The Importance of an Educated Broker

Insurance is one of the last professions where most of those in the industry learn 90% of what they do after the end of their formal education. Yes, there are a number of people who hold a bachelor's degree in risk management, but there are only a limited number of schools offering this program. In fact, it's often a topic of conversation among younger insurance professionals to discuss what their undergraduate degree was. Some are business or finance, others political science, and mine is in biology. The most important skills for an insurance broker are critical thinking, problem solving, negotiation, and the ability to explain insurance topics to those outside our industry.

The only requirements to become a licensed insurance broker in most states are to be 18 years old, not be a felon, take a one week class and pass an exam. Oh, and just to make you feel better, we all take the same exam. The licensed office assistant that put you in good hands and protected you from mayhem, the call center rep that helped you save 15%, and me the broker that you trust with your directors and officers insurance for your board of directors. Now there is a scary thought.

So what separates those qualified to click through some computer screens and quote auto insurance, a task that some companies have moved online because it is so simple, from those that write complex commercial insurance? Quite simple experience and training. But how can businesses be sure that they have a broker with the experience they need? The insurance industry uses designations. We have a few industry associations that grant subject mater and general designations based on passing specific courses and experience. The most general designations are Chartered Property Casualty Underwriter (CPCU), and Certified Insurance Councilor (CIC), Associate in Risk Management (ARM) is also popular, as so many brokers serve as risk management consultants for their clients. CPCU consists of eight exams that are all recognized as college or graduate level. ARM is all graduate level exams. I carry both of these designations. There are also more subject specific designations, such as Associate in Reinsurance, Associate in Claims, Registered Professional Lines Underwriter and a few dozen others. They all show that the person you are dealing with has made some level of additional commitment to their industry education. While there are many well qualified commercial brokers that do not carry a designation, this is one of the easiest ways for a non-insurance professional to evaluate a broker.

In short, it's perfectly fine that most of us don't have a college degree in insurance. But, it makes continuing education and industry specific post college training all the more important.  Everyone deserves a broker well qualified to obtain the insurance they need. Make sure your broker is qualified to be your partner.

Broker and Insurance Policy Value

People are always talking about the commoditization of insurance and the future of independent brokers. I believe that brokers will always play a role in certain insurance. However, brokers add cost to insurance, so clients have to see value. Some do see value, some will never see value (or perhaps there isn't much) and some are in the middle and can be pushed either way.

It's always tempting to compete on price. Everyone understands money in their pocket, and it doesn't take much expertise as an agent or broker to do it. And if you compete on pure price and nothing else, the broker will eventually get squeezed out of the transaction.

Those that have moved to buy their insurance online believe that they don't need professional help to buy insurance. And, in some cases that's true. The people who buy state minimum auto insurance for their 20 year old junker car don't care about claim service or higher policy limits.

And I think for low claims frequency accounts this will always be an uphill battle. People are bad at preparing for the 100 year flood, but much better at preparing for the storms that come every year. If you have an insurance policy that you haven't had a claim on in at least five years, it feels more like protecting against something that will never happen. You're apt to keep buying it at bottom dollar, if at all.

However, the larger accounts that have a few claims every year, tend to care about more than price. They know they need a broker to help navigate the waters. Perhaps even risk management consulting. For them, the cost of the policy isn't the only cost. It's also the dollars they recover from first party claims, minimizing third party claim payments, claims reps that care, nuanced coverage that fits unique exposures, choice of council and 100 other things.

It's easy for me to sell value and knowledge to my clients that have the storms. The challenge comes to show value to the smaller clients. And that's why those clients end up with policies that don't cover everything or an agent that doesn't understand the exposures....they want bottom dollar. For these clients, until they have a claim, the policy is a commodity.

A good broker takes on clients that have a real need for his services. He adds something to the transaction in exchange for what he is paid. Those are the brokers that understand the coverage available, the difference between carriers, and have the risk management experience. There will always be room for anyone providing a service with real value.

How do I know if I'm paying too much?

Everyone wants to get the best deal on everything that they purchase. That means striking a balance between price and quality. With insurance, quality is measured by what is covered and the claims process. A good broker can help show you the difference in quality between policies, but what about price?

Most people stay with one broker and insurance carrier for many years. Their premiums may go up or down over time, but what others pay may have shifted much more. Every few years, if you have an independent agent, you should ask them to market your policy. In my agency, most of our clients are on a three year marketing cycle. This means, that if our client asks or not, we shop multiple insurance carriers for alternative quotes. We also market if the insured asks, or if we feel a premium increase is unjustified.

There is such a thing as over marketing. If you pay more than $15,000 for business insurance annually, your account is usually reviewed by an individual underwriter. This is a real person, with a name, a face and a memory. If you market your account every year, it develops a reputation with those underwriters that quote it repeatedly, and they start declining to quote, or may not put in the time to give you the best pricing. This goes doubly so in niche writing areas, like social service, fire protection, security, et cetera.

Unless you have an agent that only writes with one carrier, most independent brokers will be able to bring you three quotes. Your independent broker is your advocate and your adviser, you need not sever that relationship to check to see if you're getting the best deal. Now, if you are unhappy with your broker, that is a separate discussion.

If you have a large account (say over $50,000 in annual premium) and you have some losses every year, there is another quick way to see if you are getting a fair deal. Check your loss ratio, that is divide total losses by total premiums, over a few years. If the ratio is under 40% you may be due a decrease, if it is 40-60%, your coverage is priced about right, and if the loss ratio is over 60%, your coverage may be underpriced. Now that is only a rule of thumb and there are many other factors which enter in to this. Also, it's not a good rule of thumb for lines which only have large, catastrophic claims, and very infrequently, like umbrella coverage.

With just a little work, you can make sure you get the best deal.