Priya Cherian Huskins, Esq.
Mar 03, 2020 13 minutesThe Only 5 Questions You Need for an Insurance Broker RFP + Common Mistakes to Avoid During the Process
For some, the RFP (“request for proposal”) process for insurance brokerage services has become unnecessarily complex. The default route many insurance buyers take—asking a committee of six or more to review 100-page RFPs submitted by five to eight insurance brokerages—may not be the best use of company resources.
The goal of an RFP process is, of course, to determine which insurance brokerage best fits a company’s needs. In this article I discuss how to conduct an efficient RFP as well as common mistakes companies make as they go through the insurance broker RFP process.
Most formal RFPs start by asking for a written response, after which there is an oral interview. With the approach I’m recommending, you will save time and effort by going straight to the oral interview.
After considering what is important to you and talking to your trusted business peers, make a short list of brokers to invite to the RFP. By “short list” I mean your incumbent insurance broker plus two others (or maybe, in some cases, just one other) that your business colleagues have recommended. That’s it.
You will be happier with the time you spend and the RFP results if you limit yourself to inviting only a small number of insurance brokerages to the process.
Now to the interview part. I recommend that you ask each broker candidate (including your incumbent) to come in and give you a “capabilities presentation.”
Putting the request this way means that you will end up seeing what each broker thinks is important for you to know about their firm and their approach to managing risk.
Of course, every good interview has some structure. This helps ensure that you get the information you need and allows you to compare your interviewees effectively. I also think it’s fair to share upfront your areas of specific interest with the teams you have invited to speak with you.
In my experience, there are five questions that are useful in an insurance brokerage interview process. These five questions are all you need to understand a firm’s credibility and capability:
Culture eats everything else for breakfast, to misquote a famous phrase. When you ask this question, you are listening for an answer that reveals how a firm thinks about the task of placing insurance for its clients.
This question allows your interviewees to give an overview of their brokerage firm, including their culture. You will be listening for things like team cohesion and stability.
You’ll also likely learn something about team dynamics, including whether the team members you are interviewing actually know and like each other. This matters because in difficult situations, you need your brokerage team to row hard in the same direction on your behalf.
The answer to this question will tell you if the brokers you are interviewing “get” your company. This is also your chance to get some free advice from the experts you are interviewing as well as gain insight into how the brokerage teams are thinking about your risk.
In the best case, the question will reveal the broker’s style of communication: are you talking to someone who loves “buzz” words and speaks only in jargon, or is the broker seeking to have a practical, useful dialogue with you?
This question is designed to help you discern whether and to what extent the broker you are interviewing is able to take a customized approach to your insurance needs.
This will allow a good broker the chance to identify critical insurance policies and share their process for placing these policies.
Another important element of this conversation is how a broker proposes to help you decide what limit of insurance to buy. This is also the right time to start a discussion about insurance premiums.
This question is about client resources. Some brokers have invested more than others in client resources such as access to databases, secure online platforms, claims advocacy, and other client services.
Be sure to ask specific questions around claims advocacy and to what extent this is already included in your service fee or is a separate charge.
Some of the additional services will be useful to you, and others not so much. In general, most good brokerages provide a lot more support than just placing insurance. You’ll want to take advantage of these services, especially if there is no additional charge for the services.
Here you are looking for transparency. Cost is important, and a good broker will break down the costs for you in an understandable, straightforward way.
Remember that your cost of insurance has two elements: the premiums you are paying insurance carriers, and the amount you are paying the broker to do the work.
In this part of the interview, you are looking for a discussion that reveals not only how your broker thinks about premiums, but also what are the levers the broker is pulling to manage your premiums over time. In addition, this is where you find out if your broker wants to work on commission or fee.
Finally, to the extent you access the additional services the broker has described to you, you’ll find out if they are charging separately for certain services, such as claims handling.
“I definitely want to waste everyone’s time with an overly long, inefficient RFP,” says no one ever. But actions sometimes don’t match intentions. As you plan your RFP, double check the list below to make sure the process hasn’t fallen into one of the following traps.
More and more, companies are engaging in procurement-driven RFPs, which attempt to reduce service offerings to a data-driven spreadsheet.
Procurement departments can definitely add value when their tools and approaches are used deftly. Unfortunately, a lot can be lost if the spreadsheet—and not a company’s actual needs—becomes the driver of the RFP process. This is especially true when it comes to arranging for services.
Questions like asking a broker to rank insurance carriers by claims handling abilities, for example, reveal a lack of understanding of the nuance in how claims are actually handled and paid.
Much like with the US News and World Report “Best Colleges” list, when people get too tied up in rankings, they often miss the critical component of “fit.”
