Is your agent working for you?

By Sandra Boncek

Brokers act as the liaison between businesses and their insurance companies. Rather than relying on their layman's understanding of the insurance industry, most companies defer the majority of decisions regarding insurance coverage to these experts.

It's always best to find a broker whose philosophy about risk management matches yours. This is perhaps more important than simply signing with the insurer offering you the lowest premiums.

Moreover, the broker you choose at one point in your company's life may not be the best choice down the road. It's certainly plausible that high prices and bad service can cause a firm to hunt for a new insurance broker, but an equally valid reason for going shopping is realizing that your company has outgrown your broker's capabilities.

Again, it pays to keep on top of your company's growth and change, to make sure that you are adequately and appropriately insured for all risks.

Brokers vs. agents

Two kinds of representatives can write insurance for your company: brokers and exclusive agents. They differ primarily by the number of insurance companies they represent.

When insurers distribute their policies through an exclusive agency (also called a direct writer) system, representatives--either salaried employees or comissioned agents that sell for only that insurance company--will only offer one insurer's products to their accounts. Insurance companies using this channel include State Farm and Allstate.

Brokers (also known as independent agents) typically write coverage for more than one insurance company, and are not salaried employees of any one firm.

Although there is a legal distinction between a broker and an independent agent, in the end, you can expect about the same kind of service from either provider. Most insurance companies, including Aetna and Chubb, work through an independent agency or broker system.

Should you go with a broker or exclusive agent? It depends on the number of different insurance firms you expect to use. If you will obtain coverage from multiple insurers, you are better off using a broker; your account will be managed by as few people as possible. But for the majority of firms using a single insurance carrier, brokers and direct writers provide similar levels of service.

Regardless of how many insurers they represent, brokers or agents must be licensed by the state. If you have multiple offices and want to consolidate your buying power, check that the broker is licensed to write coverage for each state in which you will need policies.

Qualifications

Finding the right broker takes some homework. (For the sake of simplicity, we will refer to both brokers and agents as "brokers.")

Customer base

It's best to independently qualify several brokers when seeking coverage. Find out some basic information: how well versed they are in your industry's risk profile, what businesses are on their client roster, how large their clients are (and how large your business's account will be in relation to theirs).

Industry background

Brokers with experience in your industry are more likely to have relationships with insurers specializing in the coverage you need (though this may be less true if you are looking for a BOP only).

Professional training

What advanced training does the broker have? Probably the most prestigious set of letters that can follow a broker's name is CPCU (Chartered Property Casualty Underwriter). Other well-known designations include CIC (Certified Insurance Counselor) and ARM (Associate in Risk Management), both of which are based on passing an examination.

Which insurers and how long?

Although brokers can theoretically write coverage for any number of insurers, they will typically stick to a set of three to six insurance companies. When you find out who they are, look into them on their own merits (see the following section on insurers). Also, find out how long they have been working with these companies--the longer the history, the better.

Will they do what's best for you?

Not only should the broker be concerned about the types of coverage you need, but finding ways to reduce premiums--suggesting minor changes to your policy, for example, or pointing out redundancies--should be a primary goal as well. Most brokers work on commission, so their attitude towards reducing your costs can be a good gauge of whether your business's interests are given precedence over their bottom line.