Is Your Broker Worthy of Having You as a Client?

I saw a great piece in the March issue of CFO magazine regarding mediocre insurance brokers. They have some great advice in evaluating your current broker to see if you need to change brokers. If you care to view it from the source go here

Is Your Broker Mediocre?

It may be a buyer’s market, but choosing the best broker is far from easy.
David M. Katz – CFO Magazine (March 1, 2010)

These are bargain-basement days for insurance buyers. In the fourth quarter of 2009, workers’-compensation and general-liability premiums dropped 5.5% and 5%, respectively, from the previous year, according to a survey of 1,100 risk managers by Advisen and the Risk and Insurance Management Society. Even the cost of directors’ and officers’ (D&O) liability insurance — a tougher market given that corporate boards are in the hot seat — dropped 2.8%.

The soft market makes it tempting to just call brokers for competing bids, sit back, and enjoy the show. Unfortunately, it’s not that simple. The recession has left most insurance buyers with substantially altered physical and financial assets, not to mention changed organizational structures and payrolls, all of which require changes in coverage. At the same time, the squeeze on brokers is not an unmitigated blessing for buyers; the competing pressures of shrinking margins and demand for better value have forced brokers to consolidate and cut costs. That means buyers need to be more vigilant, not less, about the underlying health of their broker and the level of service they can reasonably expect.

Arguably it is the largest brokers that have taken the biggest hits from falling insurance prices. At Aon and Marsh, revenues for the nine months ended September 30, 2009, decreased by about $200 million and $300 million, respectively, compared with the same period in 2008. The third top broker, London-based Willis, enjoyed a 5% rise in international fees and commissions during this period, only to see it washed away by a 5% drop in its North American revenue.

The impact on the quality of broker services is unclear. While the big firms cut employees last year, they are not disclosing the number and kinds of staff reductions. Aon’s recent restructuring has focused on back-office costs, says a company spokeswoman, and other companies claim that they have made, at most, only modest cuts in client-facing employees.

Can Service Remain Unaffected?
Many insurance buyers agree that their brokers have held the line on quality or even improved services. When the fortunes of SunCal Cos., a residential real estate developer, began to head south, “my broker came to me and reduced its fee,” says Gordon Adams, the company’s director of risk management. “There was no quid pro quo of any kind” from the broker, a Willis specialty-construction unit with which the company had a long-standing relationship. Others note that brokers have become more transparent about fees and now use the Web effectively to communicate policy information to buyers.

Still, if their down times persist, brokers will be hard-pressed not to reduce service quality. Even cuts in back-office staff can have an impact on service. A continuing shortage of claims handlers, insurance-policy administrators, and office staff could make it tough to get timely responses from your broker when questions about policies arise.

The best way for buyers to avoid delays or unpleasant surprises is to apply a little risk-management discipline to the broker relationship itself. In a soft market, the cost of coverage isn’t necessarily a differentiator — instead, you should follow a set of best practices for evaluating and managing a broker.

1. Make sure the broker understands your business. “One of the critical success factors is [brokers'] understanding of our business, so they can acquire the right insurance for us,” says Michael Twomey, CFO of Newgistics, a cargo transporter. Most risk managers feel that such understanding is best served by long-term buyer-broker relationships. Large brokerages are likely to have units with deep knowledge of a given industry, but they are more likely than small firms to shift around the people who work for you. Some buyers, like SunCal, which stuck with the same unit when it moved from Aon to Willis, feel that individual brokers are more important than the firms that employ them.

2. Communicate regularly between policy renewal dates. Institute processes so that operating units communicate to internal risk managers any changes that could affect coverage. Such changes could include a new location, new equipment, or a change in cargo to be shipped. Let your D&O broker, in particular, know about possible legal risks stemming from mergers and acquisitions, falling share prices, and product defects.

3. Start early on renewals. If you think you might want to change brokers or make a radical shift in your insurance coverage, get a request for proposal out to potential brokers at least six months before your current insurance expires. If you plan to stick with your incumbent, meet with the broker at least 90 days before renewals to review in detail all exposures. To get the proper coverage, the risk manager should give the broker complete information about the company’s assets and operations. In the case of workers’ comp, for example, has the workforce shrunk or grown and have new physical activities added new exposures?

4. Decide how to pay your broker. Finance chiefs should keep their companies’ current cash and budget needs in mind when determining how brokers will be compensated. “A commission setup improves cash flow, because the insurer pays the broker up front,” notes Terry Fleming, president of the Risk and Insurance Management Society and director of risk management for Montgomery County, Maryland. On the other hand, fee-based compensation helps buyers see more clearly what they are paying for.

5. Don’t change brokers too often. In a soft market, it is tempting to jump from one broker to another in search of deals. But if you want to develop a solid partnership with your broker, don’t switch every year. A reputation for skipping around could hike your premiums or make it tougher to find decent coverage when a hard market returns.

6. Match the brokerage to your company size. Multinational companies need global brokers, as do large national companies. A smaller company might receive more attention from a smaller broker.

7. Insist on transparency. To make sure that brokers are acting solely in your interest rather than that of the insurer, ask the broker to confirm that in writing. Pay special attention to contingent compensation (extra payments insurers pay brokers based on the performance of their clients’ business).

