How to Tell if You Have Outgrown Your Insurance Broker

If you are like most buyers of risk financing and insurance services, it is difficult to tell when you should consider a change. You are being called regularly and told that you should consider changing because the caller has the biggest, the best or most efficient Brokerage Firm. In many cases, you are being told that the real difference lies in their ability to finance your risk more cost-efficiently.

Nothing is further from the truth.

The fact is that virtually all of these Brokers have access to the same insurance carriers, captive managers or specialty programs. Many of them have their own in-house resources. So, these are no longer significant points of differentiation.

So, how do you really know when you have outgrown your Insurance Broker and need to consider making a change? Look for the Broker who can provide you with data, information and solutions concerning your ACTUAL and COMPLETE COST structure. Find the Broker who can translate your FACTUAL existing data around premiums, loss information and risk management services into your EBITDA, margins, shareholder value, or KPI’s.

Prior to moving to a new Broker (or retaining the current one), you need to know how your current program is suffering Financial Leakage. Not simply the premium (usually the smallest cost component), but also your indirect costs of claims and the projects needed to keep this leakage to a minimum.

So, what does the term Financial Leakage mean? Financial Leakage is the Controllable Costs that are Leaking from YOUR Financial Results. Your Financial Leakage is in the form of Loss Costs, Indirect Loss Costs and Administrative Costs.

Now, here is what you need to know… These costs are real, and they are a huge part of the expense burden inside your business.  A professional Risk Manager in a large corporation knows this and makes it an important part of their job.  

Just because your business may be smaller than a Fortune 1000 company, is your profit picture any less important?  In fact, the Financial Leakage you may be experiencing may be even more critical because the revenue stream against your expense load is smaller.

The concept of Financial Leakage has been around for years.  But it’s only been in the past 24 months that Financial Leakage could be quantified precisely in the insurance industry. Through the development of cloud computing, data sharing, and data analysis, businesses like yours are now relying on their Brokers to provide them with a full cost assessment that includes a Financial Leakage Report.

It is the Financial Leakage Report that allows you to have a starting point of analyzing your Broker’s performance as it relates to your specific cost structure. Anything other than that and you are simply getting a report about how the “PRODUCT” you were sold is doing. That tells you nothing about the Broker who is providing it.

Here are the specific questions you should ask your current Broker or any "courting" Broker to answer in specific analytical terms:

  1. How much EXACTLY is leaking from our business results in controllable Financial Leakage?  How much has it been over the past 3 years?

  2. What is the impact of this Leakage on our profits and business performance?

  3. What are your plans to help us "recapture" this Leakage?

  4. How will we be able to benchmark your performance as it relates to our business results?

The bottom line is this...  When you are determining whether to switch Brokers, ask the questions above. And get real answers. In quantifiable terms. If you can’t get that information readily and without hesitation, you have outgrown your current Broker. Certainly, don’t switch to another Broker who can’t answer these questions either.

Each of these firms is now obsolete and probably won’t be around for as long as you will need them to be.

Contact us to address and recapture your Financial Leakage

Improve Your 2018 KPI's

Your Key Performance Indicators (KPI’s) are the lifeblood of your management process. If you are like most entities, you have KPI’s and analytics on many different aspects of your organization. If you don't have them for your risk management/insurance program, it's difficult to stay current with the speed of business.

As an insurance buyer you should ask yourself these questions:

  • How has my risk financing/insurance provider impacted our KPI’s? (positively or negatively)
  • What is the financial translation of that impact to our other metrics? (EBITDA, ownership valuation and productivity)
  • How much of that is controllable and what should we do to recapture it?

We’ll bet you a dollar to a donut that you don’t have the answer to those important questions. At least not in business terms that you can understand and act upon.

But you SHOULD have those answers, if you are using KPI’s in your management decisions and outcome tracking. In fact, if you don’t already know those answers, you are probably underperforming.

As Certified Analytic Brokers™, we can help quantify your entire cost structure. That goes well beyond simply your insurance and risk financing costs. We can show you exactly how much money you are currently leaking from your operation.

Key Performance Indicators

If you are like many firms, you may find that your financial leakage is approximately 60% of your premium costs. That is ON TOP of the premium and risk financing costs.

Think about it this way… Take your current risk financing costs and ADD another 60%. How much is that impacting your KPI’s? What if you could recapture that? Would you be interested?

So, the choice is yours. Your financial leakage is robbing you daily of achieving your KPI goals. The good news is that it is controllable, and it can be removed or greatly reduced. But first, you must know exactly how much it amounts to annually.

