‘What Have You Done for Me Lately?’
Today’s risk managers need more than just a good broker. They need the best broker. Solid relationships between a broker and a risk manager matter but they aren’t everything, according to Melissa Miller-Bowman, vice president, risk for CBS Personnel Holdings in Cincinnati, Ohio.
“There are a lot of great brokers out there,” says Miller-Bowman, who adds that finding the right broker for a particular industry and firm is critical. To find the right broker, risk managers should continually evaluate their brokers’ performance based on industry needs, exposures and the services offered by the broker, she advised.
For example, CBS Personnel Holdings acquires new firms almost annually. “We need a broker that can accommodate that need,” she added.
She also believes that the size of the firm’s risk management department plays a significant role in what type of services will be needed from the broker. If the firm is small with only a few people in its risk management department, it might need a broker who offers additional value-added services in risk management, she said.
Geographical reach also should be considered. If the firm offers global services, it may need a global broker that offers services throughout the world, according to Jane Beimesche, senior risk manager, Convergys Corp., also based in Cincinnati, Ohio.
There are a number of reasons an organization might market its insurance portfolio, but the renewal process provides risks managers with the ideal time to evaluate their broker’s performance, says Miller-Bowman. She advises risk managers to begin by developing a formal request for proposal (RFP).
Request for Proposal
When engaging in an RFP process, the risk manager must first define what the current broker has done for the firm, and discuss what they would like that broker, or a new broker, to do in the future, says Beimesche. “I know my broker goes out and markets insurance for us. I know they issue certificates for us. But I want them to give me a list on how much time they spend on each service,” she said. “I have to justify using a broker to my management team so it’s important for me to know what edge they are giving me.”
Some questions that brokers should be prepared to explain for an RFP include: expertise; number of clients per account executive; internal standards regarding the quality and timeliness of response to clients; as well as mechanisms for monitoring and evaluating the performance and security of the markets used.
The broker should also be prepared to offer a client list of their top five clients with similar exposures to the prospect’s RFP, as well as contact information for customer references.
Both Beismesche and Miller-Bowman suggest that brokers provide samples of invoicing systems, open items reports, stewardship reports and any other reports that may relate to the client’s insurance plan, plan financing and losses.
Finally, be prepared to discuss the brokerage’s insurance markets as they relate to the clients industry.
Miller-Bowman advises brokers to keep clients informed of the current state of the insurance market as well. The renewal is not a good time to learn that pricing has skyrocketed, she added.
Selecting One or More Brokers
The decision for a risk manager to work with one, two or even more insurance brokers depends heavily on the industry, geographic needs and personal preference, according to Beimesche and Miller-Bowman.
One of the reasons Beimesche works with two brokers is geographic reach. “One broker is larger and can do more international markets,” she said. “The other one we use for our casualty insurance is a medium-sized firm. We are basically the big fish in a little market, so we tend to see a little bit more service than with the big ones.” In addition, using two brokers provides more competition, she added.
Carriers underwrite differently when the business comes from regional versus national brokers, Miller-Bowman added. The regional brokers may also know the area and business better, she said.
The size of the company’s risk management department also plays a role in how much the client relies on the broker’s services, said Karen Miller, an account executive with the Cincinnati office at Aon.
“How much your budget is, and how much you depend on your broker as an extension of your risk management department” factor into a company’s decision when selecting a broker, Miller said.
In Beimesche’s experience, smaller, regional brokers tend to ask more questions than larger, national brokers — which is a negative aspect in her opinion. “They (regional brokers) seem to want a lot more information than we had provided in the past with a larger broker,” she said.
Miller-Bowman thinks that a broker’s specialty in a particular industry is also an influential factor when deciding on which broker to work with.
In the end, “most companies base their decisions on cost,” said Miller-Bowman. “That’s the reality of it.”
It’s the job of risk managers, with the help of their broker, to educate upper management on what value-added services the broker provides and why they are worth the cost, she adds.
One may cost less, but if the low cost broker doesn’t provide the services needed, it may not be the best choice for the company, she added.
Beimesche, Miller and Miller-Bowman were panelists on the “Measuring Broker Performance From RFP to Stewardship” panel held in late April at the RIMS 2008 Annual Conference in San Diego.