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As the dismal state of the economy continues to pressure bottom lines, maintaining the health and productivity of a company's relationship with its insurance broker is of paramount importance for mid-market executives.
However, several brokerage experts said those very economic pressures have, in many cases, led mid-market companies to view their brokers more as vendors than as business partners, insisting on lower upfront costs while drawing back on the amount of direct involvement, level of trust and breadth of information they invest in the relationship.
That shift in the buyers' attitudes toward insurance brokerage services, they said, ultimately could limit their access to coverage or leave them exposed to risks that are not addressed.
“Middle-market clients have really tended to treat the insurance process as though they're buying a commodity, more so these days than they have in the past,” said Todd Belden, a Cincinnati-based vp at Hylant Group Inc. “Their directive to us will be to give them the lowest price possible on their premium without wanting to get involved in the process.”
“When you do that, it becomes a challenge for the broker to help the buyer distinguish between the premium cost and the coverage's actual value,” he added.
Of all the behaviors that tend to limit the quality of brokerage service mid-market companies might receive, inadequate or infrequent communication with their broker is by far the most common, experts said. Fearful that it will leak to competitors or simply unaccustomed to doing so, many private and nonprofit companies are hesitant to share vital financial information, claims history or operating procedures, experts said.
More often, companies neglect to regularly inform their brokers of significant changes to the business—new facilities, products or operating territories—waiting instead to broach the subject just before a policy is due for renewal, if ever.
“A lot of these clients simply don't trust us enough,” said David Jones, vp of risk management accounts at Lockton Cos. L.L.C. in Philadelphia. “We can help them if they would just tell us where they're struggling and what they need.”
Another common problem plaguing relations between mid-market companies and their brokers, experts said, is a fundamental lack of understanding of the parties' respective interests and objectives.
In particular, companies that use third-party consultants to negotiate with a broker on their behalf risk alienating both parties by not facilitating an ongoing three-way conversation to discuss coverage goals, financial limitations and other important factors.
“You often don't see an agreement about what the real objectives are for the client,” said Steve Anderson, an executive managing director at Beecher Carlson Holdings Inc. in New York. In a lot of cases, the broker and the consultant see each other more as competitive threats or adversaries, and they wind up working to cross-purposes.”
Further complications can arise if a company or its third-party consultant uses multiple brokers in a competitive bid to place one policy, which Mr. Anderson said can lead some brokers to drop a client's account altogether.
“We'll get instructions to go out and secure best terms from the market for something like management liability coverage, only to discover a client has one or more other brokers that we didn't know about actively trying to do the same thing,” Mr. Anderson. “It provides a disincentive in some cases for the broker, because they're so far removed from really understanding what's happening with the client that they decide ultimately that it's a waste of time.”
Poor communication, withholding information and generally misunderstanding a broker's objectives often can be toxic to a mid-market firm's ability to secure adequate coverage, particularly in high-risk industries such as health care and technology. Although the insurance market for midsize firms still is largely favorable to the buyer, experts said underwriters are becoming a bit more selective with their risk appetite, reserving the broadest coverages for clients with comprehensive financial information and claims histories.
“Any uncertainty about what the company does or its financials, or the future viability of the business is going to translate into more conservative coverage,” said Lesley Warrin, a senior vp at Willis North America in New York. “When an underwriter feels like they have a full grasp of the business and there's some transparency there, that's always going to play to the client's benefit.”
“Where we're seeing problems is where the communication and information-sharing habits don't improve,” Mr. Belden said. “I think what those buyers would see, eventually, are tougher underwriting standards and tougher pricing. In essence, the can create their own problems in the market.”
Is your broker relationship broken? A Business Insurance whitepaper examines the role that brokers play for middle-market firms, how executives should measure broker performance, and what they should look for in a broker if they believe it is time for a change. View a sample.
Tens of thousands of middle-market insurance buyers may be using a broker that does not match their needs, according to a new Business Insurance white paper.