What should I know when shopping around for Professional Indemnity Insurance?

[Paul Derham]

One question that clients often face is “Do I get my Broker to re-market my business or do I re-market the Broker?”

This article looks at what happens from a process point of view and then allows you to make an informed decision on which way to re-market your business.

1.      If you ask your Broker to re-market your account, then this is how it works:

(a)They’ll select a number of alternative Insurers to approach.

(b)They obtain terms from all the alternatives – either full quotes or over the phone indications.

(c)They compare terms with the current Insurer

(d)If the current Insurer (aka holding Insurer) looks like they will lose the business, the Broker (aka holding Broker) will give them ‘last bite’.  This means the current Insurer will be given every opportunity to retain the business.  This last bite can range from soft e.g. “you’re about to lose, you need to do something”, to hard e.g. “you’re about to lose and you need to do ‘x’ to retain”.

(e)As you can see from this process, the odds favour the current Insurer to retain business.  It’s one reason why attacking Insurers are sometimes reluctant to quote the holding Broker.  They know that the holding Broker owes their allegiance to the holding Insurer.

(f)Also note that the holding Insurer may not move their price initially, because they know they get last bite.  That’s why the first offer from a holding Insurer is often high – they have nothing to lose (and they bank on the fact that although the client might be angry with them, time and money heal all).

(g)What’s the outcome for the client: you’ll probably just end up staying with your current Insurer – that’s not a bad thing (in fact it’s often a very good thing), as long as you understand that’s how it is.

(h)The risk is that at some future point alternative Insurers just can’t be bothered quoting your account because they know that there is no genuine desire to move the business (that’s why some clients get a declinature – its less to do with the risk and more to do with the process) – this can hurt you in the long run if you need them in the future.

2.      If you re-market your Broker, then this is how it works:

(a)Each Broker will select a group of Insurers to approach.  Some Insurers ‘reserve’ – meaning they will only quote one Broker typically on a first come first served basis – everyone rushes to try and get an exclusive market!  The other types of Insurers are open market – they quote everyone the same terms for same information and leave it to the Broker to battle it out.

(b)The process outlined in 1. above happens in a concentrated fashion as each Broker aims to deliver the best deal to the client.

(c)Both Brokers present their terms and then one of two things happen:

a.Terms are presented to the client and the best set of terms win; or

b.Terms are presented to the client who in turn gives them to the current Broker i.e. the holding Broker is given ‘last bite’.  All the hard work of the attacking broker is wasted as they are ‘shopped’ to the holding Broker. Once again the risk to you is that this attacking Broker and any alternative Insurers can’t be bothered looking at your business again because they feel used.

Assuming you wish to re-market the Insurer, my advice is the following:

1.Don’t re-market your business every year – you just end up with a bad reputation amongst Insurers, which ultimately hurts you in the long run.

2.If you are happy with your current Broker, then don’t remarket them – just re-market the Insurer.

3.If you are indifferent to your current Broker, then re-market the Broker (which means the Insurer as well) but don’t give the holding Broker last bite

4.If you are unhappy with your current Broker, then just change Brokers, and let the new Broker re-market the Insurer.

John Kelly

Director

Consult Insurance Solutions Pty Ltd

http://www.consultis.com.au

[Author]

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