Broker Value and

Valuing Your Broker

Strima 2008
Allen F. Hyman
Bickmore Risk Services

The Macro Perspective

46 years experience with

government
As an employee

13 yrs. Parks, Recreation & Spec Facilities

13 yrs. Safety, Risk, Pool Administrator

As a broker and consultant to

government

20 years

The Micro Perspective

End User
Account Executive
Legal
Broker
Procurement

Constituents
Competitors

Underwriter

Wholesaler
Specialty Professionals

What is Value Added?

If you hired one person to place your

insurance who provide no other
services until the next renewal, there
would be no added value.

Wheres the Beef (Value) ?

Brokerage Organization Infrastructure

Market Knowledge/Leverage
Marketing Specifications
Collective Expertise/Placement Pros
Program/Policy review
Contract Review
Certificates
Technology
Specialty Professionals
Account Team
Claims Resources

Zoom In

Benchmarking losses and costs

Industry knowledge
Tech resources
Actuarial review
360 perspective for gapless program
Solution modeling and alternatives
Market clout
Terms conditions and policy analysis
RM consulting

What is a Broker ?

Defining the broker and brokerage team

Broker
Agent
Client/ Account Executive
Placement Professional (s)
Client Service Representative (s)
Senior Relationship Manager
Industry Practice Specialists
Claims & Loss Prevention Specialists

What are a Brokers Objectives

?

Brokers want the best possible deal for

the client related to terms, conditions and
price.
Underwriters expect a negotiated solution
with profitable pricing and a partnership.
Pricing and terms are always negotiable.
Application & historical data review are
critically important.

Brokers Bidding Challenges

Obsolete documents
Boilerplates
Requirements (unreasonable?) Performance Bonds
Co-named on E&O
Cut and paste errors, redundancies and
contradictions
Unnecessary/voluminous requirements
Poor data
Open claims
Commoditized purchase attitude
Buyer lacking necessary understanding
Time constraints
Insufficient opportunity for negotiations
Open market offerings
Unclear objectives/service expectations
What and who to include in the oral presentation
What is driving the award

How are Brokers Compensated

Does compensation drive deals?

Commissions

Used to be sufficient to cover all costs & profit

Where does commission come from?
Negotiated with underwriters
May still be in the clients best interest

Impossible to determine true net quote

Should be disclosed from all sources

Historically range from 5 - 25+%
Front end/back end issues

How are Brokers Compensated

Does compensation drive deals?

Fees
Client budget line item
Create internal issues in brokerages
Can generate skin and bones service
May lead to front end promises/ back
end non-delivery
Fee/Commission offsets
Change in Scope of Services
Duration issues

High Bidder versus Low Bidder

90
80
70
60
50
40
30
20
10
0
Bid 1 Bid 2 Bid 3 Bid 4 Bid 5 Bid 6 Bid 7 Bid 8
WHY?

WHY?

Broker Behind the Scenes

Historical Perspective
Perception of Government Procurement
Pricing of Services Committees
Team brainstorms
Fee Models
Profitability/ Opportunity Cost
SWAGs
Size of the book
Service expectations
Dividing the pot
Competitive environment
Value Added
Internal preparation of proposals
Market relationships
Incumbent advantages

Many important questions are not asked in pre-bid meetings.

When Price Drives.

Insurance solution may be diluted

Services may be limited
Internal charges often affect services

Underwriters do not believe a

relationship exists
For many reasons, underwriters want
time with a insured

When Service Drives

Bottom line does not steer the

proposal
But it is factored in
Underwriters feel differently
Broker feels partnership is stronger
Client expectations need to be clear
Performance measures should be
created

Recommendations

Decide what you are buying?

Review the bid documents in advance of release.
Clarify drivers and priorities in the offering.
Take the time to create scope of services even
one year out.
Understand market conditions before bidding.
Create the best possible package of data.
Consider needs and desires of sellers.
Coach procurement well in advance of offering.
Demand disclosure.
Consider stronger relationships with all
component players.
Making an RFP complex does not assure a better
outcome.
Conceptual proposal vs. conceptual/creative
section