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By Joel Berg

If Jeff Miller needed a broker who specialized only in real estate, his search would be simple. He'd line up the least expensive provider.

"Everyone's different," said Miller, general counsel for Highwoods Property, a publicly traded real estate investment trust in Raleigh, N.C. Companies employ different people, set different goals, foster diverse cultures and tolerate disparate levels of risk.

"There are plenty of really smart insurance brokers out there," Miller said. "But are they really willing to come in and understand the business and deliver customized, high-end advisory service?"

Risk managers around the country are asking similar questions. Specializing in an industry is no longer enough, if it ever was, to set brokers apart. Risk managers are looking for brokers who can grasp the inner workings of individual companies, understand the risks and find innovative and cost-effective insurance programs.

"The end game is to get the insurance or get the captive set up right or whatever it is," said a risk manager at a global professional services firm. "But you're not going to do a good enough job unless you really know what's driving the company. What's our DNA? What's the operating model? How do we work? What are the challenges the risk manager faces?"

One executive said he looks for signs of understanding -- or at least a willingness to understand -- as soon as potential brokers come calling. "When people show up in my office, and they're not prepared, and they don't understand at least the basics of what we do, and they don't ask good questions, I hit the off switch very quickly," said the executive. His company, a private equity firm, owns several national restaurant franchises.

The expectations lend a competitive edge to a company's incumbent brokers, as they usually have some knowledge of the business, risk managers said. But that doesn't make the challenge any easier, especially at larger companies.

Their risk managers tend to be harder to please, said David Fox, a managing director and leader of the insurance practice at Greenwich Associates, a financial services consulting firm in Stamford, Conn. Surveys by Greenwich show that large-company risk managers are generally less satisfied with the service they receive from brokers and insurers than their small-company peers.

"You've got a more discerning buyer. They're using a number of brokers. They're using a wide range of products, and they really know the right and key questions to ask," Fox said.

Small-company risk managers are likely to catch up, however, as more and more information becomes available, Fox added.

"The broker is not a mysterious guru who has knowledge of an invisible market," Fox said. "This is a transparent market, and the risk managers are increasingly wise about what the carriers are doing and why they do it."

The last thing risk managers want to hear from brokers is that carriers are lumping in their companies with their peers, especially if their peers are having trouble.

"The response is, 'Why haven't you distinguished me?' " said the risk manager for a global financial-services firm. Company A and Company B may be in the same industry, she said. But that doesn't make them equally risky.

At the same time, brokers shouldn't take short cuts: assuming they understand a company simply because it has a high profile and its basic business seems relatively simple. "We have some very specific risks in our industry," said the risk manager at a national shipping company.

Risk managers also expect brokers to keep an eye on emerging trends. That typically means researching more than just annual policy renewals.

A broker, for example, might sit down with a client and discuss the risks of moving data to a cloud-based computing environment, said Greg Goetz, risk management director for Knoxville, Tenn.-based Scripps Networks Interactive Inc., a developer of cable television shows and channels, such as HGTV and the Food Network.

"In my mind, brokers could be a lot more proactive during the course of the year and looking out for those new trends, those new policies, those new emerging risks, those new court cases that might impact the industry that we are playing in, or that their clients are playing in," Goetz said.

A risk manager at a real estate company said she appreciated her broker's efforts to curate information, that is, pass along relevant articles rather than blast out a general newsletter. "When you get the newsletters, it's 10 to 15 bullet points," she said. "We don't have time to click on every article to see if it applies."

Brokers also need to know that companies are more than the sum of their risks. Corporate executives said brokers could do a better job of appreciating the constraints on corporate spending. Those constraints are unlikely to loosen up, executives added.

"We've definitely experienced challenges across the broker spectrum," said a risk manager at a global financial-services company that has been in the market for comprehensive manuscripted coverage.

The risk manager said he has to work internally to win approval for insurance purchases. The process depends on assessments and forecasts from brokers. But when it comes time to buy, price forecasts can be off by as much as 20 percent to 30 percent, the risk manager said.

"As a buyer, internally, you're in a very precarious situation because you've now built up an expectation and achieved an authority to do something," he said.

Another risk manager took aim at the unexpected fees and surcharges that he sometimes finds on his company's insurance bills.

"The bottom line is, even though I'm spending $1 million dollars on this renewal, $4,000 still matters," said Josh Harwood, risk management director for Telephone & Data Systems, a Chicago-based telecommunications holding company.

"Firms are watching every dollar," said Harwood, who added that he is happy with his current brokerage team. "I realize it might be industry standard. It doesn't mean it's a blank check or it doesn't need to be communicated in a clear manner or a timely fashion."

Brokerage fees, in general, remain a source of consternation for risk managers. They say fees are hard to compare across firms.

"It's all over the place," said the risk manager at a financial-services company. "You do benchmarking per line of how much we pay them, it doesn't seem to be any real formula. So it's hard for us to gauge other than doing peer review and peer analysis."

Costs aren't the only area where risk managers want more clarity. They also want a better understanding of insurance markets, and they don't like when brokers shroud them in secrecy.

"Some brokerage companies treat the client as if they don't know much about insurance and don't want to share the inner workings of the underwriting markets and how they work," said Michael Casey, a vice president at Security National Properties, a privately owned real estate company with headquarters near Sacramento, Calif. Casey said his company's current brokers have been more transparent. "I feel very confident that they're telling me the absolute truth of what is going on."

Risk managers acknowledge that they have to keep brokers equally informed.

"We feel that, in this company, if you don't share what you're thinking with your partners and you don't set the proper expectations, you're just fooling yourself," said Antonio Hung, vice president for audit, risk management and information technology at TAL International Container Corp., which leases shipping containers and is based in Purchase, N.Y.

Hung frequently shares with his insurance brokers his suspicion about their compensation structure. It suggests that they may not always be working in the client's best interest, he said.

"It's something that bothers me and other people in my company. How do we keep brokers honest? How do we know they're doing truly what's best for us?" Hung said. "And the best answer is, you have to trust them."

Hung said his brokers remind him that it's ultimately in their interest not to lose his account. And while he has considered shopping around, he has held off so far. The process is time-consuming, and he's not sure he'd get a better deal over the long term.

"We are very loyal to our partners," Hung added. "We don't like the idea of switching around every year."

JOEL BERG is a freelance journalist and college professor. He can be reached at riskletters@lrp.com.

February 21, 2012

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