Broker Selection vs. Bid Approach for Insurance Brokerage Services

Bid Approach

Many companies use the Bid approach to consider alternatives for insurance coverage and brokerage services. This is typically where your business is shopped in the insurance marketplace by multiple brokers. The brokers can either approach insurance companies that are assigned to them by you, or they may approach the marketplace on a first-come-first-serve basis. Either way, the competition is out of your hands. Your business is "out for bid" which puts the control in the hands of the insurance companies, and the focus primarily on offering the lowest premium.  

In the current "hard" marketplace, underwriters are receiving more submissions than they can handle, and therefore have to choose which accounts to focus their attention on. If they see an account being shopped (i.e. for the lowest price and not via an established brokerage relationship), they have little incentive to give their best efforts. It will be seen as a low likelihood of winning because no one is in control of the process, and there are no uniform ground rules.

Broker Selection
Approach (RFQ)

The Broker Selection approach (Request for Qualifications, or RFQ) is the method used by most of the largest companies and is the best way to achieve optimum results for the long term. It allows you, the client, to control the process and outcome, not the insurance companies.

How it works

First the client selects the broker through a competitive process. The client decides which brokers to include in the competition, usually inviting a few who specialize in their industry. The client then gives these brokers a list of questions to answer and sets an objective scoring methodology. Based on the results of this process, the client then chooses the broker whom they believe will offer them the best resources, along with the right service approach, program structure options, and method of compensation. This places the focus on reducing the client's total cost of risk and providing professional advice, not just price.

Then, the selected broker creates the competition between the insurance companies in the marketplace, essentially allowing the client to enhance the competition and control the process. Since the client has established a process and selected the broker first, the insurance companies know they are working with the winning broker and will give this business their highest effort and attention, resulting in the most competitive results.

Benefits to a Broker Selection Approach (RFQ)

1.     Brokers compete for your business, providing you with the best way to gain insight into their critical thinking. It allows you to decide who is the right partner to represent you based on professional expertise, experience, resources, insurance market leverage, and service approach. 

2.     Insurance companies compete for your business knowing they are working with the winning broker, which provides you with maximum leverage.

3.     The process is more efficient for you because the selected broker will conduct most of the fact gathering and analysis, and create a proposal template for the insurance companies. 

4.     It promotes hiring a professional advocate, not purchasing a commodity. The focus must be on your total cost of risk in order to achieve the best result for your company.

5.     Since insurance companies will not give quotes to multiple brokers, this process avoids fragmenting the marketplace and potentially getting the right carrier's quote from the wrong broker.

6.     It gives you the opportunity to check references before selecting a broker to go to market for you.

7.     You will know exactly what services you will be getting from the broker, and what compensation is being earned for those services.

8.     It eliminates coverage differences between insurance companies because one broker is providing a uniform set of specifications to the marketplace.

9.     It makes it easier to understand what you are purchasing because one broker will present the results to you in a uniform comparison.

Conclusion

Competition can be essential for your company to achieve its desired results and a properly orchestrated marketing process that allows your selected broker to manage the marketplace will ensure control of the process and achieve optimum results.