Magazine article Risk Management

Ten Things to Consider in a Broker

Magazine article Risk Management

Ten Things to Consider in a Broker

Article excerpt

Choosing an insurance broker is one of the most important decisions a risk manager must make, And although there is no magic formula for making the right choice, here are ten tips for finding and working with the right insurance partner, Unlike Letterman, we won't save the best for last, Instead, we will start at the top of the list and work our way down.

1) The Essential Account Manager

So what is the most important quality to look for in a broker? The broker, or more accurately the account manager, should have a thorough knowledge of his or her firm's resources. The major brokerage firms all have excellent capabilities. Make sure you are assigned an account manger who can mine those resources for you.

Remember, comparing brokerage firms is like comparing Ivy League universities. Which is best? Harvard, Yale or Princeton? Deciding comes down to a comparison of the specific departments and individual professors at each. It is about the people. An excellent education can be achieved at any of these venues, but only if the right resources are engaged.

Be forewarned, it will not be easy for your account manager to overcome parochial impediments within the firm to deliver quality service. This is due, in part, to a condition known as "profit centeritis." With respect to enterprise risk management, certain insurance brokerage firms are now suggesting that they will draw on the resources of sister subsidiaries to address a broader array of risks. This is an excellent but challenging idea potentially requiring a new compensation model and organizational construct.

In addition, insurance brokers, with a heritage of commission-based revenue, have difficulty determining the cost of their services. For this reason, there is a tendency to overresource projects. In an environment without accountability for time and expense, this is not surprising. Lack of account ability also leads to the inconsistent application of resources. There are instances in which all the heavy hitters are trotted out initially, only to have the most junior person be given a sword and a shield and sent out to do battle on your behalf.

2) The Specialist

The expertise of its specialists is the second most important consideration in dealing with a broker. From the perspective of seasoned risk and insurance management professionals, who are by definition generalists, it is refreshing to meet experts who actually know their subject area more thoroughly than the risk manager. This is not knowledge of available markets, but knowledge of the coverage itself, its nuances and historical development. However, such individuals cannot be hobbled by their specialization. They must be able to think creatively about new and different approaches and potential combinations of traditionally discreet property or casualty methodologies.

In terms of expertise, it is one thing to listen to the voice of the client; it is another to be able to inform and advise the client. Ideally the interaction among the broker, the risk manager and the underwriter should result in a synergy, wherein their combined work product is better than that which any one of them could have achieved individually.

3) Think Global

For multinational firms, the third necessity in a brokerage is a global network. In large part due to a history of local insurance regulation and practice throughout the world, insurance brokers have not developed the global identity that certain other financial service firms have achieved. A broker might have a global presence, but not a global identity, or the ability to consistently deliver products and services in a seamless manner throughout the world.

For many years, the organizational model of the brokerage split the firm's resources between domestic and international. As a result, global clients had to deal with two different sets of people to address their global exposures, usually in separate programs. …

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