Broker RFP

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The One Year Plan

Arguably, it takes about a year to do a full broker review. In the last newsletter we considered the first six months work required by the risk management team in large multinationals. Most of this effort goes into internal discussions and alignment, before tendering broker services. This time we address the meat of the process in the second half of the year.

Quarter Three

This stage is all about getting the list of tenderers together and sending out the Request for Proposal (RfP) or quotations. Evaluation of responses is critical, preferably with significant input and influence from the business unit teams who will be just as much the brokers’ partners as the risk manager.

This process is also an excellent opportunity to collect information and insights, at no charge. Validation of the existing program is one thing. But this is also a great way to get creative input on how the program might be improved over the next one to three years. By engaging the best broking teams available, and cross referencing their input over multiple review meetings, not only is the company able to choose the most appropriate partner, but the CEO may also test and cross examine ideas provided by one partner against the views of the available alternatives.

When negotiating it is important to not let cost trump performance in evaluation. Consider carefully the services needed, especially during a claim and make sure an appropriate balance between cost and service is maintained. At times, even the largest and most professional brokers will be tempted to sell their souls to secure a client. But there is no real benefit in buying into this approach for the CEO. When there is a need for service and commitment, for example in the case of a large claim, there will be a nagging worry that something will be overlooked by a broker who has been focused on saving cost rather than delivering value.

Prior to award of the contract it is useful to validate and retest the functional aspects of the key performance indicators. The preferred bidder may have their own ideas about how best to make them work. Usually it makes sense to award a contract for broker services for at least three years. Companies that change their broker too often, rarely get value from the services of the broker or ultimately the markets. Three years can be priced in the submission and the client can decide whether to extend or re-tender after the third year. The appointment should be confirmed three months before the renewal of the major policies in the program. This will give the broker adequate time to review and engage with the markets without anyone getting too excited.

Quarter Four

This stage should be fairly straightforward. Let the broker get on and do his job. However, the CEO, the risk manager and/or the consultant should be intimately involved in the structuring of the program, certainly in final sign off stages. The insured should strongly encourage the broker to provide some time (ideally a month) for feedback on selected markets and structures and there should be an active dialogue on why markets are selected and that dialogue should continue throughout the year, not only at placement. But more on that next time.

In the next newsletter I’ll turn in detail to the consideration of policy leaders and market engagement generally. How often should the risk manager be meeting insurers?

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