Entries tagged with “Insurance Agent”.

It’s the first day of 2010 and between the parades, football and food, I wondered what new years resolutions are on the minds of Risk Managers.   If you haven’t put together this years list, here are 5 suggestions for the coming year.

1.  Increase the awareness of Risk in your organization- In my experience, many decisions are made based on best case scenario, or what will put more money to the bottom line.  While this philosophy works very well, in many cases the decision makers do not realize the total extent of the upside and the downside to the organization.  It’s important to be aware of the risks and rewards to be sure that the decision is based on what is best for the organization as well as making sure that the reward is appropriate for the amount of risk that is involved.

2.  Monitor the credit health of your suppliers as closely as your customers - The roller coaster ride the economy has taken over the past 18 months have shown the vulnerability of all businesses.  The success of your organization may be tied to goods, services and material from an upstream supplier, and if that supplier is at risk of going out of business, the interruption to your supply chain may be a devastating blow.  Monitor the “health” of your suppliers as carefully as you monitor your own Accounts Receivable.  It may just help identify a stress point in your supply chain.

3.  Review your organizations risk tolerance- If you have already taken the initial steps to determine your company’s tolerance of risk, do a follow up to make sure that the mood and thoughts of the company has not changed.  If you haven’t established the risk levels your company is willing to endure, I would suggest completing the process.  Identifying the risk tolerance of an organization provides a benchmark to measure the risks that new proposals, ideas and opportunities present when green-lighting a project.  It helps determine the amount of insurance coverage your company may require, or which alternatives should be put in place to manage the risk at hand.

4. Review contracts and agreements for inappropriate risk transfer or lack of protection – Many contracts can call for you to take on additional risk, or require your company to maintain an inappropriate or unnecessary level of insurance coverage.  In my years of creating and establishing business relations with vendors and customers, I have found that many smaller companies do not fully understand the agreements they are signing and may not realize the full scope of the contract.   The clauses in the fine print and away from the unit price, can call for stiff penalties for errors, responsibility for damages that are not associated with the product or service you select, insurance coverage requirements (including the amount of coverage needed and the naming of the customer as an entity on the policy) and/or minimal reimbursement for the loss or damage to your product.  Reviewing the entire contract and accounting for all the bits and pieces of risk help you to determine if the price or payment is appropriate for the risk that is taken.

5.  Review of your insurance agent(s)/broker(s) and other Third Party Administrators - Your insurance agent, broker or third party claims administrators (TPA’s) are important partners to your business.  They represent you and your interests to the insurance companies and work to maintain or reduce your total cost of insurance.  Typically you will have contracts with the insurance broker and the TPA’s that outline the expectation you have of them for the fees you are paying.  Make sure that a review is periodically set up to measure how well they are doing both in managing your costs as well as looking for cost reduction opportunities.   Remember that there is nothing that would prevent you from placing your business out for proposals on a regular basis to make sure you are receiving the appropriate service for the appropriate price.  However I would put out a few caveats related to the RFP process.  First, make a determination of what is needed and craft the proposal very carefully to establish the core requirements and how these requirements are responded to in the proposal.  You need to be able to compare apples to apples and keep the ancillary issues, ideas and proposals separate so they do not cloud the comparison (they come into play after the core issues are reviewed).  Second, I would suggest that an RFP is not issued every year, unless the quality of service is unacceptable.  You should provide a sufficient window to allow the service provider to build a track record showing the quality of service as well as show stability when working with the insurance companies.  Third, remember that an RFP is not a sign that the current provider is unacceptable, and you do not need to make a switch. 

6.  Build better relationships with other departments to better understand the operational risks they are facing -  This one probably goes back to our first resolution, but the better relationships you have with other departments, the better understanding you will have with the overall operation of the company and in turn the potential risks that could pop up from unexpected places.

7.  Subscribe and read to a business or industry related magazine, e-zine or newsletter  - I am continually amazed at the number of ideas and new opportunities I find in Business Week, Fast Company, Wired, and Bnet.  They are sources of inspiration and thoughts from different industries and business areas that can be modified to fit my organization or spur on new ideas, products and services. 

8.  Update your disaster recovery and business continuity plans -  These plans are the things that minimize the oops in operations.  The plans are not just for IT service outages, but for any unexpected incident that can cause an interruption in your business.  Make sure you review the plans annually to adjust for any changes in personnel, operational locations or new impact areas.

There you have it, a listing of 8 resolutions for 2010, and I am sure there are many more out there.  Please feel free to contribute your suggested resolutions for 2010.

Wishing you a Safe, Healthy, Happy and Prosperous 2010.

In what I considered a surprise move, Illinois Attorney General Lisa Madigan provided a green light to resume collecting “contingent commissions” to Arthur Gallagher & Company.  Considered to be the fourth largest broker they are headquartered in Illinois and regulated by the state of Illinois. It’s surprising as they along with Marsh and McLennan, and AON had agreed to a settlement several years ago brought about when former NY State Attorney General Eliot Spitzer forced the major insurance brokers to stop this practice.

In case you are not familiar with contingent commissions, these are commissions paid by insurance companies to the insurance broker to push their products to companies, and in many cases the company is paying the insurance broker to negotiate and secure insurance coverage.

I should point out that the agreement between Spitzer and some insurance brokers did not put a halt to contingent commissions.  Many smaller insurance brokers continued to collect these types of commission either as a contingent or a “supplemental” commission.  

As a buyer of insurance programs it is important to understand your relationship with your insurance broker or agent as well as the their relationship with the insurance company.  Is your agreement with them fee based, where you are providing a payment to them for the services they are providing?  Or, is the agreement based on a commission they are receiving from the insurance company for the policy?  Or, is it a combination of the two, where there are some payments provided by you and some commission provided by the carrier.  This should be spelled out in your agreement with the broker, or outlined in the proposal itself. 

Review and understand the proposal that is presented to you at the time of renewal.  Make sure there is a disclosure statement included by your broker which indicates if they are receiving a commission for the placement of the insurance and if they are participating in a contingent or supplemental commission program with the carrier.  If there is no clear documentation, ask your sales rep.

It is important to clearly define your relationship with your insurance broker or agent.  It is also important to understand the breakdown in the cost of the program, if commission is added to the premium, or if there is a portion of the premium dollars that is being earmarked for commission. 

The fact that a contingent commission is associated with an insurance policy should not be a deal breaker, each organization must review the policy and determine if the coverage, and service meet their requirements.  Understanding what makes up the costs help to make an informed decision.

For additional information and another thought on the contingent commission, please review the BNet posting discussing this and the potential pitfalls by Ed Leefeldt.   His posting is a great perspective on the situation.