By JOEL BERG, a freelance journalist and college professor
Risk managers, under pressure from their bosses to rein in costs and add value, can tick off a variety of warning signs telling them it might be time to find a new insurance broker. But one of the clearest signals doesn't have anything to do with dollar signs. It's when a broker seems to be a step behind in bringing up innovative products and solutions.
"That's where I think people start to have feelings of, 'I'm not getting the kind of service I need,'" said the risk manager for a specialized real estate investment trust based in Texas.
Such feelings may be fairly common, according to a survey by consulting firm Greenwich Associates that scores brokers relatively low when it comes to customer service. But risk managers also note bright spots. One is increased specialization, which allows brokers to stay on top of a particular business.
"I think it's made a huge difference because they really understand the industries they're working in," said the risk manager for an investment firm in Boston. "Years ago, they didn't understand your operations internally, and I think that they do today."
A focus on fine art has helped Mary Pontillo, a vice president with the fine art practice at DeWitt Stern Group, a private insurance brokerage in New York City. In 2009, Pontillo launched a series of educational seminars that attract both clients and prospects among the city's art galleries. The seminars have covered everything from disaster planning for galleries to the impact of new cargo-handling regulations on art shipments.
"This is kind of a nice way to build a rapport and build a buzz," Pontillo said, noting that the seminars have led to new business opportunities, including some opened up by the client of another broker. "He's sort of looking at it as I've given time, so he gave some of his."
"Buzz" is one of the qualities that risk managers appear to be missing from their broker relationships, at least according to a June 2010 Greenwich survey of risk managers at companies with annual revenue of $500 million or more.
Only two of the 10 largest corporate insurance brokers--Beecher Carlson Insurance Services and BB&T Insurance Services--earned excellent favorability ratings of more than 30 percent, based on service. The remaining firms were concentrated in a band between 17 percent and 26 percent. Comparable financial companies earn excellent favorability ratings from a low of 30 percent to a high above 60, said David Fox, managing director and head of global insurance products at Greenwich, a consulting firm in Stamford, Conn.
At the same time, risk managers are demanding more from their brokers, in part because of pressure from above, Fox said. "They're getting some pretty tough questions from the people they report to, whether it's the CFO, the CEO or, in some cases, the board." Higher-ups want to know why the company is using a particular broker, he adds, and they don't want answers that reflect little more than organizational inertia.
In addition, Fox said, risk managers are getting more phone calls from brokers soliciting their business. Each call is an opportunity to glean information that can be used on the next call. One risk manager taking part in a Greenwich survey described it as looking for brokers who can deliver an "a-ha" moment, no matter how small, Fox said. "The world is not about magic potions," Fox said. "But it is about thought-provoking ideas, and thought-provoking ideas do not need to be laser beams."
Indeed, discussions with other brokers prompted the risk manager for a real estate investment company to send out a request for proposals. When she told her existing broker about the ideas she was hearing from other brokers, she said, the broker generally wasn't familiar or had little experience with them. The RFP followed. "It was glaringly apparent that we needed to move our business," the risk manager said.
The relatively poor marks for service come at a delicate time for brokers. Clients are looking for brokers to do more than ever, especially as risk managers cut their own staff, said Steve Levene, an executive vice president and leader of the insurance brokerage practice at Towers Watson, a consulting firm in Stamford, Conn.
For an example, he points to the closer look that risk managers appear to be giving a boilerplate phrase in their RFPs: "extension of the client's risk management department."
"Clients say it so much, they often glaze over," Levene said. "Now, I'm hearing clients again grasp onto that term ... They're grasping onto it because they're not getting it."
Cutbacks may be one reason for the renewed attention, Levene said. "Risk departments that used to be 10 people are now three. But just like your job and my job and everybody else's job, people still expect the same results."
Brokers also have been trying to do more with less, risk managers say. While service has been fairly steady, risk managers have spotted occasional slips.
The risk manager for a real estate management company said some of the details are getting overlooked on certificates of insurance, for instance, which the company distributes to investors. Certificates may list the wrong properties, the risk manager said. "We really have to look at those closely when we get them to make sure they're correct, where before we really didn't have that issue."
On the plus side, brokers seem more willing to acknowledge gripes, said Scott Allan, senior vice president for insurance risk management at Lehman Brothers Holdings Inc., which is managing the remains of the bankrupt investment house in New York. "When clients used to complain about those little things like certificates, we used to be dismissed as cranky," Allan said. "I think there's a much higher level of understanding about how those little things can change the client's relationship with their third parties and with brokers."
But in pondering the impact of broker cutbacks, Allan focused more on the bigger picture. His concern is a declining level of expertise inside brokerage houses. "There's a fine balance of the brokers cutting expenses and developing a business model that works for them without cutting too close to the bone and not having the staff and expertise and resources available to clients when they need them," Allan said. "And I think that's something that they've really struggled with over the last couple years."
In late 2010, Allan had a question about what might trigger a third-party professional liability policy. "In that case, my broker stepped to the plate. He had somebody available to me that afternoon to walk through the circumstances and give me an opinion," Allan said. However, he added, "When brokers were better staffed, those resources were more plentiful and more reliable."
One executive wondered if brokers could use their leverage to wring more of that expertise from carriers, which house their own experts. "In this market, which I perceive to be fairly soft, there may be some concessions, if you will, to provide help with a particular problem, say if you have had an inordinate amount of security breaches," said the executive, who works for a health care provider in the Southeast. "Is there not someone with a big carrier who has expertise at advising clients and insureds about how to reduce the risk associated with robberies or vandalism or thefts in garages?"
Risk managers should not sit back and wait for offers of help to come pouring in, according to the safety officer at a liberal arts college in central Pennsylvania. They need to speak up. "It's got to work both ways," the safety official said. "They have to know that you need assistance, too. Otherwise, they may feel that, since they're not hearing from you, that everything is chugging along doing fine."
The college is planning an RFP this spring, based on internal policies not on dissatisfaction with its current broker, the official said. Cost will be more important than service. But, the official adds, the college is willing to accept a broker who charges a little more and maintains service levels rather than one who is cutting back in order to keep costs flat.
"I think most people would feel that way," the official adds. "Everyone's costs rise with time. It's just the nature of inflation and doing business. As long as it's a reasonable increase, I think most people would be comfortable with that, provided they are getting the same level of service."
February 17, 2011
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