If you would like to know how much financial leakage you are currently suffering, please let us know. As a Certified Analytic Brokerage™, we will quantify and show you that leakage. And more importantly, we will show you the impact of that leakage on your financial success and KPI’s.

Is Your Insurance Broker Obsolete?

The way you operate your business has changed rapidly. You are now measuring many different results. You have Key Performance Indicators (KPI’s) that flow from many directions into your operating results. You make many decisions based on what the ultimate results will be on your EBITDA, shareholder value and capital expenditure needs.

If your insurance broker is NOT already obsolete, you should expect them to provide business results and data that will impact your business outcomes and KPI’s. Things like:

  • How has my entire risk cost structure impacted our Margins and EBITDA?
  • How can I measure our risk management efforts against current economic challenges?
  • What is the actual cost to us of our existing Financial Leakage inside our risk management program?
  • How do we determine the ROI of current brokerage and risk management relationship?
  • How do we determine and maximize our existing opportunity to recapture existing costs?

We are a Certified Analytic Broker™ and one of the few firms in North America that have these answers. We are not simply talking about insurance or risk control techniques. Most brokerages have those. What sets us apart is our commitment to providing our clients with consistent results and business model improvements. That, coupled with the ability to provide quantitative results and maintain a focus on these critical outcomes.

The question is: Are you interested in Business Intelligence, or are you satisfied with merely premium, loss ratio and coverage information? If so, how has that helped you manage your cost structure and create value for your shareholders and stakeholders?

So, the choice is now in your hands. Do you want results that improve your ability to manage and create profits? Would you like to know how much income is currently leaking from your financial statement? Does the ability to recapture existing costs make sense to you?

If the answer is yes, please contact us and we will be pleased to provide you with a Financial Leakage report using Certified Analytic Brokerage™ data. We can show you how much profit and ownership value you can recapture as we work together to improve your business outcomes.


Look Past a Broker's Smokescreen

How to Choose Your Insurance Broker (Series)
Look Past a Broker's Smokescreen

As a buyer of risk management and risk financing services, you are being inundated with brokers who all claim to provide special services.  In fact, most of them have gone to the length of actually branding their offerings in an attempt to differentiate themselves.

You will see these with various copyrighted trade names attached, and they will tell you that these offerings are their ‘unique difference’.

Here is what you should know, most of these are smokescreens to make them appear different.

For example:

  1. They will use the terms ‘business solutions’ and ‘business results'.  Furthermore, when you ask them about these the answer will revolve around the insurance policies.
  2. They will show you a list of services that seem to make their branded offering special.  These are simply the services and features that virtually all brokers provide.
  3. Their sales trainers and consultants are helping them change their words to seem more in step with business results and analytics.  These are simply buzzwords and virtually anyone can be trained to say them.

As an Insurance Buyer Which Broker Should You Select?

So how do you, as a buyer, really know which broker you should select?  You must clearly cut through the words and get to the real issues.

  1. When a broker approaches you with their ‘unique approach’, ask them this question:  ‘What does all that mean to us inside our business on a quantified basis?’  If they can’t answer that question, they’re just words.
  2. Understand the difference between ‘business solutions’ and ‘insurance offerings’. Risk financing and insurance are commodities, not solutions. A business solution includes all the financial impact to your KPI’s of risk financing (insurance), claims management and risk control services.
  3. Sales trainers and consultants have been around the insurance industry for over 100 years.  Every decade or so, the language changes.  There is an entire industry based around teaching insurance agents and brokers the ‘state of the art’ words.

Final Thoughts on Selecting an Insurance Broker

So, here some thoughts on what you must do to protect your organization from the Smokescreens:

  1. If you are like most firms, you are now embedding analytics and results as part of your decision support.  You should seek out a broker who understands analytics and how they truly impact your business.
  2. Look past any firm who can only provide you with analytics on your insurance placements.  They need to provide you with a Total Cost of Risk review and demonstrate what the impact is on your EBITDA, margins, shareholder valuation and other important KPI’s.
  3. Ask tough questions that go way past the traditional insurance conversations.  Once you accept that the coverages, premiums and carriers are correct, take one more step.  Say this:  ‘Now that we have the insurance transaction taken care of, how are you planning to impact our business model next year?’

If the answer goes back to insurance policies, E-MOD premium reductions, loss ratios or various insurance offerings, then you are working with a broker who is providing words rather than business solutions.  You must also determine whether the broker can provide you real value, or simply another branded smokescreen!

