Many executives use great care when selecting important professional services partners such as an attorney, banker or accountant, but fail to exercise that same care when selecting an insurance broker.
“Don’t treat the selection of an insurance broker like a commodity,” says John L. Boss III, executive vice president at Aon Risk Solutions. “A poor decision in this area can be detrimental or even catastrophic to a business if a loss occurs and the contract of insurance does not provide the expected coverage.”
Smart Business spoke with Boss about what to look for in a broker and how to choose one that is right for your company.
What steps should a business take to ensure it selects the right broker for its needs?
In most cases, it is not the best approach to divide up the already limited insurance marketplace among several broker candidates and go with a competitive bid approach. If you use this approach, the broker who is aligned with the most aggressive insurance market will win your business. However, that firm will not necessarily be the best broker partner for you. You should first pick your broker and then give it full access to the insurance marketplace on your behalf.
One method of finding the best broker for your needs is by doing a program audit. This means providing your current program details (for one line of coverage or several) to a third-party broker to review. Usually this is done for a fee, with commitments made to move the program to the third-party broker if the findings of the audit are significant.
A second method is the formal request for proposal (RFP) process. This requires you to first select the team of individuals internally who will be involved in the evaluation process. This team should include representation from all areas within your firm that are affected by the decision, including the CFO or treasurer, safety manager, human resources, and risk or insurance manager. In smaller firms, this could include the president or CEO and individuals from operations.
How does the request for proposal work?
For the RFP, you will need to identify your specific service needs and provide details on your company, your current insurance program and your company’s loss history. You need to include questions regarding the broker’s qualifications, capabilities and fees. Ask how the broker would market your program and provide the requested services.
Ask for biographies of any proposed team members. Also, ask for references for companies that the broker represents within your size range and industry.
Make your selection criteria clear, as well as the timeline for your decision, such as when the written document is due, when interviews with finalists will take place and when you will make your final decision.
