The Insurance Audition: Top 3 Rules to Follow When Buying Property & Casualty Insurance

May 3, 2021

Organizations are navigating one of the toughest insurance markets that has been experienced in decades.  Many companies are facing increased rates, retentions, restrictions in coverages and terms and reluctance from carriers to write their business with limited competition.  Add on top of that, the pressure of managing evolving risks and emerging trends, and you get a sense for why it is so important to have a proactive strategy to manage your insurance and risk management program with your external partners.

There are several criteria and processes your team should consider to ensure you have the most professional insurance buyer and risk manager representing your company. We hear often that many financial leaders are uncertain about the best way to buy property & casualty insurance for their organization and that the renewal process can seem reactive and time consuming each year.  The renewal comes and goes and there is an uncertainty for many financial leaders if they secured the best coverage, terms and pricing available in the insurance marketplace.

You are not alone if you feel this way.  MMA assembled multiple roundtables with financial leaders from a variety of organizations to discuss their concerns when considering their insurance and risk management program.  We discovered themes around FIVE key questions that may resonate for you:

  1. What risks do we need to worry about?
  2. How much risk can we, or do we want to take?
  3. Are we adequately protected?
  4. What’s the most efficient use of our capital?
  5. Are we getting a good deal? 

With the current “hard market” cycle that the insurance industry is facing and companies experiencing more risk than ever, many organizations are thinking about these five key questions and are going through an evaluation of their current insurance program and broker consultant. 

Follow the TOP 3 Rules of Insurance Buying

#1 Rule:Start the process early. Your company assets and success depend greatly on how you manage risk.  The risk management process should be constant and continually reviewed throughout the year, not just confronted around an insurance renewal date.  At a minimum, if you decide to do an Insurance “Audition” and you have a January renewal for example, this evaluation should take place at a minimum 120+ days before that effective date.

#2 Rule: Make choosing your risk management partner, your first priority. Your organization’s leadership needs to share the philosophy that you are choosing your Insurance broker and risk management partner first—before trying to select carriers or coverage. Choosing your insurance advisor is no different than selecting your accounting or law firm. The idea should be that your insurance advisor is there to represent you in the insurance marketplace.  This bring us to Rule #3 and hammers home Rule #2.

#3 Rule:Do not quote insurance with multiple brokers.  Doing so is a waste of time and a dangerous risk for many reasons.  Any broker can try to lead with price in soft, competitive market conditions.  The current hard market cycle demonstrates the importance of identifying a trusted advisor who manages risk.  My favorite question when we see transactional insurance buying, is from one of our legendary MMA leaders, Ken Hale, “Would a rational person go into an emergency room and ask for the cheapest doctor?  Why would you leave your assets up to a quote contest?”  Conduct an “audition” when selecting the firm to be your risk manager and insurance advisor first.

Top 3 Steps to Start the Insurance “Audition” Process: 

Here are the ideal steps and minimum expectations you should receive from a competent risk manager and professional insurance buyer:

  1. Select candidates from one or more firms to “audition.”  Because you are familiar with you current broker, you may want to skip for now as they presumably have already auditioned.
  2. Provide all insurance information and research time they request. This is very telling on how each broker goes through their research process and how they get to know your organization.
  3. Ask each broker to prepare a report of recommendations and the specific strategy they would have for your insurance and risk management program.

Goal of the Insurance “Audition”

Identify the most professional insurance buyer and risk manager to represent your organization.  This is an insurance broker that will go into the carrier marketplace to represent your organization. 

What to Expect from this process at MINIMUM:

Insightful analysis of your current policies and risk management program including, at a minimum:

  • Good and bad terms and conditions of your current insurance policies
  • Analysis of your claims history and recommendations
  • Analysis of your Experience Modification Factor & recommendations
  • Review of lease/customer agreements, temporary employment or contract labor agreements
  • Executive Risk Review (Directors & Officers, Fiduciary, Employment Practices Liability, Cyber, Crime)
  • 3-5 year recommendation of program structure and carrier strategy
  • Annual Risk Management Service Plan  i.e. safety, claims consulting services
  • “Value Creation” for your firm:  The broker accomplishes this through a disciplined approached of knowing your company intimately and providing you superior strategy, risk expertise and people talent to support your organization wide objectives

If you and your leadership team are reviewing or evaluating your risk management program short- or long-term, MMA can help support the “Audition” process and answer any questions you have. Reach out to me directly or your local Marsh & McLennan Agency representative for assistance.