Editor’s note: This article is a rebuttal to “Be Wary of Your Insurance Broker,” a recent article by risk management consultant Frank Licata. The first article described the relationships of insurance brokers and carriers with their corporate insureds as fundamentally anticompetitive. The author of this article is president of Professional Insurance Experts, an independent broker specializing in professional liability coverage.
The reality of competition in the insurance industry is quite opposite from what Mr. Licata’s article portrayed. The industry is quite competitive. There are many young carriers looking to jump into various segments of the industry, along with veteran carriers looking to expand into new segments or capitalize on new exposures such as cyber liability, drone liability, etc.
For example, a few years ago there were just a handful of carriers willing to provide cyber liability coverage. It began with only third-party coverage, but as additional competitors came into the market, enhancements such as first-party coverage and coverage for cyber extortion appeared, as did reduced rates.
This is commonplace in the insurance industry. As carriers start seeing profitability in new segments of their book and competitors look to replicate that, rates go lower. There are now more carriers in more industry segments than there have ever been.
It’s also worth noting that every broker works a little differently, and customer experiences can vary from one to another. The same goes for other types of financial professionals, such as real estate brokers, financial advisers, etc.
Let’s take a look at the scenarios covered in Mr. Licata’s article.
Scenario 1 claims that insurance brokers sign deals with customers based on brief proposals without providing full policy details, instead providing the actual policy forms later and telling customers to pose any questions to legal counsel.
That’s not so, at least in the case of good brokers. They do go into the proposal’s details and provide a copy of the policy forms up front. Proposals discuss the carrier’s ratings, the coverage and provisions being offered, specific exclusions from the coverage, and comparisons to other policies.
Scenario 2 addresses reasons why a broker would tell a client that a desired coverage is not available in the market. The blame is placed squarely on the broker “not doing what’s needed to get the deal done” by shopping the deal to multiple carriers.
In reality, if a broker tells a client that certain coverage is not available in the marketplace, there are only two possibilities. The broker either does not have access to a carrier that could provide that coverage, or there is no carrier that the broker is aware of that has a policy covering the exposure.
Most of the time we can find coverage for any exposure, although if it’s an unusual one it can be difficult to find and pricier than expected. While brokers don’t all have access to all of the same carriers, I don’t know a single one that would not try to find coverage that a client wanted. That’s how they win business.
In Scenario 3, a broker tells a client that a particular carrier says it can’t compete with the client’s current pricing. Here, I agree with Mr. Licata’s observation that you can’t blame the broker for this.
In the United States, insurance carriers must file their rates with the states. Premiums are calculated as the rate times “exposure units.” For example, if the rate per $1,000 of coverage is $6 per year, and the potential loss exposure is $200,000, the annual premium is $1,200. To adjust premiums for specific loss-exposure details, carriers are allowed to apply certain amounts of “credits” and “debits.”
If a carrier has rated a client’s risk and applied all available credits, and the resulting premium is much higher than the expiring premium, then the carrier simply cannot compete with that expiring premium. The broker then will move on to other carriers that may have filed rates based on different risk appetites.
That is the benefit of independent brokers. They can approach multiple carriers in order to find those that can compete with the expiring policy. Insurers always prefer the brokers provide a target premium so they can try to meet the insured’s needs and to increase the chances that they’ll win the business.
Scenario 4 is about approaching a broker other than the incumbent for a quote from a particular insurer, and the second broker says he or she is “blocked” from that insurer.
Well, I have never run into a client that asked me not to shop among multiple carriers. However, when a broker approaches a carrier, other brokers trying to shop the same piece of business to the same carrier are automatically blocked, as carriers will only work with the first broker that approaches it.
Being the first to approach as many carriers as possible yields more quotes for the broker to negotiate on, increasing the chances of providing the client with the best quote possible.
Therefore, blocking the markets is not a disguise but quite the opposite. If a broker does not shop a client’s insurance year after year among different carriers, many carriers would remain untapped, potentially leaving the client with an overpriced and outdated policy.
This allows carriers to compete not only with the expiring premium but also with each other. For example, a carrier may ask us how its quote stacks up. We can reply that the price has to be lower for the carrier to win the business. Often, we can get carriers to provide their maximum credits even before we provide a proposal to the client.
Scenario 5 decries renewal proposals that arrive “at the last minute.” But while this may be a tactic used by some bad brokers, there are good reasons why a proposal may be delivered close to the existing policy’s expiration date.
For one, the broker waited for all carriers to respond. We wouldn’t want to provide a proposal that a client rejects for not being competitive, only to then receive another quote that could have won the business. We can ask carriers to provide their quotes within a certain time frame, but the timing may depend on the underwriter and its work capacity or other factors outside of the broker’s control.
Second, we may have received a carrier’s quote fairly late and find that the pricing is a big jump from the expiring price, such that we have to negotiate it down.
In conclusion, good independent brokers conduct due diligence to provide the most competitive quotes for their clients that they can. Their degree of access to carriers varies, but the goal is to win business and keep clients over long periods of time.
Tony Abrudeanu is president of Professional Insurance Experts, a broker specializing in professional liability coverage.