The insurance world is, in some ways, struggling through a time of transition. The traditionally slow pace for underwriting is clashing with business leaders accustomed to moving at lightning speed in the digital age in which we live. Traditionally, underwriters take two weeks to gather and review the information necessary to recommend or provide coverage. The two-week timetable is considered unacceptable to many business leaders who desire to leverage technology and the speed of information to their advantage.
Speaking on the process of underwriting insurance, expert Marc Dorneles, a Property Casualty Advisor and Vice President of CAL Insurance notes: "We live in the digital age, and this has changed the insurance landscape. We are in an age of innovation. The access to underwriting data for insurers is changing how business is done."
How the Insurance Underwriting Business is Changing
Entrepreneurial brokers are helping the insurance industry evolve, and interestingly, the rationale prompting this change is not new. In a sense, advancements in technology does represent a new element in the equation. However, at the root of the push for change is the quest for knowledge--and this is not new. 17th Century philosopher and statesman Sir Francis Bacon wrote, "scientia potentia est," Latin for, "knowledge is power." The quest is to help the industry move past paper (and traditional timelines) and toward digital technology and faster access to information. Issues that took months to investigate in Bacon's world, took weeks to investigate a few decades ago, and potentially, could be reduced to mere minutes if key industry information was centralized and accessible to today's technology. Forward thinking agents are pushing for change because they see that having quick and easy access to relevant data is central to success for business owners and underwriting professionals alike.
Data translates into the ability to rate risk. Data plus risk assessment is the basis by which actuary tables are formulated and premiums are tabulated. It is therefore critical that uniform, verifiable, sets of numbers become available to both business owners and brokers so that proper premium rates are determined.
How Insurance is Changing
The business world is expanding exponentially. New billion-dollar enterprises arise each year. The pace of change and innovation is incredible. 90% of Fortune 500 companies in 1955 are no longer in existence today. The expanding business world has led many insurance carriers to narrow the focus of who they work with--choosing to specialize in serving certain niche areas and risk sectors. Speaking of the need for business owners to appreciate this reality and prioritize connecting with a knowledgeable broker, expert Marc Dorneles said, "Take the carrier Hanover, for example; they have an appetite for technology related businesses. The technology sector is one of their key target areas, and therefore, they are likely to make more accommodations regarding underwriting (expectations, requirements, etc.) when dealing with businesses aligned with their preferred business sector. Matching the specialized carrier with the needs and focus of the insured is the craft of the broker; the end result is that business owners benefit by securing better coverage, service, and often reduced rates.
Three Qualities of a Great Broker
Great brokers know how to address the issues arising from the clash of the business world (which wants things fast) and the underwriting world (which has a tradition of moving slow). Great brokers will:
- Value, research, and store information. A good broker will build libraries of information so that key data points are easily accessible. A good broker will be a kind of answer man liaison between the insured and the insurer.
- Not regularly or needlessly enter into bidding wars. Beware of brokers who are quick to focus on the bottom (financial) line and prompt bidding wars between competing carriers. A good broker will identify the coverage which provides the best overall value for the client, which is often not solely determined by the cost of the premium. A good broker will emphasize differences in the policies various carriers offer, and draw on key information points to recommend the best insurance packages.
- Know your needs. A good broker will know your industry and help clients be aware of present and potential needs. A good broker will educate clients and be able to articulate how their experience and knowledge can help in ways others won't or can't.
When is Using a Broker Most Important?
It is true that smaller ventures do not absolutely require the assistance of a professional broker. Consider: It is fairly easy to see that a family of four with a modest income, intending to file a simple 1040 tax form, with no or few deductions, can probably manage just fine by utilizing Turbo Tax. But when complicated or high dollar investment, income streams, or losses come into play, it is best to work with a CPA. There is a parallel here: In the world of insurance, the "tipping point" for when to secure the services of a broker is tied to your spend, your exposure, your need and your attitude. Below, I provide some insight into how these four terms impact your need for a broker:
- Your spend: If your operation is small, your budget (your spend) will drive your decision. Some businesses simply do not have the margins to work with a broker. Therefore, if the scope and resources of the company are limited, then possibly, so is the need to work with a broker.
- Your exposure: Your exposure is your risk level. For example, if you are working in an industry in which the litigation, claim, and risk level are high, or if you are in an industry where it is difficult to secure coverage, you need professional help. The rule of thumb is, the more unusual, risk-based, or nuanced your business, the more the need to engage a broker.
- Your need: If your goal is to simply to satisfy the basic requirements of your lease or board, then the need to link with a professional is low. If however, you recognize that there are significant and unknown factors that can negatively impact the scope and potential of your business, and that these issues can be mitigated by linking to a broker with expertise in your field of industry, then the need level is high.
Your attitude: The final factor in play when considering contracting with a broker is your perception of the value of professional help. This means, when the insured values insurance, then that perception will drive the decision to link with a broker. Your attitude correlates with your peace of mind. Those who glean peace and a sense of security when operating in tandem with industry experts, will find that connecting with a broker has great value.
Four Tricks of the Trade to Reduce Rates and Optimize Your Coverage
- You can push back: Use diplomacy, do your homework, and be backed with up-to-date statistics, push back on portions of your policy you believe are not in line with industry standards or fair business practice. Request more information or ask for options as appropriate.
- You can escalate concerns that you believe are not properly addressed: You can do this by utilizing the services of a broker, claims adjustor, or insurance specialist attorney. If claim issues or special concerns are not addressed, escalate them as appropriate.
- You can barter premiums: This practice is best suited for businesses with a history with their carrier. Citing a good payment history, a low claim rate, or a long-term relationship with a carrier can equate to exceptions to premium increase policy clauses that mandate auto or unmerited increases. New business owners, armed with specific, up-to-date, industry policy premium comparables information, may also be able to negotiate more attractive policy packages.
- You can research industry standards: Know your industry insurance requirements: An entity may say they require you carry a particular (often, high) limit and want to charge you accordingly. If you know what industry standards (comparables) are, you may be able to write a counteroffer.
Mark Twain wrote, "The secret of getting ahead is getting started." Learning more about the evolving state and intricacies of the insurance world may not be exceedingly exciting, but being aware of changes in the industry, doing your own research, and knowing when and how to access good resources (including linking with the right broker), will position you for success.