Many people think about insurance only when they have to: claim, renew, purchase new property, fulfil requests from the bank for coverage confirmation, etc. For many, insurance is just about buying a policy. But your “insurance purchase” is really two purchases: selecting a broker, and then working with the broker to select the right combination of coverages, deductibles, limits, premiums, and self-insured risk. Many businesses may switch insurers several times over the period of a decade or so, moving as premiums rise and fall, and as the business itself expands and changes. But Insurance Broker relationships often last for many years or decades. And yet little thought is given to the act of hiring an Insurance Broker. Which is too bad, because your selection of a broker can make a big difference to your long-term success.
The Role of a Broker
An insurance broker works for you, the client. Although they “represent” a number of insurance companies – meaning they have a contract authorizing them to purchase a policy for their clients from a given company and (usually) receive a commission for doing so – an insurance broker’s job is to help their clients identify and understand the risks they face and to then help them find products or solutions that will best manage those risks. Many of these risks will be addressed through insurance but not all of them. And the “right” mix of insurance and non-insurance solutions can vary significantly from client to client, even for clients in the same industry and seemingly very similar, since the solution should fit the client’s own profile and circumstances. A good insurance broker will spend the time understanding what you want and listening to your needs before trying to find a solution.
Once they have worked with you to identify your needs, an insurance broker takes your company and searches the market for insurance companies who are willing and capable of insuring your company and addressing your needs. Most commercial insurance brokers work with a wide variety of companies and can give their clients a variety of competitive quotes. Switching insurance companies seldom requires you to switch insurance brokers, any more than switching airlines requires you to change travel agents (or travel websites) or changing your prescription requires you to change doctors or pharmacists.
Selecting an Insurance Broker: 3 Things to Consider
There are very many possible factors to consider in terms of selecting a broker. A few – ensuring they are licensed in the jurisdiction you do business, ensuring they understand your business, validating they have the staff, education, and experience to meet your ongoing needs – are fairly obvious. But there are three key steps often overlooked by insurance buyers.
Keep your Insurance Broker decision separate from your Insurance Company Decision
Brokers work for you, help you select insurance companies, help you address changing needs and circumstances over the years, and stand with you and support you in the case of a claim. Insurance companies accept a premium in return for putting up capital to pay for a loss in case of a contractually agreed upon loss; they are betting that most people will pay more premium than they will incur in losses.
Brokers and insurers are actually in different businesses, albeit complementary ones, and combining your insurance broker hiring process with you insurance company purchase decision lessens your ability to maximise both partners.
Evaluate your brokers’ performance throughout the year and meet with them away from policy renewal time so that you can talk about your needs from your broker rather than just the price of this year’s policy. Make sure they understand your growth plans and any new activities you might be undertaking. Share your expectations in terms of service, certificate requirements, and communication. Treat them like an advisor for your risks, rather than just a supplier of a commodity, and you will discover the true value of your broker. And if you do all this and don’t see the value, then it is time to talk to another broker to find out what you are missing.
Share the story of your business and make sure they can share your story with others
Part of what a broker does is go to insurance companies on your behalf to find the right coverage and price. For many businesses, their insurance price is a negotiable offering: the insurance company underwriter will gather facts on your company and assess the risk to come up with a price. Although the range of that price is probably fixed by the insurance company’s management, there can be considerable discretion and interpretation available to the underwriter in actually setting your rates. (The bigger the premium, the more the discretion: if your annual premium is relatively small – perhaps below $5,000 or $10,000 – you will find the variance tends to be smaller as many of these risks have “package” policies used for them.)
The discretion and interpretation an underwriter uses is heavily influenced by the story told to them by your broker. To be clear, we are not talking about the broker making up information about you, withholding relevant information, or lying to the insurer (all of these activities will eventually cost you a lot of time and money and could even hurt your ability to ultimately buy insurance); we are talking about the broker being able to accurately and compellingly explain why you are a good risk, what makes you different than average, and why an insurance company should want to keep you as a policy holder. It is very much in your best interests to ensure that your broker knows how to tell a compelling story about you, so work with them so they know the facts and then ask them to share what they are going to give the insurer.
Ask about the team servicing your account
Typically, there will be a “chief relationship manager” for your account in a brokerage. This person will come by many titles – Producer, Account Executive, CSR, Manager, VP, Broker, etc. – but primarily their role will be to act as the team lead for the servicing of your business and to keep you as a client. This person will likely be the one you think of as your Broker. But they are human and they will do human activities such as get sick, take days off, be out of the office visiting other clients, have lunch etc. … and sooner or later you are going to want and need service while this person is out acting like a human. So make sure there is a team serving you, make sure you know who that teams is, and make sure they are all capable and competent in serving you. Your business cannot afford to stop just because one person gets sick or goes on vacation.
An insurance broker should become part of the advisory team that you call upon to help you successfully run your business. They can bring broad experience and a fresh perspective to your discussions, and they can help you understand the risk consequences of some of your business decisions. Treat them as long-term advisors and use a thoughtful process to hire them. Every year you will have a new insurance policy, but with proper care, handling and selection, your insurance broker will be there for you for many years to come, providing advice, service, and peace of mind while you focus on running your business.