Finding the right mix that makes the perfect insurance broker is an art, not just a science or a spreadsheet. But when artistry, science and accounting blossom to create a superstar producer, business starts to boil over. Brokers make a killing, and buyers look good in the eyes of their bosses.
While top brokers are always an asset, perhaps the brokerage firm's most valuable asset, managing those superstars is another story. Just like a balance sheet, superstars come with a list of assets and a list of liabilities.
Superstar or dud, it always comes down to people, says Stanley D. Loar, CEO of Woodruff-Sawyer & Co. "It's good people, it's as simple as that."
About people, indeed. Brokers that shine, as risk managers will attest in the pages that follow, provide a service to others. Brokers who serve mostly themselves deserve a lashing.
But top brokers who appear unflappable and collected, at least so far as clients are concerned, are sometimes the most difficult to manage. "They have big egos," says Loar.
Perhaps. But they also have good reasons for doing so. Brokers with egos that melt into the wallpaper and talk in whispers aren't exactly the ones that draw much attention and rack up the numbers.
Speaking with dozens of risk managers for this project, we found that one thread linked them all: good service. Those who provide it will shine. Those who don't will flicker and die.
Brokers who know how to craft and tailor policies to meet their clients' needs clinch the deal. Technicians capable of reciting encyclopedic insurance knowledge with actuarial exactitude won't pass muster.
"I'm looking for problem-solvers," says Loar. "That's becoming more and more critical. It really is about risk management, it's the whole spectrum, not just the risk transfer." Technicians are plentiful, just like cereal on the store shelves.
The trend toward hiring more and more people from whatever industry who can solve problems will continue over the next five years, as echoed by the dozens of buyers interviewed for this project.
Good brokers have four ingredients, at the very least: knowledge of a particular industry; creativity in identifying and mitigating problems facing risk managers; providing prompt and efficient service; and a clear sense of the bounds of ethical behavior and what is right and wrong.
While the job of the risk manager is to know the particular complexities of his or her corporation, the job of the broker is to know the peculiarities of the ever-changing marketplace.
"A Fortune 500 client can hire all the people they want to do the risk analysis and all those pieces," says Ken Crerar, president of the Council of Insurance Agents & Brokers, the trade organization representing the largest brokerage firms. "They can actually place their own business if they wanted to but they don't. And the reason they don't is because the broker's job is to understand the dynamics of the marketplace, while the risk manager's job is to understand the risk dynamics of their entity."
Understanding the complexities of the marketplace means more than just doing the regular homework available through the Internet, spreadsheets and ratings-house research.
In many ways, it's really about walking in the shoes of buyers. Many of the brokers rated top-notch by buyers of fine arts coverage, for example, have fine arts degrees themselves.
Bob Ditmore, an underwriter in the technology practice of St. Paul Travelers, says the best brokers are also specialists in their field who spend a lot of time learning about the industries of the clients they represent.
In the case of the high-tech industry, the field is so complex that many insurance buyers are dependent on their brokers to make the proper decisions for them. The best, he says, are those who know an industry almost as thoroughly, or sometimes even better, than industry insiders.
In the words of one Harrisburg, Pa., risk manager who spoke high praise of his broker, "He's an insurance geek." But more importantly, "he really understands the industry. And if there's anything he doesn't know, he'll research it and get back to us right away."
Speed is also paramount.
"We get certificates e-mailed to us within hours," he adds.
Adds a corporate risk manager in Baton Rouge, La., speaking confidentially about two of his favorite brokers from a regional firm in Kentucky, there's no waiting around for days, as with some of the bigger firms. "They will do whatever it takes to get it done" right away, he says.
Thus, it should come as no surprise that receiving bad advice in making a buying decision with hundreds of millions of dollars in premium at stake can easily jeopardize the company's existence.
"If you're not making your client happy and your ego's taking over your client's interest, you're going to learn real quickly," says Crerar. "This is not a very forgiving industry when it comes to that."
"You can talk about the placement process or the evaluation process, but at the end of the day what is an insurance broker?" says Crerar. "An insurance broker is a client advocate. At its core that's what they do."
"And if you do your client in and you take other interests that are not in your client's best interest, you lose," Crerar adds. "You always lose."
Of course, that didn't stop some brokers from stepping over their bounds and dabbling in egregious self-serving behavior, as the insurance broker scandals of 2004-2005 will attest.
Even in our research for this project on the Power Brokers, editors at Risk & Insurance®found that some buyers, speaking only off the record, were still aghast at some of the behavior of their representatives--which only goes to show how valuable good brokers are to buyers.
One buyer in the health-care industry really believes that her broker has the client's best interest at heart, but adds: "You just don't find that."
Another buyer raves about her broker not just knowing the health-care business, but her business and her company. Perhaps uppermost in the minds of buyers this year was their brokers' ethical behavior as an important ingredient, albeit one hard to measure objectively.
The broker scandals, in which the top four brokerage houses were all forced to settle with regulators to the tune of hundreds of millions of dollars, have caused the buyers to reconsider their traditional take-for-granted relationship with those who are supposed to look out for buyers' interests.
Some buyers have now made it a routine practice to send out regular request for proposals to a half-dozen brokers instead of renewing with the incumbent or incumbents. Others, hedging their bets, have decided henceforth to purchase coverage using multiple brokers.
The younger generation of buyers coming out of school is more sensitive to disclosures requirements than their bosses have every been. "I think there are more sophisticated young buyers, and young buyers will demand that transparency," says Loar. "Kids coming out of school will be familiar with Sarbanes-Oxley."
Some brokers have only themselves to blame for the mess they've made (yet perhaps also deserve the credit for the proper stewardship of their clients' interests).
To be sure, the recklessness of a few has tarnished the reputation of the many. But either way, individuals deserve the credit when times are good, and individuals are to blame when the going gets rough.
No doubt the scandals of the past year or two will have a salutary effect on the brokerage industry. The luster will continue for those who remain true to their clients. Rogues will implode from their own hubris, and go down in flames.
February 1, 2006
Copyright 2006© LRP Publications