In the March 2010 issue of CFO Magazine, there is an article that should serve as a wake-up call to those companies who think there is only upside to the current insurance soft market.  The author of the article puts things in proper perspective when he says:

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.

As recognized by the author, David Katz, large brokers have taken significant hits on their bottom lines due to falling insurance prices.   Accordingly, it may be appropriate to evaluate your current broker relationship.  He suggests that insurance buyers apply a risk-management approach to the broker relationship.   To that end, buyers should make sure their broker:  (1) understands the buyer’s business; (2) communicates regularly between policy renewals; and (3) starts the renewal process early.  Buyers should also evaluate payment arrangements — commission deals improve cash flow but fee arrangements are more transparent; not change brokers too often, match the brokerage to company size, and insist on transparency, i.e., the broker is truly working for you and not as an agent for the insurer.

All of this is generally good advice but some suggestions are more important than others.  For example, finding a broker that matches your size is extremely important given the custom attention provided often correlates to the relative size of your business to the brokerage.  It is often the case that the in-house national specialists who service certain global broker’s clients do not even look at potential new business that is under $25,000 in income to the broker.  This means that the insurance placement must have a premium of over $200,000 before a national specialist — whether for network security and privacy, Directors & Officers, trade credit insurance or some other niche product – will even help out.  If it is a smaller account, the regional office is left to fend for itself with whatever resources it may have.  That is why it is important to confirm that a broker “pitch team” constitutes the same folks who will actually handle your account.

If you want to evaluate a new insurance risk professional/broker, don’t bother asking them how much money they will save you on premiums.  Everyone can shave something off the premium when getting a new account given the incumbent insurer knows it is likely next on the chopping block.  Don’t ask them “why are you better” than my current broker.  Every broker will be able to parse out advantages in working with them.  It’s almost better to ask:  Why shouldn’t I move my business to you? 

If the potential new broker is sophisticated enough to handle your business, i.e., has access to the right insurance markets and has sufficient service infrastructure, you should not really care about anything other than one metric:   How will your broker help you generate more profitable business?  Your broker should have enough insight into your business to come up with various risk management strategies that actually add to your bottom line.    Next time you are socializing with your broker or meeting on a renewal, ask them how he or she will help you make you more money in 2010.  If the silence is a bit too uncomfortable for you, it may be time to find a new broker.   Switch to the first broker who can give you a credible answer to your question.  It’s that simple.