The Only Fair Way to Pay Your Broker

As a buyer of risk financing and risk control services, you should know this: Fee-based broker compensation is the only fair way for you to remunerate your broker. Notice I said fair. That means fair to both parties of the transaction. If you do it any other way, one of the two parties (you or they) will not be treated fairly as regards income or expense.

To understand this, you must first learn how brokers are usually compensated. Most of the time they receive a commission on your premiums from the insurance carrier. This commission is usually between 7% and 15%, depending upon the type of coverage they provide you. YOU are paying this inside the premium.

So, when your premiums go up, they receive more income. Or, when they go down, they make less. Sound fair to you?

‘Let me get this straight,’ you might ask. ‘Are you saying that if my broker does a great job helping us improve our risk control and claims, it is highly probable they will be paid less next year by the insurance carrier? So then the more they help us, the less they will make?’

Yup. It doesn’t make sense, does it? It doesn’t seem that your broker is being fairly compensated for doing excellent work.

Of course there is always the flip side. When your insurance premiums go up because of poor (or no) brokerage risk control performance, or when the insurance market’s costs (premiums) increase, your broker makes more based upon increased commissions!

So, not only do you pay more, but they make more. Does that sound fair?

Because of this, many buyers are moving their brokerage/agency compensation to a fee-based arrangement. In doing so, they ask the broker to ‘NET OUT’ the commission and then negotiate a fee based on the insurance services and risk control services they are providing. That way, they unhook the broker compensation from the cost of the product.

Now you would think that is the right answer, wouldn’t you?

It would be the right answer, except for a couple of things that usually happen behind the scenes:

  • Most brokers establish a starting point for the fee based on the projected commissions. That is their compass metric.
  • Then they figure out what the minimum amount of profit they need on the account for their services.
  • Then they figure out how much you are willing to pay.
  • Then you and they begin to negotiate around their fee, rather than around your results.

Here is something else that you should know. Many brokers have no way to actually value their services by showing you their impact on your key business metrics.  They can show you premiums, loss ratios, retained losses and other attendant costs. But, what about contributions to EBITDA, Productivity, Shareholder Value and CAPEX, or your Compass Metrics?

Isn’t that what you really want to know? Isn’t that what you are willing to pay for?  What if your broker showed you what the ROI was in relationship to their income. Would it bother you to pay a bit more in fee if you could pinpoint the return inside your financial statement?

Of course it wouldn’t. Isn’t that the way you make every other business decision? Fairly and from an economic point of view.

Here are some additional things that you should know and expect:

  • The fee should have little correlation between what the commission would have been from an insurance company. THAT IS NOT ABOUT YOU. It is possible for a broker to obtain a huge commission for providing you little or no results. Or work very hard and expend their resources beyond their commission income.
  • Don’t confuse service with results. While a broker will need a minimum income to ‘service’ your account, the term service has many meanings. If by service they mean obtain policies, check accuracy of coverage, answer questions and record claims, that is one thing. If they mean provide you with risk control and claims management, then that is another. Frankly, while still important, the former example of ‘service’ is a lot less valuable to you than the latter.
  • NEVER request that a broker compete against another broker based upon fee charges. Your choice should not be around the cost of their fees, but on the return on investment and business results and impact.
  • If your broker can’t provide you with the decision support that goes beyond simple insurance and claims jargon, you must either pay them a lot less, or fire them. Your business has moved into the world of quantifiable analytics, results and compass metrics. If they can’t address that, then it doesn’t matter how you pay them... they are obsolete.

Analytics and cloud computing now provide the top brokers with the ability to actually quantify and value their services and outcomes to you. Knowing that, it places you in the best position to compensate them for your improved results with a fee-based relationship, not the commission an insurance carrier provides. So, as an astute buyer with a business that is growing more aware of your own analytics, you should expect the same from your insurance broker and pay them accordingly.

It’s the only fair way to do it.

By the way, when a firm compensates a broker on a fee basis, they usually call it a ‘Fee for Service Agreement’.  It might be better to refer to it as a ‘Fee for Results Agreement.’

Where's The Beef?

As you will recall in ‘The Worst Choices a Buyer Can Make', we cautioned Buyers that they should not focus on market selection and carrier representation, as virtually all Brokers now represent the same carriers.

To counteract this reality, many Brokers have developed their own risk control, claims management and specialized resources. And then the Brokers show these resources to Buyers under the banner of ‘Value Added Services’, as if the term ‘Value Added’ means anything to you as the Buyer. Or the Brokers talk in general terms about ‘What our resources do.’ In some cases, they have packaged these offerings under catchy names in an attempt to differentiate themselves.

