Know Your Insurance Broker

In the realm of business insurance, most companies work with a trusted incumbent broker or agent to purchase insurance such as Property and Casualty Insurance. The agent designs and negotiates a company’s insurance program, handles complex claims situations and proactively addresses day-to-day needs.

However, the proposal-to-purchase transaction is not entirely transparent.

When an organization decides to seek bids for insurance coverage, or initiate a Request for Proposal (RFP) process, the broker can “reserve” any insurance companies they believe will provide competitive terms. What does this mean? Insurance companies will only provide proposals of insurance to a single agent for a particular insurance buyer, effectively eliminating competition for the business and increasing profit.

For instance, if ABC Insurance Company has three area agents, and all are bidding on coverage for a client, ABC will provide a quote only to the first agent who submits an application. Most agents have found themselves in this situation — unable to quote an account because other agents have “reserved” the insurers with an interest in the account.

From the insurance buyer’s perspective, this is called “market blocking.” It is a long-standing tradition that an insurance carrier will only provide a proposal to a single agent, blocking all other agents from accessing that market for that buyer. Many companies don’t realize their broker or agent has reserved all the incumbent insurers on the company’s current insurance program. Blocking markets prevents competition by restricting a company’s options for insurance products they may buy, and is unique to insurance.

One way a company can compare and evaluate insurance companies’ offerings is to enlist the help of an unbiased third party to oversee broker selection. At renewal time, many brokers, including the incumbent, provide their credentials, industry specialization and insurance company relationships through an RFP process. They will also be asked to share results they’ve achieved for their clients, including pricing, coverage improvements and services, and disclose their compensation.

This approach creates a level playing field. All brokers follow the same rules and everyone has an equal opportunity to compete for business. Companies may achieve premium savings and coverage improvements with insurance companies rated similarly, or better, than current insurers. Furthermore, the organization’s incumbent broker is part of this process.

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