The merits of considering a broker vs price tender

The decision to move brokers is never an easy one and this decision is most often prompted by poor claims service, inadequate advice, lack of innovation or general service lethargy.

It is seldom based on a broker's inability to secure competitive terms in the market and yet this is often used as a basis for a new tender or renewal.

Warren Bolttler, CEO of PFP Insurance Brokers, a wholly owned subsidiary of London-based Price Forbes says it is important to separate out the various functions of a broker. "Securing a range of terms from the market and structuring a competitive insurance portfolio is just one aspect. The other is to deliver a more holistic service that addresses claims and the advisory elements of risk and insurance."

Bolttler believes the latter should be given more emphasis in the equation and decision making process.

The reality is that when compiling quotes for the renewal, it is common practice for most brokers to approach a number of underwriters in each class to show the client quotes from a range of players in the insurance market.

This way the client can benchmark the pricing they achieve, ensure they are receiving the best deal and make sure there is healthy competition between underwriters. Similarly, when shopping around for a new broker, clients often end up instructing the prospective brokers to go to the market and get terms for their renewal. Bolttler says there are inherent problems with this approach. "When you think about it realistically, pricing will not differ if brokers approach the same markets and use the same underwriting information. The only difference could be in the way the broker structures the programme."

"So in essence this places the focus on price rather than the holistic service issues which created the problem in the first place," he says.

Bolttler says it makes more sense to broaden the tender to include other service capabilities like claims service, innovation and wider risk management functions. This changes the focus to a 'broker tender' which specifically precludes the brokers from going to the market. In this way brokers are forced to change the focus of their service offering from simply quoting to delivering a holistic service. How efficiently claims are facilitated, turnaround time from accident to final settlement of the claim, overall level of communication and innovation, and integration into your wider risk management framework are just some of the factors that should be considered. Commission is also another sometimes thorny issue as this can incentivise brokers to place structures with a higher premium in order to maximise their earnings. "Fees are a fairer way of charging clients," says Bolttler. "However one always needs to check how the fee has been calculated."

Changing the focus of the tender ultimately allows clients to make a more informed and integrated decision.