10 Lessons for Brokers

I was an insurance broker in my former life. Now, in my current role as a consultant, I review how brokers do their work. Based on this experience, I have decided to share some of my impressions about what I have seen. Hopefully you can take advantage of my experiences and avoid learning some of the common mistakes outlined below the hard way.

LESSON 1: Apples-for-Apples Marketing

I put this first on my list of lessons for a reason: this is how I see insurance being marketed today. In recent weeks, a broker advised a prospective client, a public entity, that: “You will be able to compare quotations as apples-to-apples if….”

No, no, no. What you are saying here is that you are no different, no better than anyone else. The best you have to offer is a new price on an old policy. The buyer will hear this and immediately think: “Here we go again.”

LESSON 2: Risk Management. Really?

I see the phrase “risk management” in broker’s proposals and readily see that they don’t grasp the meaning. My explanation is as follows: risk management means “the process of protecting an or- ganization’s income and assets through exposure identification, risk analysis, risk control, financing losses with external and internal funds and the monitoring of the process — all at the lowest possible cost.”

There are alternative definitions, but the one above works.

I also believe the following: “Identification is the most important step in the process of risk management, since you can’t manage what hasn’t been identified. Once you have identified exposures to loss, and before you make any insurance decisions, you must analyze the exposures, determine how to control them and then make loss financing decisions (which can include insurance).”

How does the broker propose to define his or her role within the risk management process, as defined above? Risk assessments don’t always include an insurance review (that is risk management). If you are going to say your approach to insurance includes risk management, know what it means and demonstrate it.

LESSON 3: Live by Price, Die by Price

If you gained your clients on price, be prepared to lose them on price. The market has been soft for the past few years and buyers have been conditioned to expect regular reductions. How will you cope when the pendulum swings the other way? Re-train your client? That will be a challenge.

LESSON 4: Know Your Client

It fascinates me that brokers don’t always understand their clients. I know of one occasion in which the broker was invited to one of the client’s kick-off meetings. Prior to the meeting, I reviewed the company’s Web site, where I learned that they had facilities in two American states. It was obvious that the broker was not aware of them. Alas, the client had insured the two U.S. facilities locally, not knowing that it could have done so on a “global” basis. That was a disaster waiting to happen.

In recent projects, I have encountered private schools with no abuse coverage, wineries with no contamination insurance, sports clubs with participant exclusions, hotels with a property definition that didn’t include site improvements and a ship-repairer with a watercraft exclusion. No kidding. Know your client’s business thoroughly.

LESSON 5: Be Honest

To a prospective client, a broker stated: “We provide the best coverage, lowest pricing and greatest stability.”

Really? You can’t prove that.

So how about saying instead: “We offer comprehensive protection, competitively priced and placed with A+ rated insurers”?

Your prospect knows the first statement isn’t believable. You can start a relationship on a positive note with a more believable claim like the second one.

Another memo to a client read: “Margin Clause? Oh, that’s a mistake, we’ll have it corrected.”

When the client investigated the meaning of a margin clause, he became alarmed. He sought my assistance, suspecting where there is smoke, there may be fire.

Basically, a margin clause is a non-standard commercial property insurance provision that limits to a specified percentage what the insured can collect for a loss at a given location.

LESSON 6: Insurance to Value

Brokers have a duty to their client regarding coverage adequacy.

For example, I worked with a broker that had a hospital as a client. I calculated that the policy limit represented $135 per square foot. Replacement cost was actually more than $300 per sq. ft.

I explained to the client that replacement includes demolition, debris removal, bylaws, soft costs, permits, weather, shortage of labour and materials, site preparation and the cost of a new structure of like kind and quality.

The explanation offered for the discrepancy between the policy limit and the actual reconstruction cost was justified as follows: “Clearly, the risk of a full loss of the hospital is negligible, maybe nil.”

Can you believe it?

LESSON 7: Know Your Product. If you Don’t, Your Competition will Gladly Explain It

One interesting aspect of my business is reviewing broker reports. Here are some recently noted observations, based on some of the reports I have read:

• Stated Amount Co-Insurance is the same as No-Coinsurance.

• A contractor’s liability policy with a roofing exclusion is useless paper.

• ‘Additional insureds’ are not the same as ‘additional named insureds.’

• You should know if your client’s policy has a margin clause.

• The words ‘value’ and ‘limit’ are not synonymous, and

• ‘Umbrella’ insurance is not the same as ‘Excess’ insurance.

This list could be longer, but no doubt you get the point.

LESSON 8: CYA with a Purpose

This statement to a client was part of a renewal report:

“Other insurance products to consider are Directors & Officers Liability (including Employment Practices Liability), Environmental Liability, Pandemic Extra Expense, Terrorism Property Damage, E-commerce, Fungus/Mould, Kidnap and Ransom and Errors & Omissions Liability.”

I asked the broker to explain the recommendation. The broker told me “it’s part of our standard CYA [Cover Your Ass] recommendation.”

If you haven’t identified and analyzed an exposure, why just recommend something to cover your own butt? Shouldn’t you recommend something to cover your client’s butt? You would enhance your relationship and distinguish yourself in the process.

LESSON 9: Are You Solution or Product Oriented?

If you want to be seen as a value-added solution provider, you can’t make statements such as “our [insert any business line here] clients appreciate the specifically designed program offered by XYZ Insurance Company.”

Business owners don’t “appreciate” insurer’s products as much as they appreciate solutions to their problems — especially if the broker recognizes a need and identifies a solution. Know your clients, understand their business, identify challenges and problems, offer solutions and you will have satisfied clients who want to stay with you.

LESSON 10: What is your Unique Difference? And Don’t Say: “We Give Good Service.”

The public expects all brokers to provide “good service.” After all, don’t they?

What is good service? I ask new clients to explain what they appreciate about their current broker. The typical response is, “good service.” When I ask them to explain, a blank expression typically follows.

When I probe, they say: 1) the broker returns calls promptly, 2) if I need a certificate, I get it quickly and 3) if I call with a question, they provide the information.

That is not good enough. Your clients deserve better than that. If you want loyal clients, you need to know how to differentiate yourself from your competitors and demonstrate that difference. If your client does no t know the difference, they will believe you are the same as your competition. And hence, they will welcome alternative proposals every year.

Sound familiar?