What can you expect when you decide it’s time look at buying business insurance? Every agency – and every broker – is a little bit different, but most use no formal process. However, in most cases there are a few different types of “processes” that insurance brokers use that can that fall into one of three different categories. I’ll review each of these so you can know a bit of what to expect.
This article is the second in a multi-part series examining the steps businesses have when evaluating and buying insurance. By knowing your options and what a typical process looks like, you’ll know what to expect and can make the most of your time.
Part One: ‘Why You Buy’ Should Inform ‘How You Buy’
The Three Processes for Buying Business Insurance
When you move forward with buying insurance insurance, you’re likely to run into one of these three types of processes for getting your new policies in place:
Churn
This is a word that I think aptly describes the general process that many agents use. It’s characterized by minimizing the amount of time it takes not only to get information from you, but in the time it takes to return a quote to you.
If all insurance were the same, these would be great features to have in obtaining an insurance quote. It would be a small investment in time and you’d potentially reduce your costs.
Unfortunately, not all insurance is the same. Taking this approach might save you time and money in the near future, but could also leave you exposed to significant coverage gaps that jeopardize remaining in business.
Insurance agents that use this approach generally do so in a high-volume way. Sales are based solely on price and they’ll convert 10-20% of the quotes offered. To be profitable in this business model, the agent must offer as many quotes in as short a period of time in an effort to write as many policies as possible.
What does the process look like?
You’ll need to provide copies of your current insurance policies as well as some basic information about your business. The information required might include your gross revenue, your EIN, ownership information and a very basic description of what your business does.
The agent then copies your current coverage and gets quotes from one or more insurance companies. The insurance companies offer pricing and terms. The agent then comes back to you with the carrier that offered the best pricing and coverage limits that are largely what you currently have.
What’s the downside of this approach?
- No risk assessment or survey is completed to determine whether or not you have the right coverage.
- Limited resources for anything outside of the policy transactions. If you’re looking for someone to review contracts with you or get on the phone to walk through complex questions regarding your coverage and your risk, you’ll probably be unhappy.
- You’ll do the heavy lifting. Little explanation – if any – is given in regard to how the policy coverages work and if any policy limitations or exclusions come with the policy.
Who is this approach for?
This approach works well for two types of people. First, if you don’t think you need insurance and only buy it because you’re required to, this might be a good option for you. Second, if you do everything yourself, know what coverage you need, and can read and understand the policy forms and coverage, you might not benefit much from an agent that does those things for you.
Who shouldn’t use this approach?
Any organization with the following should avoid this approach:
- Revenues exceeding $500,000 / year
- More than 1 or 2 employees
- Significant or high risk exposures
- High rate of growth
- Significant long term growth potential
Relationship
This process is characterized by an approach that focuses on the personal relationship between you and your agent. It often lacks a formal process when it comes to walking through the process of identifying coverage and obtaining insurance.
Overwhelmingly, this is the most common approach insurance brokers take. There’s typically a bit of back and forth in communications over a period of several days or weeks, which gives you the opportunity to get to know each other.
You won’t always pay the least amount of money, but you’ll usually get a good review of your existing coverage and an agent that actually reads the policy. The business model in this type of agency is long term client retention as opposed to a high-volume approach.
What does the process look like?
You’ll need to provide copies of your current insurance policies and answer a number of questions about your business. You’ll still need your gross revenue, your EIN, and ownership information. In addition, you’ll usually need to provide more detailed information including, employee and payroll data, property info, and – if you’re agent is thorough – copies of contracts and information about your typical clients and projects.
Even in this case, where there is a more personal approach, coverage is almost always offered by copying the coverage you have now and trying to save you money. If your broker works with you to identify the right coverage limits prior to getting quotes, then you’ll know you’re in pretty good hands.
What’s the downside of this approach?
- A risk survey is typically conducted on a more informal basis. You probably won’t get any type of formal analysis of your risk exposures.
- Limited to no risk management support
- Minimum impact on your business outside of the insurance transaction
Who is this approach for?
This approach works well for small businesses, typically under $1M in revenue or with 5 employees or less. Or if your business has less than $5M in revenue and the broker specializes in your industry.
Who shouldn’t use this approach?
Any organization with the following should avoid this approach:
- Revenues exceeding $5,000,000 / year
- More than 25 employees
- High rate of growth
- Significant long term growth potential
Total Cost of Risk
This process is characterized by an approach that focuses primarily on the broker acting on more of a business advisory position than insurance agent. Your broker still processes the insurance policy and transactions, but this represents only about 10% of what the broker does for you. This is rarest approach insurance brokers take because it requires significant dedication, experience, and a higher degree of specialization.
I refer to this as the Total Cost of Risk approach because the relationship between you and your agent is focused on more than just insurance. The goals of your business can be supported by risk management to help you achieve those goals. Understanding your organizational risk through Total Cost of Risk brings a strategic element to managing the risk in your business.
From a cost perspective, you may be likely to pay a little more in terms of insurance premiums but only because you’ll have more comprehensive coverage. To offset these potentially increased premium costs, you usually benefit from improved operations and increased profitability.
The business model in this type of agency is long term client retention of a select few group of clients. These agents don’t typically work with smaller clients so that they can dedicate time and resources to support your business.
What does the process look like?
This is a process that can start as early as 6-months prior to when coverage will actually be purchased. While you’ll need to provide much of the same information (and often more) as in the other approaches, but that usually occurs a little bit down the road.
Brokers who use this method are typically using a more defined process, characterized by first finding if there’s the right fit. Because there is a closer working relationship, making sure that everyone is on the same page is important early on. The decision to do business comes down to whether or not both sides even want to work together and if the services offered by the broker meet your specific and unique needs.
Then, prior to “quoting” your insurance policies, there is typically a thorough risk identification process and even a proposal. In many cases, your business is offered significantly more value than what you’re getting if your current broker takes any other approach. The placement of the insurance policies becomes more of a formality.
What’s the downside of this approach?
- It’s time intensive.
- It’s not for everyone. Organizations with less than $1M in revenue typically don’t benefit from the time investment unless you’re expecting significant future growth.
Who is this approach for?
Any organization with gross revenue in excess of $5M annually, and businesses that have more than $50,000 in annual insurance premiums. However, even if your business does not meet these “qualifications,” there may still be a fit if you have the right mindset. If you have organizational goals that include:
- The safety and wellness of your employees
- Reducing the likelihood of lawsuits
- Keeping the business running after accidents or disasters
…and you’re willing to be open-minded and invest some time into it.
Who shouldn’t use this approach?
Any organization characterized by the following should avoid this approach:
- Owner operators with no employees
- Annual revenues of less than $500,000
- Very low risk operations
Business Insurance Buying Guide: To Be Continued
I’ll be posting new articles to add to the Business Insurance Buying Guide, so please stay tuned for more information.
You can follow me on LinkedIn here or on Twitter @RyanWStillwell.
If you’re interested in learning more – or just having a conversation about your insurance and risk management programs, please give me a call at (215) 499-5185 or book an appointment with me here: