COMPETITIVE BID PROCESS

The most expensive decision many companies ever make is accepting the low bid on their insurance program.  My career spans over thirty years and bid process has been a challenge from the beginning.  Let me provide several examples of low bids creating major problems.
 
1. Frequent bidding by an insured prompts many quality insurance firms to decline to participate.  The opportunity to obtain coverage from a quality provider or knowledgeable broker is lost.
   
2. A low bidder fails to understand certain exposures in an account and omits critical coverage.  A subsequent loss is uninsured.
   
3. An insurance agent misrepresents an account to an insurance company in order to secure a lower premium.  The policy issued may (a) not respond to the type of loss experienced by the insured, or (b) denied by the insurance carrier.
   
4. The low bid insurance provider is a nonexistent entity.  The premium is stolen and no coverage was ever in effect.  This problem is quite common.
   
5. Low cost coverage became worthless after an insurance company bankruptcy.  State guaranty funds provide very limited consumer protection.  The cost of claims become the responsibility of the insured.  Bankruptcy of an insured with pending claims is a frequent result.
 
A DETRIMENT TO THE BID PROCESS
 
The insurance industry representatives frequently ask, "What coverage do you want?"  This places the insured in the position of making decisions about the content of policy agreements they know nothing about.  This process changes the role of the insurance agent from one of providing advice to taking orders.  This strategy serves to reduce the responsibility of the agent.
 
Delivering "bid specifications" to the insurance industry frequently keeps an insured from receiving very valuable advice and counsel about exposures, differences in policy forms, etc.  The agent's duties to the insured are reduced.
 
HOW DO YOU CHANGE THAT?
 
Deliver a summary of operations and activities that thoroughly describe the account.  Prepare information that will skew insurance industry pricing in favor of the buyer.  Invite conceptual proposals from knowledgeable agents and brokers.  How would they insure your account?  Evaluate the apparent knowledge, skill, and business acumen of the brokers during their presentations.
 
Obtaining competitive proposals on commercial insurance accounts requires considerable planning and care.  The general public is unfamiliar with the terms of commercial insurance contracts and frequently unable to evaluate the difference between proposals.  It is a far more complex process than people realize.
 
Q. How do you select agents or brokers to bid your account?
   
  Agent and broker selection process comes down to the skill of the men and women across the table.  Large national brokers represent large numbers of insurance companies, possess remarkable internal resources and employ men and women with consummate skill.   These same organizations also deliver some of the absolute worst work I have ever encountered in my career.  A local or regional broker may represent the same insurance companies, provide the same services and employ personnel with greater skills.  The size of the firm is not a measure of skill level and resources.
   
  Carefully assess the experience level, business acumen, and insurance related education of the individuals with who you meet.
   
Q. What insurance related education has the individual completed?
   
  The insurance agent's licensing examination typically requires forty (40) hours of classroom instruction.  The classroom curriculum is sixth grade level material.  A significant percentage of the curriculum involves losses less than $1,000.  The curriculum does not include information about risk surveys, property leases, contractual liability, disaster recovery, bid process, etc.
   
  The typical insurance policy is undergraduate or graduate level reading material.  The policies have been written to comply with regulatory requirements and judicial decisions.  It is important for the insurance buyer to engage an agent who can read and interpret the policies.
   
  The business of insurance is primarily business law, accounting, and policy forms.  You might add math, economics and finance but the nuts and bolts are business law, accounting and policy forms.  It is highly important for your agent or broker to be well schooled in the business
   
  An undergraduate degree in business is a great help. There are several credible property/casualty educational programs. Let me list the more common programs.
   
  Certified Insurance Counselor (CIC)- This program involves approximately eighty (80) classroom hours and completion of an examination.
   
  Accredited Advisor in Insurance (AAI)- This program has four (4) lower division college level courses requiring well over 200 hours of preparation and completion of four competitive national exams.
   
  Chartered Property Casualty Underwriter (CPCU)- This program has four upper division undergraduate and four graduate level courses requiring approximately 1,000 hours of preparation plus completion of eight competitive national exams.
   
  Associate in Risk Management (ARM)- This program has three graduate level courses requiring approximately 200 hours of preparation plus completion of three competitive national examinations.
   
Q. What level of experience does the agent have with your type of account?
   
  Does the individual exhibit a high degree of business acumen?  Do they review your contracts and leases? Do they exhibit familiarity with your industry?  Does the agent have substantial experience placing accounts similar to your own?
   
Q. Will a team service your account?
   
  Service teams handle many insurance accounts and bring real depth in terms of skill and service.  It is important to meet the entire team.  Too many sales organizations send highly skilled and polished representatives on sales calls and keep their service teams in the basement. Interview the team.
   
Q. How do you select firms to make proposals on your account
   
 
a. Experience
   
b. Education
   
c. Market Share
   
Q. How does an insurance buyer influence the process?
   
 
a. Provide full disclosure of information about your organization.
   
  The insurance buyer needs to provide substantial information to the insurance company about the type and nature of operations.  Your objective is to transfer risk.  Failure to fully disclose information can be extremely detrimental.  Let me provide two examples:
   
 
i. Information about the type and values of property of others in your care, custody, and control is very important.  With a few exceptions the standard insurance industry policies exclude this property.
   
ii. You may assume very significant liabilities in your contracts and leases.
   
b. Present information in a manner that will skew the insurance industry pricing in your favor.
   
  This is difficult for someone unfamiliar with the insurance industry pricing methods, but can be very valuable.  One example is to describe your plans to resume operations using other facilities in the event of major damage to your operating site.  Loss of customers is a much greater risk than insurance recovery.  Firms that lose their customers to competitors typically go out of business.  A disaster recovery plan will (a) reduce your potential loss, (b) reduce your need for certain coverage, and (c) reduce your insurance cost.
   
Q. How do you evaluate proposals received from the insurance industry?
   
 
a. Evaluate the proposal team's understanding of your risk.  Consider the following:
   
 
i. How well do they understand your business?
   
ii. How do you assess the quality of questions they asked about the nature of risk encountered by your organization?
   
iii. Do they exhibit a high level of business acumen?
   
b. Evaluate how the proposal tem articulate your risk in relation to the content of their proposal.
   
c. How  do the policy forms compare?
   
Q. How can I help you in the process?
   
  I have assisted insurance buyers through the competitive proposal process since 1984.  I prepare the documentation to be delivered to the insurance industry that describes an organization in a thorough, honest manner and includes materials designed to skew pricing in favor of the buyer.
   
  I also assist the buyer in evaluating the technical content of proposals received.  I can help answer the question, "Which proposal (or bidder) is better for our company?"

 

CONTACT INFORMATION:
James R. Mahurin, CPCU, ARM Phone: (615)790-0083
207 Third Avenue North Email: jimmahurin@aol.com
Franklin, TN 37064 Website: www.risk-guide.com