Here is why some (or most) Brokers show their resources as a simple list of ‘Value Added Services’ with a generic explanation or catchy title:

  1. YOU may not actually get access to these resources, as they are reserved for other (larger) clients.
  2. They will not show you specifics if they do not intend to deploy them on your behalf.
  3. The salespeople and the brokerage firm don’t actually know how to use them on your behalf, as this would require that they actually understood how to help you reduce your costs. This is probably the most likely scenario, especially when you are simply dealing with an insurance sales organization.

Unfortunately, until recently, you as the Buyer have been between a rock and a hard place, especially if your role is that of a financial executive. You simply have not been trained to separate those brokerage firms who are either a) not willing and/or b) not capable of really helping you reduce your costs and improve your financial efficiency.

It goes without saying that any brokerage firm you are interviewing should pass the basic test of competency. That basic test is now only a qualifier to determine whether or not they have the ability to provide you with risk financing and adequate coverage. Frankly, virtually every Broker you interview will pass that test.

So here is what you need to do… Find out if they not only have the resources to help you, but if they actually know how to use them and have a plan to deliver them to your organization.

The next level of brokerage expertise revolves around the one thing you should care about, and it answers this important question: How can a brokerage firm really impact my financial outcome? And to then go one step further, you should expect a Broker to demonstrate what their impact will be inside your own metrics, KPI’s and analytics.

When you do this, don’t just settle for projections (or opinions) of what your risk financing and losses will be… that’s the easy stuff. What you want to know is what the whole picture will look like, and that includes your entire cost structure, including indirect loss costs and ways the Broker reduces your cost of risk control and claims management.

The key here is the Broker’s ability to show you how it all ties together inside your financial results.

So, in the event you chose to determine whether or not your Broker is the right one for you, please understand that they can all look the same. And that some will attempt to use big words and flashy presentations to differentiate themselves. BUT, WHERE’S THE BEEF? Your job is to ask the simple yet critical question: “What will the expected financial impact be of your representation?”

If they can’t answer that question with a concise answer in Analytical terms and include all your costs, then you’re probably dealing with the wrong Broker. They might look equal, but the proof is in the analytical and quantifiable results!


The Worst Choices a Buyer Can Make

For decades, Buyers of insurance and brokerage services have used various techniques to choose their Broker. The three main processes are as follows:

  1. The Market Selection Process. This method was prevalent when there was a large number of underwriting carriers. It is now completely outdated, as marketplace upheavals have reduced the number of viable insurance carriers to a handful. Since most Brokers now essentially represent all of the same insurance carriers, the ‘Market Selection Process’ is no longer an effective method. The only exceptions to this involve highly specialized coverages or very technical placements.
  2. The Brokerage Capabilities Presentation. This selection method, popular from the mid 1990’s until the early 2000’s, was commonly known as a Broker "Dog and Pony Show". Each Broker selected to compete was asked to present their capabilities as regards not only the marketplace, but also their resource capabilities and specialized services. In many cases, Brokers were interviewed with several winners chosen to compete in the marketplace. This method is now completely obsolete for the reason stated above, as well as the fact that virtually all successful Brokers now have resources in risk control, claims management and other specialized services.
  3. Brokerage Request for Proposal. The last variation of the selection process involves a much deeper and intensive undertaking. In the RFP process, the Buyer chooses the pertinent information to be provided to the competing Brokers. Then they attach a strategic list of questions designed to help them select the correct Broker. This process, usually created by risk managers or risk management consultancies, is extremely costly to the participating Brokers and usually does not provide any new information to the Buyer. Each participant spends more time in determining how to display their offerings and wording their responses than they do in actually creating client value!

Here is the bottom line: Each of these process are now completely outdated. Why? Because they do not allow the Buyer to actually determine which Broker will do the best job of reducing their costs or improving their financial position. Yes, each will allow the Buyer to work inside the insurance transaction, but that is now the smallest part of a firm’s risk management spending (commonly referred to as Total Cost of Risk or TCOR.)

Cloud computing and data is now available to allow a Buyer to ascertain the financial impact their chosen Broker might have on their insurance and operational results. It is readily available to Brokerage firms who want to answer these important questions from Buyers:

  • What does our current cost structure look like, and how much is currently leaking from our financial results?
  • How can your firm help us improve our important metrics such as EBITDA, margins, ownership valuation and other critical KPI’s?
  • What will be the specific financial impact of the resources and projects you provide to our firm?
  • Aside from our insurance costs, what percentage of our spending is being wasted on controllable internal expenses?

