Are you with the right insurance broker? How do you know? These questions usually mark the beginning of the decision to do an RFP (request for proposal) with multiple insurance brokerages as part of a vetting process.
What should your RFP look like? This is an important question too. Insurance and the process of brokering insurance can be both complex and obscure; two factors that can really push RFPs into becoming overly complicated. But it doesn’t have to be this way.
The default route many insurance buyers take—asking a committee of six or more to review 100-page RFPs submitted by five to eight insurance brokerages—may not be the best use of company resources.
It helps to recall that you’re not buying a commodity; you are hiring an expert. This is the reason a procurement-driven RFP format feels so clunky to everyone involved. Yes, there are real metrics one can measure, but what you can measure is often not the things you want to measure.
A simple analogy is hiring a law firm: you can measure the number of attorneys at the firm and their hourly rate, but those metrics won’t tell you if the team in question will be the best at helping you win your litigation. What you really want to measure is the performance of the team that will litigate your case.
The 5 Questions
Most formal RFPs start by asking for a written response, after which there is an oral interview. With the approach I’m recommending, you’re going straight to the oral interview.
I recommend that you ask each broker candidate (including your incumbent) to come in and do a “capabilities presentation.” Putting the request this way means that you will end up seeing what each broker thinks is important for you to know about their firm and approach to managing risk.
Of course, every good interview has some structure. This helps ensure that you get the information you need, and allows you to compare your interviewees effectively. I also think it’s fair to share upfront your areas of specific interest with the teams you have invited to speak with you. (More on how to invite the right teams later.)
In my experience, there are five questions that are useful in an insurance brokerage interview process. These five questions are all you’ll need to understand a firm’s credibility and capability:
- What can you tell me about your firm and its culture? This question allows your interviewees to give an overview of their brokerage firm, including their culture. You will be listening for things like team cohesion and stability. You’ll also likely learn something about team dynamics, including whether the team members you are interviewing actually know and like each other. This matters because in difficult situations, you need your brokerage team to row hard in the same direction on your behalf.
- In your view, what are the key exposures my company faces? This question is your chance to get some free advice from the experts you are interviewing as well as your chance to gain insight into how the brokerage teams are thinking about your risk. In the best case, the question will reveal the broker’s style of communication: are you talking to someone who loves “buzz” words and speaks only in jargon, or is the broker seeking to have a practical, useful dialogue with you?
- What do I need to know about the insurance policies you would recommend, and your process for placing them? Your insurance program needs to be customized to your company’s specific risk profile and needs. This question will give a good broker the chance to identify critical insurance policies and share their process for placing these policies. Another important element of this conversation is how a broker proposes to help you decide what limit of insurance to buy. This is also the right time to start a discussion about insurance premiums.
- What additional services do you provide? This question is about client resources. Some brokers have invested more than others in client resources such as access to databases, secure online platforms, claims advocacy and other client services. Some of this will be useful to you, and other parts not so much. In general, most good brokerages provide a lot more support than just placing insurance. You’ll want to take advantage of these services, especially if there is no charge by the broker.
- What will all of this cost? Cost is important, and a good broker will break down the costs for you in an understandable, straightforward way. Remember that your cost of insurance has two elements: the premiums you are paying insurance carriers, and the amount you are paying the broker to do the work. In this part of the interview, you are looking for a discussion that reveals not only how your broker thinks about premiums, but also what are the levers the broker is pulling to manage your premiums over time. In addition, this is where you find out if your broker wants to work on commission or fee. Finally, to the extent you access the additional services the broker has described to you, you’ll find out if they are charging separately for certain services, for example, claims handling.
A Saner Process
Now that we’ve discussed the five questions, I want to back up a bit and talk about the work that goes into getting those candidates to the interview. To run a more effective RFP for insurance services, refrain from starting by inviting a dozen insurance brokerages to answer a raft of questions. Instead, start by doing the pre-work of thinking about what is important to you.
- Why are you doing this RFP? Do you have real concerns, or are you conducting a diligence exercise?
- Are you more concerned with the quality of the insurance or the price?
- Are you counting on your broker to bring you updates on market trends as well as exposure trends, or do you prefer to rely on others for this information?
- Do you prefer to buy all your insurance from one broker, or do you want to hire subject-matter experts from different firms?
- Do you need someone who can talk directly with your board, or is this less important to you?
- Are international issues a major concern?
- Are you concerned that you will be lost in the crowd at a mega-brokerage?
- Do you have a board member with a strong preference for a particular brokerage firm or broker?
Next, call a few CFOs, General Counsel, and board members you respect to get a few names of brokers (not just firms) that they respect.
It might be helpful at this stage to know that insurance brokerages fall into two categories, publicly traded brokers and privately held brokers. Choosing a representative from each of these categories can give you a good cross-section, but it’s not necessary you have one from each.
Public brokerages tend to be bigger than private brokerages. Does brokerage firm size matter? Yes, but only to a point.
You do want to work with a brokerage that is big enough to have relationships with all the major carriers. You also need a brokerage that is big enough to employ specialists and have deep resources, including international expertise.
If a brokerage is too small, it will not be able to retain top experts in the field. Once a brokerage has hit critical mass, however, size goes away as a differentiator.
The primary difference between a public and private brokerage is that private brokerages tend to have owners who are themselves insurance experts and actually do the work on your account.
(Reader: I think the private model is best, and this will come as a surprise to exactly no one given that I choose to work at Woodruff Sawyer, a privately held firm.)
After considering what is important to you and talking to your trusted business peers, make a short list of brokers to invite to the RFP. By “short list” I mean your incumbent insurance broker plus two others (or maybe, in some cases, just one other) that your business colleagues recommended. That’s it.
You will be happier with the time you spend and the RFP results if you limit yourself to inviting only a small number of insurance brokerages to the process.
At the end of the RFP process I’ve outlined here, you will have gotten to know a few savvy business advisors who are worth having in your network. You may also have learned some interesting and useful things about ways to manage your business’s risks.
Finally, you will have seen that experts don’t need a lengthy RFP document, elaborate PowerPoint, or other smoke and mirrors to help you get to the nuts and bolts of your risk exposure and your options for handling them.
I promise that you have many better ways to spend your time than slogging through multipage RFP responses with appendices ad infinitum, much of which was drafted by the brokerage firm’s marketing department.
The insurance brokers who will do the best job for you are those who can explain issues clearly, and who are not afraid to have a candid conversation with you.
The views expressed in this blog are solely those of the author. This blog should not be taken as insurance or legal advice for your particular situation. Questions? Comments? Concerns? Email: firstname.lastname@example.org.