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Selecting A Broker

One of the most important decisions that you face is the selection of an insurance broker. Brokers today don’t just provide you with a way of purchasing insurance products; they can offer full risk management services to their clients.

This information is designed to assist you in the critical decision-making process involved in selecting and working with a broker. The information was taken directly from "Selecting & Working With a Broker," a publication of The Risk and Insurance Management Society, Inc. (RIMS). RIMS is an organization consisting of risk managers and insurance buyers from around the world who have pooled their expertise in this area in order to assist other business executives faced with the difficulties of selecting an insurance broker.

Our goal in providing you with this information is to ensure that you have access to these thoughts and concepts so that you can make the best selection decision for your organization.

Reasons for Bidding
First, the company’s operation may have changed since the last time the market provided quotations. Changes in operation may include a merger or acquisition, downsizing, strategic change in mission, and change in corporate financials or financial goals. Second, law or management may require the rebidding of the program at intervals.

Other reasons for bidding may include that the broker, underwriter or other key professionals are not performing as required in the servicing of the buyer’s account. In addition, consolidating or diversifying the insurance program may be planned. Finally, the insurance market or product changes may indicate that money can be saved or coverages may be broadened.

What to look for when selecting a broker

Reputation
Brokers with a history of past successes should be considered candidates.

Industry Associations
Another good source to identify a broker candidate is an industry association whose members are in the same industry as the buyer’s organization. A broker who has developed successful insurance and other risk-financing programs in the same industry can be expected to provide a wealth of experience that may take other brokers a time to equal.

Industry Experience
A broker who is experienced in placing insurance on industry specific risks can be an invaluable resource for the following reasons:

Even if an organization does not have special or unique risks, it is advantageous for the buyer to determine which brokers are prominent within the same industry. Brokers and insurance underwriters who have worked together to develop a successful record within an industry will continue to refine their programs in order to retain their market share, or increase it. Often, these refinements will result in a lower cost, broader coverage, or both. The buyer may be able to capitalize on these refinements by switching to a broker who has a strong record of serving the buyer's industry. In addition, the broker will know the markets willing to insure the risks at the best price and what loss control responsibilities the organization should anticipate.

Size of the Organization
Generally a large broker has more access to underwriters. Because of their large premium volume, they may have more influence persuading insurance companies to provide options that might not otherwise be provided for smaller brokers. The large brokers also have the resources to provide a number of services to the buyer at little or no cost, such as loss control, engineering services, industry specializations and global networks.

However, consideration should be given to using small and medium-sized brokers for a number of reasons. While larger brokers may have the clout with insurance companies, the buyer may not always be dealing with the most talented personnel. Smaller brokerage firms may designate a small team of professionals to service the account, ensuring a day-to-day continuity and close, personal contact. Larger firms may draw on the resources of the disparate areas of their firms, and the buyer may be dealing with a number of professionals on specific facets of their account. In addition, when a large account is placed with a smaller broker, it will be recognized as a significant source of revenue and hence will receive so called preferred treatment.

Technical Competence
A brief resume of the account representatives who would be assigned to the buyer’s program should identify the technical knowledge and experience of each individual.

Professional designations such as CPCU, ARM, AAI, and CIC confirm that the individual is dedicated to achieving a level of knowledge of the insurance/risk management professions. Persons with these designations can be expected to conduct their business activities in a professional and ethical manner.

Principal Markets
It is crucial that the broker has a firm grasp of the insurance markets that can best serve the needs of the buyer. The broker’s knowledge must extend to the excess and surplus lines markets, as well as to the direct writers and international markets, if required.

References
Checking brokers’ references is an important process that should include asking about specific services that the buyer expects from the broker.

Location
It is convenient to have the broker’s account representative in the same city or local community as the buyer so that quick meetings and hand-delivered documents may be facilitated. Another aspect of the broker’s location is the proximity of its branch offices to the division or regional offices of the buyer.

Account Representatives
In addition to the account representative’s education, experience and position within the brokerage firm’s corporate hierarchy, a buyer should also be advised of the number of other accounts that the representative is responsible for servicing. The buyer should also be provided with a complete description of any staff that supports the representative.

International Capabilities
It is important that the broker have a representative in each country in which the buyer has operations. Even if the buyer does not have a controlled program where all insurance is purchased from the local representative of a worldwide broker, having a representative in the same country enables the worldwide broker to keep the buyer advised of any changes in the local insurance laws or policy forms in the event the local independent broker fails to inform the buyer or his local management.

Special or Unique Risks
The broker should have access to wholesale brokers or excess and surplus lines carriers who can access the markets required, or the buyer will be forced to secure another broker for that line of coverage.

Discretion Regarding Sensitive Data
Small and medium-sized brokers have fewer staff and there may be greater control over the dissemination of confidential information.

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