If broker acceptance of such compensation is “warping the decision process, and [the broker] is not really looking at doing a good search of [insurers] out there, that’s a problem,” says Ron Fior, CFO of Callidus Software, a vendor of sales-performance tools. Not that it’s a problem at Callidus: the company’s broker, USI Holdings, routinely provides Fior with lists of the dozens of insurers it has contacted.

David M. Katz is New York bureau chief at CFO.

What is TechAssure All About? – Video Update from TechAssure

Diversified Insurance Group has been a member of TechAssure almost since its inception.  TechAssure is a non-profit organization founded in 2001 for insurance and risk management professionals dedicated to serving clients in the Technology, Life Sciences, Digital Media, and Venture Capital industries.

Check out this video featuring John Love, the President of TechAssure

At the inception of TechAssure it was agreed that the insurance policies then in existence did not adequately address the major risks of the average technology or life science company. These companies were typically venture-backed and were growing rapidly. TechAssure members came up with a wish-list of coverage enhancements and pricing targets and partnered with the leading insurance carriers in these areas to create best-in-class coverage forms that are offered at preferred rates. TechAssure later did the same thing for Venture Capital and Private Equity Funds creating an Asset Protection Program endorsed by the NVCA that addresses the unique exposures that VC/PE managers and members have in running their funds. It is much like a D&O policy but tailored to cover big liability holes that exist for fund managers and members in the execution of their duties in their respective roles.

White House Announces Its Support For Insurance Antitrust Bill

This has potentially huge ramifications on the insurance industry. Time will tell if it does any good . . . or anything at all.

By Patrick Yoest
Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)–The White House on Tuesday publicly backed legislation to repeal the health insurance industry’s antitrust exemption, a small part of the Obama administration’s still-uncertain strategy to pass broader health overhaul legislation.

The bill, which the U.S. House of Representatives will vote on Wednesday, would remove insurers’ long-time exemption to competition laws, which Democrats hope will lower premiums in insurance markets by giving consumers more choices. The exemption for insurance companies was enacted in the McCarran-Ferguson Act of 1945.

Specifically, the bill would strip the exemption for egregious violations such as price fixing, bid rigging and market allocation. The White House Office of Management and Budget in a statement announced its support for the legislation, saying that “this bill will benefit the American health-care consumer by ensuring that competition has a prominent role in reforming health insurance markets throughout the nation.”

House Rules Committee Chairwoman Louise Slaughter, (D., N.Y.), a leading proponent of the bill, suggested that it is a matter of fairness that the industry is subject to the same rules as other companies.

“This industry has enjoyed a big giveaway for far too long, and it’s about time that it plays by the same rules as everyone else,” Slaughter said.

America’s Health Insurance Plans, an industry trade group, said in a statement Tuesday that the health insurance industry is already highly regulated and that mergers and other business practices are already subject to federal antitrust laws. Further, it cited “legal uncertainty” that would be created by the new law, which it said would chill developments in the industry.

Leading insurers in AHIP include Aetna Inc. (AET), Humana Inc. (HUM), Cigna Corp. (CI) and UnitedHealth Group Inc. (UNH).

It’s uncertain how Republicans will come down on the bill. A spokesman for House Minority Leader John Boehner (R., Ohio) said Boehner had not announced how he would vote.

Congressional Democrats are still trying to find their footing on health care, even though the White House introduced an 11-page document intended to act as a road map for blending House and Senate-passed versions of the legislation.

House Speaker Nancy Pelosi (D., Calif.) said she is “very pleased” with the White House proposal and that it is “getting a good reception” with House Democrats. But Rep. Peter DeFazio (D., Ore.), who appeared with Pelosi as part of a push for the anti-trust legislation, cited his own concerns about the omission from the plan of a government-run health insurance plan and a nationwide exchange for buying insurance.

DeFazio suggested the White House plan has not been presented as a take-it-or-leave-it proposition.

“We’re really beginning the process in the caucus over again,” DeFazio said. “There’s no fait accompli. There’s been no whipping, there’s been no pushing.”

-By Patrick Yoest, Dow Jones Newswires; 202-862-3554; patrick.yoest@dowjones.com

for full article go HERE

Notes from the PLUS+ D&O Conference (Professional Liability Underwriting Society)

There was an interesting take-away from one of the PLUS D&O Symposium sessions today I think might be worth sharing. The application of the concept extends to all insurance policies, not just D&O or E&O. This was the first time I had heard this particular concept expressed in this way.

In simple terms, from a legal standpoint, the burden of proof is shifted from the insurer to the insured when exclusionary language is moved from the exclusions section of a coverage form to the definitions section. This explains why the definitions sections in policies have been growing. When there is an interpretation in coverage to be made having the restrictive language reside in the definitions section allows the insurer to more safely interpret things in their favor without a court looking over their shoulder and applying the rules for contracts of adhesion we all know so well. The take-away was when possible to negotiate this stuff and to keep the definitions section in a policy as short and concise as possible with out a lot of “xyz does NOT mean or does NOT include exclusion”…

The above was shared by David Shaefer of AH&T Insurance.

To take a look at the PLUS blog go HERE