It helps to recall that you’re not buying a commodity; you are hiring an expert. This is the reason a procurement-driven RFP format feels so clunky to everyone involved. Yes, there are real metrics one can measure, but what you can measure is often not the things you want to measure.
A simple analogy is hiring a law firm: you can measure the number of attorneys at the firm and their hourly rate, but those metrics won’t tell you if the team in question will be the best at helping you win your litigation.
To run a more effective RFP for insurance services, refrain from sending an email to the dozen insurance brokerages you’ve ever heard of, asking them to answer a raft of questions. Instead, start by doing the pre-work of thinking about what is important to you.
For example, ask yourself these questions ahead of time:
If you are doing a market check, be honest about that. Plenty of brokers will still want to participate in your RFP. Also, the types of conversations you will have are different when you are honest about your intentions.
Some companies mistakenly base their decision solely on the presentation rather than talking to other people in their ecosystem about their insurance brokerage decision. If you have the chance to speak with someone who has worked with a prospective insurance brokerage during your assessment process, take the opportunity to do so.
This may come in different forms:
Sometimes the decision-making process gets reduced only to the cost, which is surely not surprising given the expense of insurance. Cost can also feel like an easy thing to compare.
Buyer beware: The lowest price might not be the best value, or even available. For example, consider that you can often lower the price of D&O insurance by agreeing to a very high self-insured retention (like a deductible), but doing so might leave your balance sheet significantly exposed.
Concerning whether the price is even available: Sadly, not all brokers are honest. Under pressure to make their own numbers, an individual broker might give into the temptation to give you a price he or she is unlikely to meet, figuring that by the time the rubber hits the road, you will be willing to forgive the transgression.
In addition, it can be the case that a brokerage that has less business and is consequently in the market less frequently doesn’t have enough visibility to be able to predict your cost accurately.
Thus, when you rest your brokerage decision on price, the winner will be the brokerage that promises you the lowest price, regardless of the viability of that promise. When the actual pricing comes in, you will still have to pay the bill—even if it is significantly higher than the winning broker originally predicted.
Sometimes companies ask multiple brokers to go into the insurance market and obtain bids so that the company can compare the results among the brokers. The idea is that the company will then choose the broker who comes back with the lowest price. Unfortunately, this will not work as intended because of the basic law of supply and demand.
While there are many insurance carriers, the number of carriers willing to write the first or primary layer of insurance is much more limited. The primary layer is the most important layer since it is so foundational both for the terms and the pricing of the insurance program. Remember, too, that each carrier will only give a quote to one broker.
This means that if a company divides the market between brokers, each broker is working with fewer markets (the supply side of insurance). The result will likely be suboptimal pricing compared to if one broker were working with the entire market.
It’s a great idea to take a deliberate approach to your RFP process, and in the end it might not be worthwhile to even begin the process if you don’t actually have enough time to both run your RFP process and change brokers if warranted.
If you are running an RFP that might be short on time, it’s helpful to remember that, usually, insurance policies can be extended for a month or two if needed. However, it is far better to allocate enough time to the process at the onset.
How much time do you need to run a good RFP and also have time to change brokers at the end of the RFP process?
Public companies and late-stage private companies will ideally begin the RFP process with six months to go before their insurance policies renew, and will complete the process three months before the renewal.
This timeline provides enough margin to accommodate all the schedules at your company that likely need to be coordinated, not to mention the schedules of the people you are inviting to come in and talk to you.
Of course, you can run a good RFP in a lot less time if needed, but be honest about why your timeline is so short. For example, if you are a company that makes decisions efficiently and you truly have buy-in to make a change from all the relevant constituents, then by all means move forward.
On the other hand, if you are starting late because it was hard to get folks organized, some people didn’t really want to do an RFP, and everyone is very busy…well, you are likely to run out of time and end up staying with the incumbent because it is “too close to the renewal to make a change.”
Companies in this situation want good service from the incumbent during the renewal, so they may find themselves being unclear with the incumbent that they might change brokers after the renewal.
Once the renewal is finished, it’s possible to change brokers. but it’s more likely that no change will be made without first running another RFP of some kind. In other words, it’s better to wait a cycle and have enough time for your RFP so that you can run the process just once and make a change if you decide to do so.
At the end of the RFP process I’ve outlined here, you will have gotten to know a few savvy business advisors who are worth having in your network. You may also have learned some interesting and useful things about ways to manage your business’s risks.
Finally, you will have seen that experts don’t need a lengthy RFP document, elaborate PowerPoint, or other smoke and mirrors to help you get to the nuts and bolts of your risk exposure and your options for handling them.
I promise that you have many better ways to spend your time than slogging through multipage RFP responses with appendices ad infinitum, much of which was drafted by the brokerage firm’s marketing department.
The insurance brokers who will do the best job for you are those who can explain issues clearly, and who are not afraid to have a candid conversation with you.
