TIPS TO CUT PREMIUMS ARE ALL PART OF THE PLAN

ALBUQUERQUE, N.M.-Careful planning, analysis and negotiations during renewals can produce insurance premiums below those that comparable entities pay, one risk management consultant suggests.

Steven P. Kahn, a principal with Advanced Risk Management Techniques Inc. of Lake Forest, Calif., detailed an approach for public entity risk managers to lower their premiums during a presentation at the annual conference of the Public Risk Management Assn. last month in Albuquerque, N.M.

In brief, Mr. Kahn's main tips for trimming premiums include:

Holding a planning meeting in advance of renewals.

Setting specific goals.

Setting a realistic schedule.

Reviewing the advantages of negotiation vs. bidding.

Selecting an insurance broker or brokers carefully.

Other tips are: providing brokers and insurers with complete data, providing thorough coverage specifications and underwriting submissions; using insurers efficiently, which may include reducing the number of companies on a risk; obtaining specimen policies; and analyzing quotes and negotiating coverage improvements.

"I think it's a good idea to start with a planning meeting," Mr. Kahn said. Those attending such a meeting should include the risk manager, finance director, purchasing manager, third-party administrator and any "other people who are going to have an effect on your renewal."

The meeting should consider initial renewal objectives, such as coverage changes, consideration of alternative programs, such as self-insurance or entering or leaving a pool, improved broker service or claims administration, or restructuring the existing insurance program.

A planning meeting also should identify needed data and how it will be collected, such as loss information, property values, details of the safety and fire protection program, exposure data and descriptions of the claims-handling program.

Public risk managers were advised to consider any particular programs the public entity offers that should be detailed to brokers and insurers. "If you have a park district that has a karate program, if you have a school district that has a flight program, those are things that should definitely be in there," Mr. Kahn said.

Participants in that initial meeting also should set the schedule for the renewal process, review which coverages should be put to bid and determine which brokers the public entity should approach.

Topping the list of specific renewal objectives to be set are rate or premium targets. "I think you'll be far better off if you know what your property rate, for example, will be at the end of the process," Mr. Kahn said. "You need to think about what it is you can achieve and set specific rate or premium targets."

Other specific objectives to be set are desired coverage improvements, desired additional services and any alternative coverage sources to be evaluated.

The timetable established for the process is another important element.

"One of the most important ways to reduce your costs is to make the best use of the time available," Mr. Kahn said. "I'm sometimes surprised by getting a call from somebody June 1 saying they want help with their July 1 renewal process. I tell them to get an extension from their current carrier."

The consultant outlined four methods of selecting a broker, though he noted, "Whether you have the flexibility to use all of these will depend upon the bid laws in your jurisdiction."

The methods include negotiation with the current broker; assignment, in which the public entity evaluates the qualifications and marketing approaches of three to five brokers with one broker ultimately selected to obtain premium quotations; restricted bidding, in which three to five brokers are evaluated and the entity selects two to three to provide quotes; and open bidding, in which all brokers are allowed to provide quotes.

For public entities required to seek bids, the restricted bidding approach is preferable, Mr. Kahn advised. Under open bidding, "Usually you'll have two or three agents going to the same carriers, and the carriers won't like that," he said. "If there are ways you can avoid that, try."

The consultant noted that the broker's key function is marketing the customer's coverages, with servicing those policies being another important role. A wide range of other services may be provided by brokers, such as assisting with property valuations, answering insurance questions in contracts, studying fire protection and safety issues, developing special policy language, auditing claims handling and risk analysis.

"There are many brokers that can provide all of these services and many more," Mr. Kahn said. "But the list of those brokers is very short. And if you limit yourself to that short list, you may overlook a number of firms who are very good" at marketing coverages and servicing policies, he said.

In choosing a broker, the risk manager must understand the public entity's service needs. He or she also should carefully evaluate the broker's qualifications, interviewing brokerage personnel and considering issues of large national brokers vs. regional firms and using a single broker vs. multiple brokers.

While large national firms typically bring a number of service offerings to bear, it's possible they might not be as strong in one region as some regional brokers, Mr. Kahn said. Also, while using a single broker can help prevent any gaps in coverage, using multiple brokers can bring the benefit of additional expertise, particularly if the public entity has some special exposures, such as an airport.

In presenting data to underwriters, buyers should make sure to include all the information needed to accurately price the risk and should present their organizations in the best possible way, detailing such items as loss control efforts and superior claims-handling procedures.

"Other than just the renewal data, you also need to prepare good, clear, concise specifications," Mr. Kahn said. The renewal process should be detailed for underwriters, with coverages and options to quote on clearly detailed and loss and exposure data presented, usually in the form of an appendix to the coverage specifications.

"I personally don't think you should allow your broker to prepare coverage specifications and send them to the marketplace without you seeing them," Mr. Kahn said.

Mr. Kahn suggested that the risk manager needs to understand all the parties involved in the insurance placement: retail brokers, surplus lines brokers, managing general agents, insurers, reinsurance brokers and reinsurers. And the risk manager should seek to eliminate any unnecessary intermediaries, he advised.

"You want to try to eliminate those who are not adding something to the process," Mr. Kahn said. Reducing the number of intermediaries will not only help save money but also can reduce any problems of resolving claims if there is a loss, he said.

In advising the risk managers to seek and study specimen policies, Mr. Kahn noted that, "The carriers that have really focused on governmental entities have developed their own policy forms." Risk managers should make sure those specimen policies are complete, he said, adding, "If you think something is missing, you need to ask about it."

In analyzing and comparing quotations, among the items to consider are insuring agreements, exclusions, conditions, rates and premiums, limits and sublimits and deductibles and self-insured retentions, Mr. Kahn said.

A good way of analyzing them is to prepare comparison spreadsheets, he said.

Risk managers also should make sure they understand how premiums will be adjusted if they aren't flat charges. "When do you get assessed additional premiums? Be sure to find those things out," he said.

In terms of negotiating improvements in the coverages offered, Mr. Kahn noted that "few quotations are offered on a take-it-or-leave-it basis."

What's more, few quotations fully answer all the questions posed by the customer in the renewal specifications, he said.

"Even if you don't want to negotiate changes, you're probably going to want to ask questions," Mr. Kahn advised.