Want Better Commercial Insurance Pricing? 1 of 5 Common Mistakes: Stop Bidding Out Insurance Every Year
Brian Pilarski, Commercial Insurance Advisor at Brown & Brown of Detroit
Unfortunately, we often see business owners with the best intentions take detrimental steps in an attempt to lower their commercial insurance costs.
To legitimately ensure you are receiving true value in your insurance spend, adjust your strategies to best optimize your results.
Stop Doing These 5 Things:
- Stop “Bidding Out” Insurance Every Year
- Stop Confusing the Marketplace (To Your Detriment)
- Stop Skipping Out on Loss Control Meetings (Senior Leaders/Owners)
- Stop Shortchanging Your Time Investment to the Quoting Process
- Stop Treating Your Agent as a Vendor
Let’s focus on the first item, bidding out the insurance every year.
For many different industries, the methodology in which companies win new clients is to submit a bid, RFP, or other type of quote-to-win the busines scenario. To grow revenue, many businesses must quote. Why does an insurance agent or carrier think they are “above” quoting to win the business? Why is it fair that a business owner must compete on price for business and insurance people do not? Fair questions and there are frustrations with what seems like a different set of rules for insurance.
To orient shopping insurance properly, most business owners may have to consider re-categorizing their views on what insurance is. A somewhat self-inflicted classification arising out of constant car insurance quote commercials is that insurance is a commodity. Most business owners think business insurance is a commodity and shopping on price is how to equate value.
Is it a commodity? Let us define a commodity; a commodity is a non-differentiated item that is similar from most providers, therefore price being the primary focus for the purchase decision. Gasoline for cars is a commodity, food items, paper, etc.
Is commercial insurance a commodity? No.
Are the types of businesses who must bid out to grow revenue commodities? Not necessarily. But the way other business products and services are evaluated and purchased are often commoditized. Thus, the process of purchasing has commoditized the offering by most companies.
Many companies set up a purchasing department and set up RFPs in an attempt to fairly evaluate competitive offerings. Many companies must complete a standardized RFP proposal to win business. Their offering is unique, but the evaluation of the offering is the same.
With commercial insurance, the offerings and evaluation of the contracts vary so widely from the carriers and the agencies, there is not a way for a buyer of insurance to really standardize the information received.
A commercial insurance policy is a set of complex contracts spelling out what it will and will not pay for, and the conditions required on both sides. Additionally, the agent that provides the contracts is supposed to help maximize the value of the contract and offer professional expertise to help minimize expense/exposure to loss.
What happens when you bid out the insurance every year?
- “Poor Risk” Label: Underwriters are people and see the same account each year, now labeling this account has a price-only buyer. When a client only wants the cheapest price and no other regard of value, it is an indirect insult to someone’s profession and livelihood. Perception is reality with underwriters, you will be labeled as a “poor risk” from their perspective. They will not feel valued and the account will be declined- no quotes offered.
- Unable to be a Profitable Account: Insurance companies need to collect more in premium than they pay out in claims to be profitable. The shorter time you are with a carrier, the tighter the margins and less optimistic the carrier will feel about your account. If they see a pattern of leaving a carrier each year, the likelihood of your account being profitable is greatly reduced. If an underwriter puts unprofitable accounts on the books, their own job could now be on the line. No account is worth losing their job over, your account will be declined.
- Transactional Only: The insurance companies and agents will need to invest time in learning about a client. They will offer to help and provide specific strategies to reduce exposures/risk of loss. These strategies take time to implement and for the results to show. Leaving after 1 year or even 2 years, is a poor investment of time/intellectual capital by both the carrier and the agent. The carrier and a good agent will decline to waste their time.
How often should one “bid” the insurance?
In general, every 3-5 years is the ideal period of seeking outside quotes from carriers. At times, the market conditions may shift suddenly or the carrier appetite on industries may change, which may cause a company to have to seek a replacement outside a typical range.
Other considerations when deciding to quote:
- Claims: Are you in in the middle of a claim? Did you have some recent claim payouts? How was the process?
- Market Conditions: The insurance market goes through various conditions, making it a sellers’ market or a buyers’ market. What is the current condition? Is this a good time to sell your account to the market? The ideal scenario has multiple carrier quotes and an aggressive marketplace, you want the price to go down with a bidding war.
- Last Time Quoted: How many carriers have quoted you in the past? When is the last time they saw your account?
- Industry and Coverage Requirements: Is your industry a higher-hazard industry? How many active carriers are offering coverage for your types of accounts? Do you have specialized coverage offerings that are unique?
- Internal Operations of Client: How stretched is your team? Can you dedicate the time necessary to properly inform the market for your quote? Can you respond timely? Can you make loss control meetings?
The answers to the questions above will help determine the most opportunistic time to hit the market. We have been able to drive costs down over a seven to ten-year period by employing these strategies. We have seen many clients see their companies grow three times and their insurance spend decrease by half. Talk with your agent, or us about the right quoting strategy for your business insurance program.