Analytic Brokers are able to answer all those questions and more. There are numerous cases of Analytic Brokers changing the buying process during the sale. Once the Buyer understands the obsolescence of the three traditional buying processes, they are rushing to the firms who can actually provide them with an outcome... not just another obsolete process !

Analytic BrokerageTM is the only credible source of brokerage analytics in North America. Analytic Brokers provide buyers with proprietary business intelligence and quantifiable results using TCORCalcTM certified data.

What is an Analytic Brokerageā„¢?

Analytic Brokers are among the top performing insurance brokerages in North America, certified by our client performance record using the Analytic Brokerage™ Platform. We understand true value does not reside in the pricing of insurance, but in the ability to improve your business performance. What’s more, is that we will quantify our partnership results inside your financial statement.

Armed with cutting-edge business intelligence, analytics, and specialty resources, we are considered trusted partners in helping our clients achieve their most important business goals.

Whether it's growth, improving profitability, hitting your EBITDA goal, or increasing your ownership equity and stock valuation...our team is uniquely-qualified to assist your organization. Our ability to impact and improve the financial outcomes of our clients sets us apart from traditional (obsolete) insurance brokers.

Have You Outgrown Your Insurance Broker?

Obsolete Brokers Vs. Analytic Brokers

Services Description Obsolete Broker Analytic Broker ™
Policy Selection Markets and places the necessary insurance programs.    
Claims Handling Communicates with carriers to report losses.    
Risk Control & Claims Management Implement resources to mitigate the impact of losses inside your organization.    
Business Intelligence Quantify your financial leakage, yearly cost trends, and business goal impacts.    
Business Improvements Increase Shareholder Value, grow EBITDA, and lower Budget Expenditures by reducing your cost structure.    
Risk Control Valuations A financial valuation (including impact) of core and specialty projects and programs to reduce your loss costs.    
Improved Decision Support Analyze options and make informed business decisions based upon quantifiable, certified financial outcomes.    
Certified Data & Analytics Gain insight into your cost structure via our industry-exclusive benchmarks provided by TCORCalc™ *.    
Improved Budgetary Accuracy Pinpoint your financial leakage in order to make budgeting more accurate.    
KPI Attachment Points Apply recaptured financial leakage to improve your Business Performance Goals.    

* TCORCalc® is the only credible source of brokerage analytics in North America. Analytic Brokers™ provide insurance buyers with proprietary business intelligence and improvements using TCORCalc® certified data.

5 Reasons to Choose Our Analytic Brokerage™

  1. We are dedicated to improving your business model. This includes understanding your KPI’s and desired business results and putting a plan together to achieve them.
  2. We treat our clients like partners (not customers). Every step of the way, we’ll show you how we’re providing you with a quantifiable, improved business result.
  3. We’ll provide you with business outcomes to score our performance. Don’t take our word for it, we’ll provide credible data that demonstrates our impact.
  4. We’ll supply business intelligence to give you better decision support. Making strategic business decisions requires insight - we’ll show you the numbers.
  5. We have access to technology, resources and data that our competitors do not possess, making it virtually impossible for them to compete on our level.

Current Broker Assessment

In order to determine the level of service being provided by your current broker, here are some questions that you should ask your them during your next assessment:

  1. What contributions have you made to our EBITDA, Shareholder Value and Capital Expenditure Budget in the past 3 years?
  2. Aside from insurance transactions and claim payments, how have you improved our quantifiable results and KPI’s?
  3. What was our controllable Financial Leakage over the past 36 months and how have you helped us recapture it?
  4. What financial metrics will you provide us on an ongoing basis that translates your representation into a quantifiable impact on our financial statement?

If your broker can’t provide you with succinct answers to these questions, you are being under-served. As an Analytic Brokerage™, we can provide these answers and more.

The Next Step: A Deeper Discussion

As an Analytic Brokerage™ we will provide you with an action plan that will pinpoint areas of cost reduction opportunity that can be used to improve your EBITDA, margins, surplus, and financial stability. It is our goal to further strengthen your business model by reducing the financial leakage that blocks your ability to achieve your important business goals.

Please contact us today and we’ll provide an assessment of your current cost structure, how we can impact it, and what the potential business improvement results will be. We hope you’ll take this opportunity to explore our Analytic Brokerage™ services.

Together we’ll strengthen your business performance.

Copyright © 2023 Iron Insurance Partners, TCORCalc®, Analytic Broker, and Analytic Brokerage are registered trademarks of C.R. Ekern & Company, Inc.