Broker Value and Valuing Your Broker Strima 2008

Broker Value and Valuing Your Broker

• Strima 2008

• Allen F. Hyman

• Bickmore Risk Services

The Macro Perspective

• 46 years experience with government

• As an employee
• 13 yrs. Parks, Recreation & Spec Facilities
• 13 yrs. Safety, Risk, Pool Administrator
• As a broker and consultant to government
• 20 years

What is “Value Added?”

• If you hired one person to place your insurance who provide no other services until the next renewal, there would be no “added value.”

Where’s the Beef (Value) ?

• Brokerage Organization Infrastructure

• Market Knowledge/Leverage

• Marketing Specifications

• Collective Expertise/Placement Pros

• Program/Policy review

• Contract Review

• Certificates

• Technology

• Specialty Professionals

• Account Team

• Claims Resources

Zoom In

• Benchmarking losses and costs

• Industry knowledge

• Tech resources

• Actuarial review

• 360 perspective for gapless program

• Solution modeling and alternatives

• Market clout

• Terms conditions and policy analysis

• RM consulting

What is a Broker ?

• Defining the “broker” and brokerage team

• Broker
• Agent
• Client/ Account Executive
• Placement Professional (s)
• Client Service Representative (s)
• Senior Relationship Manager
• Industry Practice Specialists
• Claims & Loss Prevention Specialists

What are a Broker’s Objectives ?

• Brokers want the best possible deal for the client related to terms, conditions and price.

• Underwriters expect a negotiated solution with profitable pricing and a partnership.

• Pricing and terms are always negotiable.

• Application & historical data review are critically important.

Broker’s Bidding Challenges

• Obsolete documents

• Boilerplates

• Requirements (unreasonable?) Performance Bonds

• Co-named on E&O

• Cut and paste errors, redundancies and contradictions

• Unnecessary/voluminous requirements

• Poor data

• Open claims

• Commoditized purchase attitude

• Buyer lacking necessary understanding

• Time constraints

• Insufficient opportunity for negotiations

• Open market offerings

• Unclear objectives/service expectations

• What and who to include in the oral presentation

• What is driving the award

How are Brokers Compensated Does compensation drive deals?

• Commissions

• Used to be sufficient to cover all costs & profit
• Where does commission come from?
• Negotiated with underwriters
• May still be in the clients best interest
• Impossible to determine true net quote
• Should be disclosed from all sources
• Historically range from 5 - 25+%
• Front end/back end issues

How are Brokers Compensated Does compensation drive deals?

• Fees

• Client budget line item
• Create internal issues in brokerages
• Can generate skin and bones service
• May lead to front end promises/ back end non-delivery
• Fee/Commission offsets
• Change in Scope of Services
• Duration issues

High Bidder versus Low Bidder

Broker Behind the Scenes

• Historical Perspective

• Perception of Government Procurement

• Pricing of Services Committees

• Team brainstorms

• Fee Models

• Profitability/ Opportunity Cost

• SWAGs

• Size of the book

• Service expectations

• Dividing the pot

• Competitive environment

• Value Added

• Internal preparation of proposals

• Market relationships

• Incumbent advantages

• Many important questions are not asked in pre-bid meetings.

When Price Drives….

• Insurance solution may be diluted

• Services may be limited

• Internal charges often affect services

• Underwriters do not believe a relationship exists

• For many reasons, underwriters want time with a insured

When Service Drives

• Bottom line does not steer the proposal

• But it is factored in
• Underwriters feel differently
• Broker feels partnership is stronger
• Client expectations need to be clear
• Performance measures should be created

Recommendations

• Decide what you are buying?

• Review the bid documents in advance of release.

• Clarify drivers and priorities in the offering.

• Take the time to create scope of services – even one year out.

• Understand market conditions before bidding.

• Create the best possible package of data.

• Consider needs and desires of sellers.

• Coach procurement well in advance of offering.

• Demand disclosure.

• Consider stronger relationships with all component players.

• Making an RFP complex does not assure a better outcome.

• Conceptual proposal vs. conceptual/creative section