RISKVUE ARCHIVE | RISK BITES

The Right Way To “Shop” Your Insurance Program

By Alan P. Schreibman, ARM

The property and liability insurance market is still hard and affordable coverage is still difficult to find. Depending on industry classification, line of coverage and loss experience, insureds are still seeing increases of 20-70% or more. While the rate of increase appears be slowing down in 2003, the trend is not expected to begin a reversal until at least mid-2004 or maybe even 2005.

“Shopping” your insurance can help control escalating premiums. However, to effectively shop your insurance and obtain competitive pricing, you need to have a plan to control the process. Here are a few quick tips to help you get the best results.

Allow Enough Time

Start the shopping process at least 90 days prior to your coverage renewal. This means actually selecting the agents/brokers who will be competing for your business and giving them the required information. You may even need to allow 120 days or more, depending on the nature and scope of your company’s operations.

Interview And Select The Competitors

Interview several potential agents/brokers to determine who is best qualified to participate in the shopping process. There may be many or only a few insurers actively writing coverage for your industry classification. The more insurers that are writing, the more agents or brokers you can include; however, it is suggested that no more than three or four qualified participants be involved.

Some important questions to ask an agent or broker during the interview process include:

1. How knowledgeable is the agent or broker about the unique exposures of your operations? How many companies in your industry class does the agent/broker work with?

2. How much of the broker’s business is written for clients in your industry classification? The more premiums a broker writes with an insurer specializing in your industry, the more “clout” that broker may possibly have with that insurer when negotiating premium rates.

3. Does the agent or broker have access to any special programs offered by insurers for businesses in your industry classification and for which your company may qualify? Such programs often are written at rates that are substantially less than the insurer’s regular rates.

Control Insurer Participation

Once you have decided which agents or brokers you will work with, ask each broker to submit a list of the insurers they intend to contact, in ranked order of preference. Require the broker to be as specific as possible, including naming any insurance intermediaries or managing general agents they intend to use.

Many times, more than one broker will request the same insurer. It will then be necessary for you to allocate markets; that is, to decide which broker will be allowed to work with which insurer. Insurers will generally not give a quotation to more than one broker seeking coverage for the same client. An insurer may even refuse to quote altogether if it is contacted by more than one broker.

Some factors to consider when deciding which broker gets to work with a particular insurer are:

• Does the broker have exclusive access to a special program offered by the insurer for your industry class?
• If the incumbent broker has requested the same market as a competing broker, that market is usually (but not always) given to the incumbent. Is there any reason why the incumbent should not get his or her first, second or third choice?
• Which broker is likely to get the best deal from that insurer? This is often determined by premium volume or by some other factor, such as a special relationship with the insurer or underwriter.

Don’t Forget Direct Writers And Industry Associations

Not every insurance program is purchased through brokers or agents. Consider contacting one or more of the so-called “direct writers”; that is, insurance companies that sell directly to insureds without using brokers or agents.

Also, don’t forget to look for industry or trade association insurance programs. Often such programs are not accessible to the general public (including independent agents and brokers). In many cases, a particular broker or agent has been designated as the exclusive representative for the program. When this is the case, that broker/agent will need to be included in your list of competitors.

Prepare Detailed Information About Your Operations

The more detailed the information the insurance company receives about your business, the more likely you are to get a competitive quote. If an underwriter receives incomplete or ambiguous information from the broker, he or she may set the file aside and work on other submissions that are more complete.

Depending on the coverages you are shopping, such information should include, but not be limited to the following:

• A detailed description of all aspects of your operations, with annual reports and audited financial statements, if available.
• The address and value of all buildings and business personal property (including data processing and other equipment) to be insured, type and date of construction, square footage, information about sprinklers, security systems, retrofitting (if you are looking for earthquake coverage), etc.
• A schedule of drivers, vehicles and/or equipment to be insured.
• Estimates of revenues, payrolls, inventories and other exposures for the coming year.
• Three to five years of loss experience (paid, reserved, incurred claims details for each line of coverage being shopped), recently valued.

Provide Detailed Coverage Specifications

By preparing detailed coverage specifications, you make the agent/broker’s and underwriter’s jobs easier by telling them what coverages and limits you want, rather than forcing them to figure that information out for themselves. You also improve your chances of getting “apples to apples” quotes from each insurer to compare and analyze.

Request Specimen Forms And Endorsements

Request and compare specimen copies of proposed coverage forms and endorsements to be used from each participant. The problem will be that this is sometimes like comparing “red apples to green apples”-each quote may include coverages provided under different policy forms and endorsements and each may have good and bad features that are different from the other quotes. Knowing the differences in advance of the renewal decision can prevent unpleasant surprises later.

Allow Time For Final Negotiations

Once you have determined who provides the best coverage for the price, then it’s time to negotiate the final coverages and premiums. The quoted price is usually not the final cost-there is almost always room for negotiation. Also, when the quoted coverage differs between competitors, it may be necessary to request a re-quote based on the policy terms, conditions and exclusions contained in the most favorable proposal. For these reasons, require all bids to be submitted at least two weeks prior to renewal.

Check References

Shopping for insurance often results in the possible selection of a new insurer and/or broker. References and reputations of both should be checked before accepting the final proposal. When a change of insurer is being considered, talk to the new insurer’s claims personnel and to other policyholders to get a feel for the insurer’s claims, loss control and/or other client services.

If a broker change is involved, talk to other companies in your industry that the broker works with. You want to make sure that both the insurer and the broker provide the quality of service you are looking for. Know specifically which of the broker’s personnel will actually work on your account, and in what capacity - it may not necessarily be the same people you were dealing with during the quote process.

Conclusion

If the process is properly managed, shopping your insurance program will benefit you at your next renewal. If your current insurance representative knows there is competition, he or she will likely try harder to retain your business. Other brokers or agents may offer new, creative and cost-effective alternatives to your current program. Either way, the result will more likely be a better insurance program at a more competitive price. 

ABOUT THE AUTHOR

Alan P. Schreibman, ARM is a principal consultant with Integrated Risk Management, Culver City, California.

riskVue | The webzine for risk management professionals
June 2003