While chronic shopping might not be a good idea, agents, brokers and risk managers should be wary of the automatic perpetuation of a long-term carrier relationship. (Shutterstock)With risk management being more important to businesses than ever before and insurance being the foundation of most risk management programs, now is the time for agents, brokers and risk managers to reconsider their insurance relationships and determine whether changes are in order.
Here are some tips on how to proceed.
Is there a plan?
It’s usually a mistake to obtain insurance on an isolated transactional basis. Each placement should be part of a larger, typically multi-year strategy. Some questions to consider when implementing a plan:
- What other business do we have with this insurer?
- What has been their conduct when times get tough?
- Should we lay the groundwork for a future expanded relationship?
- What else could they do for us? Is there a benefit to investing in the relationship?
What are you buying?
The essence of insurance is the certainty that the insurer will indemnify for a loss within the boundaries of the insurance promise. This speaks to several factors, such as financial capacity, breadth of the insurance policy, and carrier conduct when claims arise. How does the insurer score on these points? Is the carrier pursuing additional business in your vertical? Have they altered their underwriting philosophy? By knowing what prompted you to enter into this relationship, you’ll have a better basis for evaluation.
What’s your situation?
Some insurance professionals put their programs out to competition almost annually. Perhaps they face relentless pressure from their management, or want to show they aren’t a pushover.
When times get tough, this behavior might not turn out well. Insurers will ascertain that there is no relationship to be had, no interest in service quality, no opportunity to differentiate, and no reason to be accommodating when difficult situations arise. They may conclude that buyers obsessed with the short run probably aren’t investing in becoming a superior long-term risk.
While chronic shopping might not be a good idea, agents, brokers and risk managers should be wary of the automatic perpetuation of a long-term relationship. Moving service-intensive multi-dimensional programs is a big task, an unpleasant conversation may be necessary, and it’s easy to put things off for another year when time is limited and there are pressing current matters to address.
But remember, all those obstacles will probably still exist next year.
There are many other things that can get in the way of doing what’s right, such as when personal entertainment perquisites take precedence. Sometimes the insurer gets blamed when the true deficiency is the inability of their agent, broker or risk manager to mitigate key hazards.
Did you set objectives?
It is often appropriate to set performance objectives. This is particularly true of programs with service delivery aspects. The more measurable and relevant the better. With these in place, a sound and reasonably objective basis exists for assessing performance.
The insurer may have its own standards, such as timeliness of policy issuance and change endorsements, or billing and collection timeframes. These are fair game for discussion in an annual stewardship meeting. Just make sure to distinguish baseline expectations from strategic objectives.
What if good objectives were set and the insurer isn’t measuring up? It would be appropriate to first examine why the shortfall is taking place and determine whether a course correction can be achieved. Although you may want to make a change, could you articulate what would convince you to stay?
How have you performed?
It’s not always the fault of the insurer when relationships go bad. One obvious trigger is adverse loss experience, particularly when the cause was preventable or the circumstances are contrary to representations made to the insurer. Is the risk management function doing everything it should to keep the internal house in order, or is the insurer being used as an excuse?
The broker’s role
The broker should be a partner in establishing your carrier strategy, assessing the health of the insurer-insured relationship and exploring potential alternatives. Can the broker provide reasonable benchmark data to assess the competitiveness of your program? Does the broker have enough influence over the carrier’s management team to be an effective advocate and get things done when a moment of truth arrives? Would the answers change with a different insurer in place?
Also beware of the echo effect: Is the broker protecting itself by repeating back what they know you want to hear, or are they secure and insightful enough to give you the balanced truth and inject real insight?
Dealing with the unpredictable
Insurance costs are usually judged relative to expectations. The insurer and broker need to ensure that bad news is communicated well in advance so that it can be planned for. Beware of creating a culture where providers are hesitant to speak up due to fear that they will be punished, if not blamed, for factors out of their control.
Is there a real relationship?
There are situations where ongoing interaction with the carrier’s management team is critical, and others where knowing the management team is unimportant. The relationship needs to be calibrated to the situation. Is the degree of interaction appropriate? Is there give and take, or does the carrier only hear from the risk manager when they need another accommodation? Is work being done to align interests? Are personal friendships getting in the way of what needs to be done?
The stewardship dimension
Some insurer/insured relationships last for decades because of diligence, not the lack thereof. When the parties understand and accommodate the needs of each other, go the extra mile to continue to earn trust and effectively utilize the resources of their respective organizations, the resulting stability and track record can become a powerful reason to sustain the relationship.
Even in the face of this success, however, there will come a day when the insured must evaluate alternatives as a matter of corporate stewardship. Enlightened parties know that this is eventually necessary and will handle the matter accordingly.
Times change
The best strategy of a few years ago may not be appropriate anymore. With the unprecedented disruption we have witnessed in all aspects of the economy, every insurance relationship now needs a fundamental re-evaluation. In some cases the result could be a call to change insurers, while in others it may bring a new appreciation for how much true value is being provided by the incumbent.
Gary Pearce ([email protected]) is chief risk architect for Aclaimant, Inc., and a member of NU Property & Casualty’s 2020 Editorial Advisory Board. Opinions expressed here are the author’s own.
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