Pursuing a Preeminent Risk Advisor
Investment markets typically provide insurance companies with a significant portion of their total income. However, in the last decade, we've seen a decrease in rates that has put a damper on these returns. When you consider the fact that economic uncertainty has only increased as the COVID-19 pandemic stretches on through 2020, the bond market (primary investment source for insurance companies) provides a poor return on investment — a situation that isn't likely to change anytime soon.
Due to these and other factors that we'll get into shortly, the insurance marketplace has been forced to raise rates for customers in order to chase profitability. As a side effect, insurers are becoming more selective about their clients. There's no issue with capacity — the problem is that insurers are only choosing to use that capacity if they know they'll get a solid return. These circumstances have resulted in businesses having second thoughts about their current risk partnerships. For some of these relationships, this may seem like the right time to get a new risk advisor. However, it's important to note that if a risk advisor or client fails to commit enough time and resources to the hiring discovery process, it could end up amplifying the issues found in today's insurance market.
It's fair to say that in today's economic climate, many companies across the industry are left wanting more from the performance they're receiving from their risk advisors. Much of this concern revolves around a perception of brokers who are reactive instead of proactive, unwilling to think outside the box, failing to properly analyze their clients' risk factors and financial situations, and have no meaningful market relationships.
For these buyers, it might be tempting to turn to a different company, but unfortunately, this type of broker is very, very common. The mission of any interview process is to find the right risk advisor for the unique needs and circumstances of a business. If the relationship between broker and client isn't mutually beneficial, it might be time to look for a new start. However, there are several common pitfalls to look out for in this process.
Too many buyers approach the hiring process with a mindset that ends up hurting more than it helps. This can include any of the following, or a combination thereof: an obsession with pricing, a lack of data, a poor grasp on what they're looking for (or how to differentiate a beneficial plan from a detrimental one), and not committing enough time to the process.
Another frequent mistake made is depending on a company's brand power rather than analyzing the merits of the person in charge of the brokerage team. If that individual has a reputation for being knowledgeable in their chosen sector, and they are a strong corporate strategist, other aspects like the capacity and bench strength of their company become less vital. A big concern with finding a risk-management advisor today involves value propositions that can't easily be compared to each other. A proposal from one broker with a low upfront fee might seem appealing on the surface; others may have higher fees related to deploying their resources and might be more forthcoming when disclosing alternative cost structures. In short: lower fees very rarely correlate to increased value. Risk advisors know how to produce value by articulating how they will enhance your balance sheet and income statements as a gatekeeper of resources, market relationships, objective analysis, and support from their administrations.
How do you ensure that your efforts in this endeavor produce the results you need? The first step is to properly analyze whether getting a new risk advisor is even necessary. If you think the individual broker is the biggest problem, you should narrow it down to one broker who might be better aligned with your goals. Along similar lines, if you do choose to enter into a new search, you should make sure that all stakeholders within your company agree that change is necessary — and that they have enough time and energy to devote to the process.
Once you've determined that hiring a new broker is the right way to go, you should meet with your company's stakeholders to develop a checklist that clearly lays out your priorities and goals to make it easier to analyze each prospect in an apples-to-apples manner. You should also inform all prospective brokers who will be involved in the process that there are hard limits on the length of their written proposals and oral interviews, as well as limits on how many people can be involved. This will force each broker to focus on what really matters, saving time and energy for everyone, as well as making each proposal easier to analyze. ABOVE ALL ELSE, ONLY ALLOW ONE AGENT TO GO TO THE INSURANCE MARKETPLACE ON YOUR BEHALF AFTER SELECTION. QUOTING CREATES A LOSE, LOSE, LOSE OUTCOME!
It's essential to ensure that all parties understand the goals and priorities of the interviewing process right off the bat. Cost is always important but without a clearly defined process, your company is at risk of burning through resources in search of goals that aren't even attainable. Policies and procedures may yield compliance, but a proven process yields results. Keep in mind, mitigation that impacts your total cost of risk (TCOR) is where brokers earn 72% of their fees. Consider the impacts this process will have on not just your finances, but also your operations (including safety procedures, claims, and administrative aspects). Are you sick of hearing the same old repetitive talking points from brokers? To get past these run-of-the-mill responses, be prepared to dig deeper. Ask each broker about their teams' stability, what risks they have identified in your company and the changes they would suggest to mitigate them, what strategies they will employ to help you reach your objectives, and how they strategically analyze data. Specifically, have each broker discuss how their process is going to address your risk-tolerance assessment, loss metrics, exposure mitigation (P4-pre-hire, post-hire, prevention & post-claim), and non-insurance transfer.
In short, don't be afraid to be picky. This isn't the time to bring in every broker under the sun — limit the process to brokers that are proven risk advisors. Unfortunately, only 3-4% of insurance brokers are true risk advisors. Know what you want and stick to it, and keep in mind that transparency is paramount to a successful hiring process. Inform each prospective broker about the decision-makers of your company and their priorities. If you need to have brokers sign non-disclosure agreements in order to provide them with the data they need to come up with a quote, don't be afraid to do it. If anyone says no, they're probably not someone you want to partner with anyway. Collaboration is key.
Time is money, no matter what line of business you're in. It's just as important that you not waste a broker's time as they not waste yours. If your company has used the same process for decades, don't hesitate to push the boundaries of the same-old, same-old to obtain better results. Especially since we're in a once-in-a-lifetime global pandemic, some changes might be in order if you want the process to serve your company's needs.
Remember that track record and client volume aren't everything. Just because a broker has clout doesn't mean they're the right person for the job. Likewise, keep in mind that you need to put your best foot forward and communicate your needs and wants with clarity if you want this process to bear fruit. Preeminent risk advisors know how to listen to their clients and produce results that align with each client's priorities. Without a doubt, there are many challenges in today's insurance marketplace. However, if all parties know what the end goal looks like, it's much easier to create a clear roadmap to reach that goal.
The descriptions of coverages listed in this article are brief and subject to the provisions, limitations, and exclusions that can only be expressed in your policy and related endorsements. For additional information of how Swingle Collins & Associates can assist in meeting your coverage needs, please contact your dedicated risk manager. The information contained in this article is provided for informational and educational purposes only. It contains general information on insurance issues and may not reflect the most current developments in insurance coverage and is unlikely to apply in all factual scenarios. The information does not include all the terms, coverages, exclusions, limitations or conditions that may be contained in the actual insurance contract language. The policies themselves must be read for those details. Sample policy forms will be made available upon reasonable request. Thank you.
