Recently we began our search for a new office building, one that we would own rather than rent. We found one that met our requirements and made an offer. Fortunately, our offer was not accepted. I say fortunately because the rejection of this offer gave us time to reevaluate our thoughts on becoming property owners. We stepped back and discussed our reasons for being in business, our core strengths and where we wanted to spend our time, and through this discussion quickly realized that a property manager was not what we wanted to be.
Our core competency is providing superior wrap-up administration services and that’s what we want to continue to devote our time, efforts and talents to – not being landlords.
The Value of a Broker
This story can be used as an analogy for any company trying to be all things to all people; it is the story of any company that has strayed from its core competencies. Brokers are in business to represent and guide a buyer in their search for appropriate insurance coverage, usually at the best price. Brokers are skilled at evaluating a company’s potential risks and advising them on how to mitigate those risks through the use of insurance policies (or other means, if applicable). There are times when the policy that is the best fit for the buyer’s particular circumstance is a wrap-up insurance policy. While the broker may be the best to evaluate, recommend and place this type of coverage, they may want to consider their core competencies and ultimate business goals when determining whether or not they are the ones best suited to provide the administrative services required for these types of programs.
Large national or multinational brokers seem to be of the mindset that they can provide any and every service that their clients need. Thus all, or nearly all, of the brokers that fall into this category have created their own internal administrative unit and, additionally, have also attempted to create proprietary software to support this unit. In the early years it wasn’t just the broker organizations that believed in their ability to provide these services, but their clients believed it too. However, over time, many of these clients have become more and more dissatisfied with the services provided and the capabilities of the technology. Some of these clients have moved from large broker to large broker but have been disappointed to find similar results no matter which company they chose; leaving both broker and client miffed.
Reasons Why Administering Your Wrap-Up with a Broker is a Bad Idea
Why, if the broker is so good at managing a company’s insurance, are they so bad at wrap-up administration? Based on our collective experiences in large brokerage houses and complaints heard direct from the brokers’ clients, we have come to the following conclusions:
- Frequent Turnover. While talent, expertise and experience can be found in upper-level positions at most brokerage houses, administration is often a task performed by entry-level personnel. Many of these employees accept an administrative position just to get their foot in the door. Then, as positions become available, these entry-level personnel advance into more senior positions causing a need for replacements in the administrative unit. Thus creating frequent turnover.
- Lack of Experience. Frequent turnover, of course, means that those holding these administrative positions typically have little experience. While there are many articles, and even a few books written on wrap-ups, expertise in their administration (not unlike most other areas of life) comes only with experience. Though many of the tasks associated with administering a wrap-up can be easily taught, distinguishing between the grays of varying situations and deciphering the ever changing market requires knowledge and know-how. Administrative deficiencies in experience and expertise cause underwriting and financial risk to both client and carrier.
- Software. We frequently hear about brokers trashing an old wrap-up admin software platform or building a new one, but we never hear of a broker who continuously reinvests in their product the way we do at CRS. These large companies create a software product, often without input from the end user; then set it up on a shelf until they can no longer bear the screams of how worthless the product is, at which point they scrap the whole thing and start over. In addition to the internal user, wrap-up sponsors and participating contractors often complain about the broker provided solution. Some software complaints that we have heard include: too many automated notifications without review by human eyes first, not flexible enough to handle the various demands of different clients, not web based, reports not available in an editable format, the list goes on….
- Funding. Insurance brokers typically receive a commission and/or fee on the coverages that they place. Depending upon the internal corporate structure and how the client is billed, there may or may not be enough money left over to fully fund an adequate administrative staff. Obviously, inadequately staffing the administration produces a myriad of consequences, not the least of which is insufficient time to review the data and maintain awareness of program performance.
- Independence. A large broker means many clients. What do you think the chances are that at least one, and probably many, of the contractors working on the wrap-up is also a client of the broker? How do you think this will affect their ability to accurately settle insurance credits in a manner that is most favorable to the wrap-up sponsor?
Luckily, other choices exist. A program sponsor can choose the best of both worlds, and many are beginning to realize this. Program sponsors can choose the provider that is the best fit for each of their required services; they can choose the best broker, best administrator and best safety representative and each could be from a different company.
Brokers have choices too; outsourcing of administration is something that many are either taking advantage of or considering. Outsourcing administration frees them up to focus on what they do best and, with the right administrator, will increase their value and strengthen their relationship with their client.
Read our testimonials from clients like Lendlease that maintained their broker relationships while finding the best service on the administration side with CR Solutions, Read: Client Testimonials
Learn if a wrap-up is right for your project – request a complimentary consultation here.