The Dangers of Quoting Without a Thorough Risk Assessment

Does this sound familiar?

A commercial insurance agent, usually a nice guy or charming lady, approaches you with some value proposition that sounds something like, “We have the best people, our service is spectacular, and if you give us the markets we want we’ll really beat them up and get you an excellent premium.” Since everyone sounds the same, you’re led to believe that functionally they are. Since all they need to “bid” on your business is a copy of the policy and loss information, you figure, ‘why not?’

Positioning

We think business owners allow this practice for two reasons. First, they think that allowing agents to bid on business is a good “no commitment” way to gain negotiating leverage. Secondly, they are unaware of the differences between agents’ processes and the significant risks posed by that process.

We will combat that notion with three positions: Business owners lose leverage by using multiple agents because they allow the business insurance carriers to choose the agent for them. Whatever agent happened to have access to the best market gets the deal regardless of his or her accuracy or capabilities. Shouldn’t owners want the best agent AND the best carriers?

So what’s keeping owners from granting the best agent in all the markets? Most business owners think that they will have a better negotiating position if they allow multiple agents to “bid” on their business and they are afraid of an agent using monopoly power. The benefit of using multiple agents is a myth. A single strong agent can create just as much competition as multiple agents. Regarding monopoly abuse, there are multiple strategies for avoiding impropriety.

You don’t gain negotiating power by using multiple agents, you lose it. The quality of a risk assessment is a good litmus test to the quality of the agent and the scope of their capabilities. There are significant risks to the copy-and-quote method that don’t immediately present themselves.

Business owners can lose leverage by using multiple agents because they allow the insurance carriers to choose the agent for them. Whatever agent happened to have access to the best market gets the deal regardless of his or her accuracy or capabilities. Shouldn’t owners want the best agent AND the best carriers? So what’s keeping owners from granting the best agent in all the markets? Most business owners think that they will have a better negotiating position if they allow multiple agents to “bid” on their business and they are afraid of an agent using monopoly power.

The benefit of using multiple agents is a myth. A single strong agent can create just as much competition as multiple agents. Regarding monopoly abuse, there are multiple strategies for avoiding impropriety.

Bidding Process

First, arrange a fee-based relationship with the agent. He or she will be happy to do this since he or she won’t have to take a pay-cut by decreasing your premium.

You will be confident that differences in commission values are not giving the agent a bias or dulling his or her negotiating verve. Second, require a transparent process. The agent should let you know in advance what markets he or she plans to pursue and why. During the process, the agent should tell you what the results were with each insurance carrier and why. Remember, with a fee-based relationship, the agent now works for you.

The quality of the risk assessment that an agent provides is a good litmus test to his or her thoroughness. My firm belief-and one that I take into my practice-is that the role of anyone transacting insurance is that of “Risk Management Advisor.” In today’s fast-paced world where information flows freely, business owners should require that their relationships provide them with expertise they could not otherwise gain. Agents that cannot do that will soon be replaced by Internet tools. The value brought to the table by good risk management firms is that they provide holistic risk management solutions, not that they can fill out insurance applications.

Insurance policies are easy to obtain; Risk Management Plans that encompass all areas of your business are hard to design and execute. Business owners should be paying people for the difficult part of the work, not the easy part.

Finally, there are significant risks to allowing agents to “bid” on businesses without a thorough risk assessment. Much of my evidence here is anecdotal from our practice, but consider this: errors and omission claims are sharply on the rise. This means more agents are committing “malpractice” all the time. The reality is, getting an insurance agents’ license is very easy.

Doing a good job is pretty hard so many-if not most-people in the industry simply copy what prior agents have done and send it to the market, hoping that it‘s right.

This puts the business owner in the position of having to check the work of every agent that gets involved. Realistically, owners can’t be expected to have the knowledge necessary to do that.

The Gibraltar Group1001 Texas Ave, Ste. 200Lubbock, Texas 79401

http://www.gibraltarrisk.com/