Article written by Ken Porter, CPCU, ARM, AIAF, Porter & Curtis
NOTE: Many government entities use insurance brokers and agents to acquire their insurance coverages. Some insurance purchasers are not sure what services they should be receiving from brokers and what it is costing the government entity. To answer some of these questions, we asked Ken Porter, one of PennPRIME’s brokers, to give us his thoughts on what you should expect from your broker.
– Bob Anspach, PennPRIME Director of Insurance Services
Who is your insurance broker really working for?
Of course, your broker should be looking out for you, the customer. That is the concept that is accepted by clients and what is expected in the insurance community. How do you determine if your broker is providing the service you deserve? Here are some things about which to think when deciding what your broker is worth.
What services should I expect?
The best brokers are distinguished by their attention to client-focused services like answering coverage questions, advocating their client’s interests on claims, and providing risk management advice and support.
However, few brokers are equipped to deliver these kinds of services. That’s because most brokers are sales and marketing organizations. The lion’s share of revenue goes to the producer, leaving little to reinvest in the client relationship.
As a result, brokers typically just offer transactional support, like marketing coverage, negotiating terms and conditions, binding coverage, checking policies, and issuing certificates of insurance, and ID cards. In some cases, all but market and negotiating services can be offered by the insurance company. But even those services are less relevant in risk-taking arrangements where underwriting is transparent and profits are returned to the insureds.
How is my broker compensated?
Many brokers work on commission. The commissions are, generally, part of the premium or contribution so one does not see exactly how much it is. The typical commission is 10 percent to 20 percent of the property and liability premium and 5 percent of the workers' compensation premium. PennPRIME premiums are 10 percent for property and liability. For workers’ compensation, PennPRIME pays premiums of 6.5 percent on the first $100,000 in contributions and 4.5 percent for any contribution above $100,000.
In today’s world, transparency is a key factor in government operations. To that end, many insurance buyers engage a broker on a fee-for-service basis. That way, the customer pays the broker for the value they deliver. Fee-for-service arrangements put the broker on the same side as the customer, eliminating any potential for a conflict of interest.
What is the broker’s marketing strategy?
Beware of the broker who wants to shop your coverage with insurance companies every year.
This way of doing business does not deliver value for the customer. Why? Obviously, switching insurers every year is a hassle for the customer. What’s more, a broker who markets coverage each year forces the insurance company to think in the short-term. That means higher pricing because insurers need to guarantee profit every year rather than over the long-term.
Most insurers can’t afford to “practice quote.” The prolonged soft market environment has forced insurers to downsize. That means fewer rating and quoting resources. So insurers are picking their shots.
Over the long term, the best value for the insurance customer comes from long-term partnerships with insurers and with brokers whose services will help reduce claims and improve work practices. That will hold down premiums and deliver the lowest cost of risk.
What should I expect from my Broker?
- Quarterly visits to discuss claims and Loss Control issues
- Training recommendations to improve employee safety
- Provide information on changing and developing risks, such as cyber threats, or changes in certificate of insurance requirements
- Assistance with or development of your Safety Committee, which reduces your Workers’ Compensation costs
- Be your advocate for claims to ensure the claims adjuster is addressing the issues with your interests being considered
Ken Porter is a founding principal at Porter & Curtis, LLC, a consultative commercial insurance broking and risk management services firm. Ken has over 30 years of experience in the insurance world. His expertise is integrated risk management and self-insurance structures, like trusts and captives, particularly as it relates to creating and managing the structure itself, drafting policy forms, placing reinsurance, and producing financial statements. Ken’s professional education includes Chartered Property Casualty Underwriter (CPCU), Associate of Risk Management (ARM), and Associate in Insurance Accounting and Finance (AIAF).