Magazine article Risk Management

Choosing the Right Insurance Broker

Magazine article Risk Management

Choosing the Right Insurance Broker

Article excerpt

Choosing the Right Insurance Broker

The broker organization plays an important role in the overall risk management program. Brokers are valuable members of the risk management team since they not only provide insurance expertise but also such services as engineering, loss control, international business advice and training. Because of their extensive list of services, today it is more important than ever to carefully select the right broker.

Since the selection process will set the tone for a risk management program, a risk manager should not rush through it. Being "under the gun" to place insurance and to select a broker could lead to a hasty selection. It would be ideal to work on selection criteria after placing the required insurance for the current year. This allows time for the selection process and then renewals can be done with the newly selected broker.

Develop Brokers Policy

A broker selection procedure should strive to be fair and realistic for participating brokers and should allow an organization to be confident with its choice. The credibility of a risk management program relies on selecting of the proper broker. No program should be undermined by historical accident or favoritism.

The first step in the process is to develop a brokers policy. It is necessary to tell the broker the rules to follow to properly serve the organization. This policy will facilitate giving the policy and guidelines on how business is conducted.

In my company, we believe it takes three years to develop a meaningful broker program, an investment on the broker's part as well as ours. After three years, an in-depth review of the broker's performance is conducted by the risk management department. Although the broker will be reviewed every year, at three years a more in-depth study will be done on accomplishments and services, matching these against the goals of the organization.

After six years, the risk management department goes through the selection process and interviews other brokers. The current broker is given preference in the selection process as to time of presentation, yet a presentation must nevertheless be done. The panel is comprised of management personnel from various disciplines, and chaired by a risk management representative. Members can be from legal, purchasing, human resources, finance, facilities and risk management, since all these people will at some point interface with the broker. Having input in the selection process will boost confidence in the advice later received from the selected organization. In addition, because these employees regularly deal with outside vendors and hire them for the organization, their skills can aid in selecting the proper firm.

Risk managers, however, must always reserve the right to change brokers at any time. A broker's performance should be managed and measured through a management by objectives (MBO) process. If there is a reason to change, look to the brokerage firm that placed second during the broker selection process.

Establish Selection Process

Next, set the rules for the selection process so that every broker invited to make a presentation knows the rules and the penalty for violating them. One important rule is that the risk management department will be the only organization in the company to be contacted by the broker. Broker contacts with other departments, such as legal or purchasing, could lead to wrong answers and loss of control over the process. Risk management should do all the interfacing with the broker's representatives.

Another important rule is that there is no initial testing of the insurance marketplace. Five or six brokers in the marketplace could cause confusion, resulting in later problems in purchasing insurance.

Invitation for brokers to participate in the selection process are made by the risk management department. These can be made based on your previous association, the reputation and/or size of a broker organization, or information from other risk managers or the local Risk and Insurance Management Society (RIMS) chapter. …

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