apples-to- apples comparison of the advisor’s/broker’s capabilities. This gives the buyer the opportunity to focus on what the advisor/broker can bring to the table and which one can best respond to the company’s needs. What to Look for in Evaluating Advisor/Broker ♦ Knowledge of the insured’s industry ♦ Understanding of the client’s individual business ♦ Rapport between the account team and the client team ♦ Quality and depth of personnel ♦ Willingness to be held accountable for results ♦ Program design and innovation ♦ Scope of services provided. ♦ Quality of service ♦ Knowledge of the marketplace ♦ Relationship with carriers ♦ Leverage in the marketplace ♦ Ability to communicate clearly and concisely ♦ Cost of service.Gaining a Competitive EdgePage 4
  5. 5. What to Look for in Evaluating Insurance Carriers ♦ Understanding of the insurance buyer’s business ♦ Knowledge of the insurance buyer’s industry ♦ Financial strength and stability ♦ Coverage terms and conditions ♦ Cost ♦ Customer Service CapabilitiesChoosing the Right Insurance Company Once a broker is selected, they work with the buyer to conduct competition among the carriers. The broker’s responsibility is to: Orchestrate the competition. Structure the proposal/evaluation in a manner that facilitates an apples-apples comparison of carriers. Make sure all markets receive the same information. Present the clients business to insurers in the most effective way possible. Use their marketplace knowledge and relationships to negotiate the optimum terms and conditions. Provide additional insight on carriers’ strengths and weaknesses and past performance.Conclusion Competition between brokerage firms and competition among insurance companies are essential tools in helping businesses learn what is available in the marketplace. When properly managed, competition is the best way businesses can assure they receive the optimum value for their dollars, and thus gain the competitive edge they are striving to achieve.Gaining a Competitive EdgePage 5
  6. 6. Hanna Global Solutions California license #OB93651 Hanna is also licensed in many other states throughout the U.S. and has partnerships with licensed associates around the world.Walnut Creek, California Los Angeles, California Bangalore, India 800.954.6600. www.hannaglobal.com

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