Brokering the Right Coverage

Cheaper alternatives are always a temptation, but oftentimes those low-cost carriers equate to a second-rate value. Low-price substitutes can leave you with a feeling of emptiness — whether it’s with machinery, replacement parts, health benefits or cell phone coverage.

The same can be true when shopping for a new insurance broker, but the empty feeling radiates directly from your pocketbook. Today’s best brokers do far more than place policies or bonds, they provide strategic business solutions — much like an attorney or a CPA — that can help protect your business and build your bottom line.

How do you know which broker is right for your business? Picking the right broker doesn’t happen by accident. It involves carefully considering your risk management needs and then finding the right broker to meet them. This can be particularly challenging to the construction and landscape business.

“In a risky business like construction, choosing the right broker is critical to your success,” explains Henry Lombardi, president and COO of Allied North America, a firm with more than 30 years of helping construction industry clients. “You really need someone who understands the subtleties of your operating environment, the risks you encounter every day — and who can help you create sound strategies to help you manage them effectively.”

There are some basic questions you should be asking the brokers you interview. Here’s a list of 10 you should consider:

1. Who will be handling your insurance on a day-to-day basis? When it comes to contracting, the more experience, the better. If it doesn’t look like your day-to-day person knows your business, look elsewhere.

2. Does this broker just process Workers’ Compensation and Casualty claims or manage them? Claims management is vital and can save you tens of thousands of dollars per year.

3. How strong is his or her surety standing? What is his or her level of experience? Do they have relationships with the best surety markets? While the surety market appears to be on an upswing, securing a bond is far from a sure thing; you want a broker with a solid relationship with key bond underwriters.

4. Does the brokerage have expert safety support? Accidents happen, but a proactive approach to worker and environmental safety can help formulate, implement and monitor a program to help you manage them.

5. Who are the three top insurance markets they recommend for your business and why? You want a broker who possesses an in-depth understanding of the construction insurance market and can put that knowledge to work for your business.

6. What kind of relationships does the broker have with other professionals within the construction industry? Your broker should be a key part of your team of business consultants — attorneys, CPAs and other industry affiliates. If the broker doesn’t know the leading professionals in your area (and vice versa), chances are, he or she isn’t one of them.

7. Will there be a defined service plan with clear objectives and timelines to improve upon your existing program? Like any good business plan, know your objective before hand. If your new broker is just proposing more of the same and doesn’t have definite goals for your relationship, then why bother?

8. What contractor references are available from the broker? The best, most accurate advertisement is always word-of-mouth. Your broker interviewee should be ready, willing and more than happy to share a list of contractor clients with you. But don’t just ask for that list, use it.

9. How quickly and accurately are certificates processed? Who will be handling your requests? It’s all about service, service, service.

10. What specific services does the broker provide that will benefit your company? This goes back to prioritizing your insurance needs before you sit down with a broker. Make sure the broker puts an emphasis on services you need (i.e., loss control, risk management, contract review, OCIP review, etc.). Stay focused on the services that you need and choose the broker that excels in those areas. Full-service brokerages, such as Allied North America, provide a diverse array of insurance and surety services, as well as risk management and safety management services.

The ultimate goal of the interview process is to pick the broker who can spur competition from insurance markets. This process is similar to picking your CPA or banker. The objective is to develop a business relationship you will have for many years. By committing to one broker, you are giving notice to the insurance companies that your broker has a mandate to get you the best program available. This allows your broker, rather than the insurance company, to drive the process and control the pricing.

However, it’s good to note that the single broker relationship has the potential to be slightly more expensive and also may limit your exposure to new ideas.

Since most brokers say they have access to the same markets, this process is more about picking the broker that offers the services you need for the right price. This concept can be difficult for many contractors to accept because they are bidding on projects every day and feel their broker should do the same. Your partner broker does get competitive bids on your behalf. Your broker will be able to provide you with an analysis of all critical items such as price, coverage and service, so you can make the best decision for your company.

Some businesses prefer to have insurance brokers compete and allocate insurance markets between brokers, who then represent them to the marketplace. This approach can generate new, innovative and creative solutions and also potential savings on ancillary lines of coverage such as property insurance, equipment coverage, professional liability and employment practices liability insurance. While not usually the drivers of a contractor’s insurance program, saving a couple thousand dollars across numerous lines of insurance could add up quickly.

This so-called “market allocation process” is not without significant disadvantages. The insurance market is limited for contractors, so having more than two brokers competing can work against you. It’s also time when two brokers are involved consuming and gathering information, answering questions, analyzing proposals and making a program decision. This process could be tedious and take so much time that it may not be the most efficient way to make your buying decision. Moreover, not choosing one broker could muddy the waters for the insurance companies. If you do not allocate your markets clearly and carriers are being approached by two different brokers, an insurance company could decline to quote based on conflicting underwriting data.

While in the spirit of competition, the brokers, insurance companies and you may lose sight of what is really important: Choosing the right broker (is the broker qualified?), selecting the right insurance company (not the cheapest price) and ensuring that your risk management program covers your operations (does this program reflect a true understanding of your company?) should always remain the common goal for all parties involved.

You must focus on the goals you want to achieve and not confuse the lowest price with the best overall program. If you are getting high-quality service from your broker (claims administration, loss control, risk transfer training, etc.), your program and experience will result in the lowest price in the marketplace. Changing or bidding an insurance broker often is not the way to obtain the best results.

Remember, a broker’s compensation is typically less than 10 percent of your total premiums. Putting brokers out to bid to save 10 percent on the broker’s fee translates to a 1 percent savings to you, the client. A good broker can negotiate better savings from the other 90 percent of the annual premium cost. Getting a 10 percent savings on the other 90 percent can translate into a 9 percent savings to you because you chose the right broker.

Long-term market relationships and a proven track record of success in your industry are major factors driving the cost efficiency of your insurance program. It is the broker’s responsibility to enhance your relationships and offer you creative solutions. That’s the best answer of all.

Jim Untiedt is president of Allied North American Brokerage of California LLC, based in Fremont, Calif.