How to get the added value you expect from insurance consultant reviews

Organizing the amount of information

So,you think you need an insurance consultant to help you through the maze of risk management options available to your municipality? Selecting the right person and clearly communicating your expectations are the keys to a rewarding and informative process.

The number of available insurance consultants has increased in recent years, at the same time insurance premiums have been decreasing due to an over abundance of risk taking capital available in the insurance markets.

Decreasing premiums translate to decreasing revenue for insurance sales professionals, who are never guaranteed an income for their efforts unless the sale is closed. The prospect of shrinking revenue if a sale is made, and no revenue if it isn't, makes consulting on a fee-for-service basis an attractive alternative to commission sales.

Municipalities too often miss the added value that an objective analysis of insurance options can provide, by too willingly accepting nothing more than a review of the coverage documents and the bottom line price. Price is only one factor, and often not the main reason, on which a decision to purchase is based. And, your municipal insurance decision should be no different.

The process of selecting a consultant is beyond the scope of this article, except to suggest that the same parameters applied to selecting a consultant for other municipal operations, should be applied to selecting an insurance consultant. The Michigan Municipal League's resource library has an abundance of information on how to select a consultant. This article assumes that due diligence has been performed in the selection process.

Know what to expect

Ask the consultant which insurance programs or companies are expected to provide a quotation. Then, ask how often he or she has reviewed and recommended each of these programs. Investigate further if one program has been recommended much more than another, or if one or more programs have rarely or never been recommended. You deserve an objective analysis. If one or more programs are rarely deemed worthy of a consultant's recommendation, the reasons why should be shared with you before the process begins, not after.

Ask for a sample of the end product that will be presented to you. If all it provides is a review of various coverages, this activity can be performed by the insurance representatives of the programs being quoted, at no additional cost.

Added value considerations

To differentiate between the insurance programs currently available to Michigan municipalities, a consultant must provide information that goes beyond price and coverage. If the following questions are not answered, the consultant's recommendation will be based on incomplete information.

How is the program structured? Is it a conventional insurance program, a self-insurance pool, a risk retention group or some other structure? Are there objective pros and cons of each structure?

If it is a group self-insurance pool, are there sufficient assets to cover retained losses, or is it a completely reinsured program? If reinsurance is involved, who are the reinsurers and what are their current financial ratings? Does the program have solvency standards that guide the placement of reinsurance? Reinsurance is vital to municipal insurance programs, and rarely is this issue paid any attention by consultants.

How long have the insurers or reinsurers been involved with the program? Instability in reinsurance placements can signal administrative or financial concerns that warrant additional questions.

The most recently audited financial statements of a municipal insurance program should be provided and commented upon.

Are there membership obligations that should be addressed? Does the program have underwriting guidelines? Are applicants ever denied a quotation, or is every applicant acceptable without regard to prior loss experience?

What procedures are in place to address your concerns about claims or service problems that might arise? How many times have members filed bad faith suits or declaratory actions against the program resulting from coverage disputes?

What additional services are provided as part of the premium being quoted? Value added services often are overlooked if the focus is placed on bottom line price.

Are there acceptable standards of operation for municipal insurance programs against which competing programs can be compared? For example, the Public Risk Management Association (PRIMA) has developed an extensive set of advisory standards for municipal program operation.

Summary

Low price is almost never an acceptable substitute for good value. Insurance consultants have a unique opportunity to help municipalities select the best value at the lowest price. This opportunity won't be missed when your expectations are communicated early in the insurance selection process.