Insurance has become a critical component of any business in modern times. 2023 is viewed by many as the riskiest year in more than a decade. Social inflation, cybersecurity, business interruption (including supply chain disruption) and extreme weather patterns are just some of the many risks businesses are forced to deal with. This means working with an insurance broker to manage their insurance strategies for most organisations.
Appointing an insurance broker is a big deal and should be treated as such. Their role in helping guarantee your organisation's security should not be taken for granted. As your spokesperson and exclusive representative in the marketplace, the interconnection between your brokers performance and the quality of your insurance program is irrefutable. The cover you maintain, the premiums you pay, the claims service you receive, and the overall strength of your insurance strategies are directly linked to their performance.
In reality, brokers can bring tremendous value to businesses in various ways beyond simply arranging insurance; however, the importance lies in finding the right broker for you and your organisation. All brokers are different, and no one broker has exclusivity on good ideas. And while most brokers are confident in their ability to work with just about anyone, like all other service providers, some are far better and more experienced in specific areas than others.
There are several important factors that businesses need to carefully consider when selecting which broker to work with. For example, some brokers maintain dedicated practice groups that work exclusively with organisations from particular industries. Others have created unique placement facilities or insurance schemes that leverage the group buying power of organisations from the same sector to achieve more competitive pricing and greater levels of cover for their clients.
Some brokers have created their own exclusive insurance products that are often developed to address the unique needs of organisations from a specific industry, while others rely on standard, “off-the-shelf” insurer products that require a series of endorsements to meet their clients needs. Different brokers have invested heavily in the digital and technology space. They can provide clients access to secure online applications that offer many benefits while others continue using more traditional forms of client engagement and communication.
Another area to consider is what, if any, ‘hidden’ or undisclosed fees a broker may be earning. Brokers will often collect additional commission/brokerage when placing a client's business or have incentive-based remuneration models in place with insurers (e.g. profit shares, contingent commissions, volume bonuses, etc.). Others have developed and utilise mandatory quoting platforms that generate extra income for their business, which can discourage them from seeking quotes from outside insurers who do not subscribe to such platforms.
Many brokers also like to brag about the endless array of services they offer, but the question is: how will these resources be deployed, and at what cost? A broker’s performance is only as good as the individuals overseeing your account. And while a broker’s credentials, experience, industry knowledge, depth of resources and market relationships are all important, they add little to no value if they are not utilised correctly.
Finding and working with the right broker can deliver significant benefits; however, partnering with the wrong broker can have dire consequences. Poor broker performance can derail the stability of any business in the unfortunate event of a large loss that is not adequately insured. Significant financial loss, legal liabilities, loss of assets, reputational damage, loss of customers – these are just some of the many consequences that can result from having inadequate insurance cover, not to mention the premium capital that has already been wasted.
Overall, the insurance you purchase (a significant expense for many businesses) is there to protect you, and your broker is there to make your life easier and ensure your insurance is cost-effective and provides you with the necessary protection you need. For this reason, it is important for any business to test the insurance broker market regularly, and there is no better way to test the market and compare the intricate offerings of a group of brokers than a well-run Request for Proposal (RFP) process.
A well-constructed RFP process can deliver multiple benefits. It can be an excellent corporate governance exercise that allows you to test multiple vendors all at once in a fair, open, and transparent environment. You drive and control the process, and (if structured correctly) it can be a highly effective way of determining the strengths and weaknesses of your existing insurance strategies.
The primary goal of any RFP is to find the best partner to work with – someone who demonstrates a deep understanding of your industry and needs. However, many RFPs fall over or fail to deliver the results that the company sets out to achieve, not through a lack of effort, but more often than not, because of a flawed process that was destined to fail from the outset. Working with an experienced, independent tender consultant is a highly effective way to overcome this. Their experience and knowledge can be invaluable and ensure you achieve the best outcomes when running an RFP exercise.
Ultimately, the value in finding and working with the right insurance broker can be immeasurable, so companies should take the time to make sure they are not wasting valuable time and money on an unreliable or underperforming broker.
We have spent the past decade running carefully constructed RFP projects that ensure our members enjoy a strong, successful working relationship with a broker that has the experience, knowledge, and technical proficiency necessary to deliver the best the market has to offer.
Blog Submissions: Peter Sellwood