We Don't Need Another Broker: How To Get The Best Liability Insurance Rates Available

Some business relationships are forged through blood and friendship. When you work for a company whose owner has a brother, sister, or best friend that sells insurance, your hands are usually tied when it comes to finding the best deal for your boss on insurance. Or maybe you are the boss, and you don't want to upset that lifelong relationship. That's understandable, but you aren't doing anyone any favors by not asking your friend or relative to compete.

Every day, business people receive sales prospecting calls from a variety of industries. I have fielded many calls myself from copier sales people, office supplies distributors, magazine vendors, market researchers, computer technology vendors, and actually a few insurance agents. Prospecting calls are usually intrusive and ill-timed, but every good sales person knows it's a numbers game. You keep calling people until you find someone who is ready to talk to you.

When it comes to handling insurance agents, though, most people make some wrong assumptions. For example, you assume that your agent has access to all the same markets (wholesale brokerages and insurance carriers) the person calling you does. Your agent may have access to more markets. Or the other guy may have access to more markets. You should not assume they are equals, because in many cases they are not.

Another assumption people make is that the agent can control the price. When you buy commercial liability insurance, at least, the price is controlled by the carrier. I've had more than one person say to me, "You should give me your best quote and compete on the basis of that, adjusting your commission." I wish I could do that. In Texas, at least, it's illegal for agents to give back part of their commission. "But I'm not asking for a kickback." Not precisely, no. But an agent or retail broker is only a middle man. His job is to find the market that will underwrite your risk. The wholesale broker or carrier is the source of the pricing.

Retail brokers don't compete on price. They compete on service and access to markets. In some cases, a retail broker can ask the market to adjust a quote and someone somewhere will sacrifice commission. The retail brokerage may, in some cases, be asked by the carrier to give up commission. But a wholesale broker (a middle man between your retail broker and the carriers) is more likely to give up some commission. The retail broker is usually restricted to selling the products at prices set by their originators.

Agents can, and should, negotiate with the carriers for the best prices possible on quotes. But carriers demand a lot of information, often-time information that companies are reluctant to give out to new agents with whom they don't have prior experience. That reluctance, while understandable, is self-defeating and here is why.

Let's say you have a broker who has served you well for five years. Your broker has even shopped your policies for you every 2-3 years, just to make sure you are getting the best price available. When you've had claims, the broker has stepped right up and made sure they were settled. That is the kind of service every broker strives to give to clients. Occasionally, things don't work out that way. But let's assume that you're happy with your broker.

So then I call you. And you think, "I've got a great relationship. Why should I change?"

At this point, you have no reason to change. But you may find one if you dig further. I can give you two reasons that occur every day. First, there are few if any brokers who have really good relationships with all the markets. By "really good", I mean a relationship where a broker can approach a market and say, "XYZ Company is a better risk than they may appear on paper. For example, their 'consulting' work really entails no liability since their clients sign waivers."

One market might accept that from your broker, but another market won't. That other market, however, may trust me enough to give you a little leeway. Keep in mind that an agent has to substantiate everything he tells BOTH the prospective client and market. We cannot misrepresent the facts or get by on what-if scenarios. But insurance markets understand that prospective clients may convey some information to agents which is unintentionally incorrect or intentionally incomplete. The agents may be able to accurately assess a risk situation better than the paperwork makes it out to be, and if the markets have worked with those agents enough to trust them, they may be more flexible in the quoting process.

When a new broker calls you asking for an opportunity to quote, keep in mind that any two brokers may be able to hit all the markets underwriting your business risk. But those two brokers may have better relationships with different markets. Here is how to find out if they do, and how to make that work to your advantage. Ask the new broker which are his best 2-3 markets, the carriers he has really good relationship with. Then go back to your broker and say, "Okay, Joe, this year we're asking you to get competitive, just to keep your edge. What are your best 2-3 markets?" DO NOT TELL YOUR BROKER what markets his competition has named. Not yet. Let him give you his best markets.

If your broker names the same three markets as the new broker, tell the new broker, "Thank you, but we asked our broker to name his best three markets without divulging yours, and he named the same three. So, we feel comfortable with our current situation."

If, on the other hand, your broker names different markets from the new broker, then ask them to compete on a fair basis by giving them market assignments. A market assignment divides the competition evenly and fairly TO YOUR ADVANTAGE because you are restricting the brokers to working only with the best markets they have access to. If there are conflicts between favored markets and you have 3 or more brokers competing (usually, you don't need to work with more than 3 brokers at a time), then arbitrarily assign one hot market to each broker, if it comes to that.

Without the market assignment, you probably will not get the best quotes possible from the insurance wholesalers and carriers. Be up front with the competing brokers. They should have no fear going into the process, because they all know they have to keep turning up new business. They should be at their competitive best for you, not just for everyone else in your industry. Hopefully, your regular broker will come through for you. If not, there is always next year. You can either decide to stay with the broker on the basis of good service, or you can say, "We've had a great relationship, and I hope we can do business again in the future." It stings when an agent loses an account, especially a good one. But you have a right to get the best available insurance coverage.

Some companies ask new brokers to leap in after their regular brokers have begun shopping a policy. That is a mistake which hurts you, the insured, because your broker may block every other broker in all the available markets. Wholesalers and carriers will only deal with one agent per prospective client. If you send one broker out to all the available markets, odds are pretty good that broker will get sub-standard quotes from some of those markets. So, yes, you can pick the best quote that broker provides you, but you could be passing up a better quote that saves you substantial premium. There is only one way to find out.

You need to plan ahead. If you just changed insurance carriers in the last year or two (not brokers, but the actual carriers who underwrite your insurance), you may be fine as long as you are getting automatic renewals without substantial premium increases. An increase in premium should be based either on your claims history or changes in the carrier's risk pool. The risk pool consists of all the other companies like yours whose insurance that carrier underwrites. It is to your advantage to participate in larger risk pools, if you can get into them.

If your premium has been changed, if you have been non-renewed, if you have had a lot of claims, or if you haven't changed carriers in three or more years, make the decision to get competitive quotes through market assignments this year. Start the process at least 3 months in advance (but no more than 4) if you need to look for brokers. An insurance quote is good for 30 days. Most brokers will try to give you quotes within the last week before your renewal. That is because, too often, prospective clients will take really competitive quotes back to their regular brokers and ask them to get those markets (this can be done with a letter).

It is in your best interests to let the broker who brought you the quote get your business. They did the work, they have the access to the market. By giving your regular broker the business another agent found, you may be doing your friend a favor, but you are hurting yourself. The bottom line is, if you want the best service and value from your insurance, then you need to let the marketplace show you how to get both through fair competition.

If you don't mind keeping your friend on the payroll, well, why did you read this far into the article? Good shopping.