Selecting an Insurance Agent or Broker

 As a business owner or financial executive, you may have had to deal with the placement and procurement of insurance to cover the risks that your business faces.  While some people take a more focused risk management approach, most small to medium-sized businesses focus on price first.  With the changes in coverage forms and the differentiation between agents and the platforms they represent, it is a good time to discuss the various methods that companies employ to select who will represent them in that marketplace.  While compensation will not be addressed, it is worth noting that you should learn about fee for service vs. commissions-based compensation.  However, for now, let's dive into the methods you can use to select the person(s) to best represent your needs.

Believe it or not, there are some methods to the madness. While you cannot employ all of these methods simultaneously, it is possible that if you have not used one of these methods in the past you may be able to improve both your representation and your pricing.

The first method we will discuss is the Request for Proposal or RFP. The Request for Proposal can involve your entire program or a specific issue. For example, you can request proposals from several agents/brokers that address your entire property/casualty program or, you can request proposal for a specific line of coverage. Some companies believe that by splitting out a specific line of coverage and using multiple agents/brokers to meet the entirety of their needs that they are creating an atmosphere that will "keep the agents/brokers honest". We will address this specific theory later.

Another method that is often employed is the Limited Broker Assignment. This technique is used to foster an environment of competition. In this technique, the company selects two or three brokers to "go to the markets" to represent them. Each broker is assigned specific markets based on a first come first serve basis. The brokers then pursue the markets they are assigned and come back with their proposal The buyer then selects the agent they will use based on those proposals. It is important to note that while this is typically a price driven approach, there are some differentiating factors that will be evident between the competing brokers. Do not discount these factors as your overall focus should be to reduce your Total Cost of Risk, not just your insurance premiums.

Many times when you have a municipality or governmental organization looking for coverage, they employ an Open Bidding technique. This technique opens the "bidding" to any and all that can qualify for the process according to the bid specifications. Again, this bidding process, will allow price to take the driver's seat in the process. However, depending on the stringency of the qualifications, only a select few firms may qualify. By doing this, they will each have the opportunity to show their differentiation in the process, allowing some of their creativity and intellectual capital to be considered.

Conceptual Bidding is based completely on the firm's differentiating factors. It is done with no specific insurance policies involved. The end game is to decide who to do business with based on their conceptual presentation. Whoever you select will be the firm that represents you in the eventual pursuit of insurance coverage.

If you have employed one of the four processes above and selected a firm to represent you, you will need to do some housekeeping to allow them to do their job most effectively. The firm will more than likely ask you to provide them with an Agent/Broker of Record Letter designating their firm as your dedicated agent in the marketplace. This allows them to open up any markets that could have been blocked by competitors. It also allows them to get loss history from prior carriers. The Agent of Record letter is the culmination of the process you have just been through and is the landmark of a new beginning for your organization.

As stated initially, you need to decide which of these will work best for your organization. If all you care about is cheap insurance, you should use an open bidding process. If you are concerned about impacting claims experience, setting up training programs, or using technology in your risk management platform, conceptual bidding may be a better option for you. Regardless, use this information as a guide to pick the method that is best for your situation.

 David R. Carothers, CIC, CRM is a Risk Management Consultant and Licensed Insurance Agent with Praxiom based in Tampa, FL. To contact David Directly, please email him at drc@praxiom-rm.com.