Guest writer Gabriel Popescu continues his series of insurance articles, after a first on general precautions and a second on how brokers get paid, by examining the process of selecting an insurance representative for the business. This highly complex process will be discussed in two articles. Here is the first, dedicated to the preparation for the selection. The next will cover the selection process itself.
There are nearly 600 insurance brokers operating in Romania. It is hard find one not claiming to be completely devoted to its clients and struggling with the insurance companies (who happen to pay the broker) for the best insurance conditions. Some brokers are local branches of world-wide insurance brokerage firms recognized for their risk and business continuity management consulting capabilities, while others are members of international networks. Some might claim to have a large client base, others to be specialized in certain insurance lines. Every one of them will try to impress you somehow in order to trigger your decision in their favor.
A good choice of an insurance broker implies awareness about navigating in the shallow waters of images and illusions embedded in the marketing materials and approaches employed by some brokers. Our suggested guidelines for the selection of an insurance broker able to properly deal with the intricacies of your corporate property and liability insurance needs are as follows:
Should you get some help?
Imagine, for a moment, an insurance broker as a type of doctor for your business. When you personally need medical service, you can rely on the functioning structure of the medical system for guidance. If you go to your family doctor, who is usually a generalist, you will expect to be directed to a specialist doctor if you have a serious medical problem.
Sadly, this reasonable and effectively proven way to deal with a medical problem is not replicated in the local insurance brokerage industry. Most likely, if you approach at random an insurance broker, you will be taken aback by their professed skills, competency, knowledge and experience. You may hardly find a broker to admit that another broker is more qualified for a certain insurance type you may need.
In this context, if you feel that you have sound knowledge about the insurance market, you may try to cope alone with the selection of the broker. If not, you may want to be assisted by a risk management professional that can play the role of the generalist doctor. This can be either an employee, if your company has a risk management function, or an external consultant. Do not fear the additional expenses; a consultant experienced in the insurance market can show you how to manage your relationship with the broker in a manner providing a sustainable overall cost reduction.
Do you need a broker or an agent?
If you want to work with one insurer only, you can equally choose to collaborate with either a broker or an agent of the insurer. The main difference between agents and brokers is that the insurance agents are legally allowed to distribute the insurance products of one insurer only, while brokers are allowed to do the same for several insurers. The rest is the same; they are both paid by the insurance companies. Sometimes you may find that an agent has a better understanding of the insurance conditions as some insurers continuously invest serious effort in training their licensed agents.
When you discuss with a potential candidate aspiring to become your insurance broker it is wise to consider the overall ethics and integrity of the firm as well as of its individual employees that will service your company’s insurance program. For instance, does the brokerage firm have a written ethics policy or a code of conduct for its employees? Has the brokerage firm earned a sound reputation for integrity and if so, how? Are the individuals that will take care of your account members of a professional association or certified by a professional body that imposes a code of conduct for its members?
You should be aware that there is a professional association of the Romanian insurance intermediaries named UNSICAR established in 2000. This association published a mandatory ethical code of conduct for its members. However, less than 20 percent of the currently authorized insurance brokers are members of this association and therefore bound by this ethical code.
Certification and professionalism
The contracts are concluded between firms, but ultimately the job is effectively done by people. Consequently, the most important for you is not so much the name of the brokerage firm but the team assigned by this firm that will work on your company’s insurance account.
Take care with the foreign brokers that are working in Romania under the principle of freedom of services in EU or that have registered local offices. They can make catchy statements about surpassing risk and insurance consulting capabilities of their mother companies or networks. You may agree that the people who created those exquisite capabilities abroad are very far away. Instead, look for evidence of adequate qualification, skills, knowledge and experience of the local employees assigned by the brokerage firm to manage your insurance account from day to day.
As a matter of due diligence you may ask for professional recognitions granted by risk and insurance management institutes with worldwide membership. You should know that in Romania there is an Insurance Management Institute – IMI, which manages a certification program for insurance intermediaries with individual certification based on a sole exam, which is further maintained through a continuous professional development scheme. However, this is a mandatory certification held by all people working in the insurance industry that get in contact with clients like your company. It therefore might not be a sound differentiation in your search for a broker highly skilled in corporate property/liability insurance.
Size of the broker
When you prepare the short list of the eligible brokers, do not consider by default only big brokers. There is an assertion that “size matters” in some domains, but insurance brokerage in Romania is certainly not one of them. The largest insurance brokers are currently those that run insurance mediation programs benefiting leasing companies. The mechanism is simple: there is legal obligation to insure all leased property, almost any leasing company has a partnership with an insurance broker, and each lessor asks its lessees (users) to insure through its broker partner. If you have ever entered into a leasing contract you may know this already.
There are at least three fundamental reasons for which the size of a local broker cannot be a relevant criterion for selection. First, it seems to me that there is no professional merit for a broker resulting from a leasing company sending the lessees to purchase insurance through the broker. Second, about 70 percent of the Romanian insurance market is currently represented by motor insurance (e.g. motor third party liability insurance, vehicle insurance) that are either compulsory or easy to arrange via almost any broker. Third, the bulk of insurance linked with leasing contracts is very close to retail insurance, rather than corporate insurance.
When you want to appoint a broker to act on behalf of your company on the insurance market, you need to sign a broker of record letter. This is an authorization for your broker to represent your company that is recognized by the insurers.
The problem with the broker of record letter is that it gives a lot of power to the broker on the insurance market without creating significant obligations. The broker may filter the information obtained from the insurance market, thus being able to influence your decision. In order to get business, the insurers will have to satisfy your broker, which may mean complying with a set of requirements that may represent a combination between your company’s interest and the broker’s interest in a proportion over which you do not have effective control.
In fact, the broker of record letter, as it is commonly proposed by the brokers, is a proxy agreement subject to the civil law. In this basic form it cannot be of much help for you to measure the performance of the brokerage service over time and equitably balance the compensation of the broker against its effective useful services. However, you can easily turn this basic representation agreement into a powerful commercial contract by incorporating specific clauses regarding the service level. If you want to best protect your company, this is the way to go.
A little preparation for the next session
The most effective insurance management approach will result from a win-win partnership with your insurance representative based on ethical behavior, revenue transparency, demonstrated competence and mutual trust. We have seen in this article the basic guidance for preparing the selection of an ethical and competent insurance broker, able to provide unbiased professional advice. You are now well prepared for performing the process of choosing the right insurance broker for your business. We will see how next time.
By Gabriel Popescu, Guest Writer
Gabriel Popescu is AMBCI (Associate Member of the Business Continuity Institute), management consultant and founder of Esentum Business Management SRL, a consulting firm dedicated to promoting the art and science of Risk Management and Business Continuity Management, based in Bucharest. Before starting his own consulting business, Gabriel worked for more than 20 years in industry (technological equipment and aircraft) and financial services (banking and insurance brokerage).
(photo source: Photoxpress.com)