Does your organization have an RFP, request for proposals, process or even an RFP requirement in the governing bylaws for purchasing and evaluating options for commercial insurance? In this post I’d like to talk about why that process may not be the most effective or efficient way to purchase insurance.
Now, I should start by clarifying that I have nothing against the RFP process in general. In fact, I believe it’s a great way to examine the options available to your organization when purchasing a new product or service and especially when you’re considering moving from one vendor to another for an existing product or service.
However, the model of commercial insurance can create problems and challenges that are not easy to overcome or find solutions for. The reason for this is because commercial insurance is a first come, first served model. An example of this is if I submit applications to an insurance carrier for your organization, no other agents can work with that company for one year. We refer to this as being blocked.
The only way we can get around being blocked by another agent is by submitting a Broker of Record or Agent of Record letter, signed by you, to the carrier but this is not a quick process. There is a 7 to 10 day waiting period the carriers impose so that your current agent can make sure you understood what you were signing while also attempting to keep your business.
In addition to carriers only working with one agent per year on your account, almost all carriers have their own record keeping and documentation systems in place. Whether you know it or not, every carrier who has received a submission for your account over at least the last 7 years has a record of your organization in their files.
Some underwriters at these carriers work 70+ hour weeks because, as you know, there are not nearly as many options for nonprofit and healthcare organizations so they are almost always inundated with submissions to work on. In addition, the insurance industry was not immune to the turnover brought on by the recent pandemic. Many seasoned underwriters either retired or moved into leadership positions which left sizeable staffing shortages that still haven’t been filled. Many of the underwriters who took their places are much less experienced while also being asked to do more than their predecessors to increase efficiency.
Before I explain why and how these factors negatively impact your RFP process I have one last issue to bring up. That issue is the underwriting process. As you know, anytime you are getting insurance quotes you are required to complete applications and provide information about your organization. The issue here is the information that’s most commonly requested, required and analyzed.
The majority of insurance applications are not created with room for elaboration or context. Instead, they’re almost all singularly focused on facts, data and figures. What’s your revenue, how many employees do you have, how many locations do you have, what are the building characteristics of those buildings, what services do you provide today etc.?
In addition to applications, every carrier requires a copy of your loss runs to provide a bindable quote. They are understandably interested in the claims you’ve had over the last 3 to 5 years and how much your insurance carrier(s) paid for those claims.
An oversimplified summary of the most common process I’ve experienced is; organizations send out RFPs every 3 to 5 years, invite 3 to 5 agents to participate and require that those agents present to a committee where they’ll highlight their experience, services provided and where they’re asking to bring their best quote to the table.
Now, to how the issues I mentioned clash with your RFP process. First, because insurance is a first come first served model, each agent will have to bring a quote from a different insurance carrier. Unless you’re clearly defining which agents are to access which carriers ahead of time, the moment the RFPs are received may trigger a mad dash to submit to as many carriers as possible in an attempt to block as many markets as possible to gain a competitive advantage.
Even if you are clearly instructing each agent on which market they will work with, when you’re working with 3 to 5 agents how can you be sure that the information each carrier receives is identical without manually reviewing every application, every submission statement / narrative and every email that agent has sent to the carrier about your organization? The amount of time it would take just to review the information alone is unsustainable.
Depending on the strategy you’ve developed with the agent you’ve been with, they may have been shopping for you annually or bi-annually to make sure that your current rates and coverage are competitive. The idea of shopping regularly is great on paper but is almost always flawed in execution.
We work with a data and analytics company that surveyed different insurance carriers, as well as individual underwriters, and they found that over 75% of submissions sent to carriers were incomplete. They missed some piece of information or documentation like a required application, loss runs, didn’t include a submission statement / narrative or were incomplete for other reasons like not including all the required data on buildings or vehicles.
You probably remember that carriers keep records on all submissions they receive. How seriously do you think they will take your submission if they can quickly and easily take a look at those records and see that over the last 10 years they’ve received multiple incomplete submissions? Submissions that likely didn’t materialize any quotes, any dialogue or any real opportunities for those carriers and underwriters to win your business.
One of the first questions an underwriter will ask an agent, if it’s not answered in the narrative, is whether or not that agent “controls” your account, meaning if they are your current agent. It may not seem like a relevant or important question, but it absolutely is. Underwriters know that it is significantly more difficult for them to win your business when they’re working with an agent who doesn’t control your account compared to working with your incumbent agent.
It may seem like these issues impact the agents who participate in your RFPs much more than the end result for your organization but ask yourself this, how do you know that your RFP process is helping you find both the best agent and the best carrier to work with? If every agent can only access one or two markets, how do you know that the agent who has the most experience and can provide you with the most value will win the luck of the draw to also bring you a quote from the carrier who will provide you with the best coverage at the most competitive rate?
In some ways most insurance agents are similar but in many more ways we’re all very different. We work for different organizations that have invested, or not invested, in different tools and resources for their clients. We all have different levels of experience and expertise. Some agents fall into the category of being a generalist, meaning their clients come from a wide variety of industries, may vary significantly in size and who don’t have one defined specialty over another. Other agents, like myself, work within specific niches. For me, the niches I work with are nonprofit organizations, healthcare providers and some for-profit human service focused businesses.
Some agents are hyper focused on price, some view the relationship with their clients as transactional, others are focused on providing long term value, helping you plan for the future and adapt your insurance policies and risk management strategies proactively. What does your ideal agent prioritize? What’s their approach and strategy when working with clients with challenging and unique needs?
Some agents go the extra mile and others don’t. Unless your agent or potential agents are asking for specific, detailed information to provide the necessary context along with your applications, as well as working with you to create a detailed and positive narrative, insurance carriers aren’t aware of the expounding information that may be the difference in whether or not you receive a quote or the rates they charge.
Additionally, if you’re asked for loss runs but are not asked for information about your claims, what changes or policies you’ve implemented to prevent those claims from happening again and how those claims have helped you lead your organization differently, the insurance carriers who review those loss runs assume you didn’t learn anything and that those claims will repeat themselves.
Let’s take a quick moment to summarize. The most common RFP process requires that agents bring their best quote but it’s nearly impossible for you as an organization to know which agents will access which carriers on your behalf, which frequently forces organizations to choose between the best policy and the best agent, rarely landing on both.
Insurance carriers keep detailed records of every submission they’ve received and it’s nearly impossible for you to know what your file looks like at the various carriers who’ve looked at your organization. You may have been misrepresented or had incomplete submissions provided on your behalf that, along with how your agent answers “do you control this account” is answered, could significantly impact your ability to get competitive rates and comprehensive coverage.
Insurance applications and the information needed for quotes does not include context, explanation or the nuance needed to paint the most accurate picture of your organization. How you’ve responded to previous claims is vital information that will only be included if your agent is asking you for and providing it along with the submission.
With all this in mind, is there a solution? Is the RFP model completely worthless when it comes to commercial insurance or is there room for improvement that could make the process more useful in your organization?
The solution I have would be to either completely overhaul your RFP process or get rid of it altogether while replacing it with something similar in some areas and very different in others. Like I stated in the beginning of this post, I believe that RFPs can be useful tools for analyzing the options available to your organization so I do think that, with some tweaking, they can help your insurance buying efforts.
The first thing I would recommend changing would be to remove the requirement for agents to bring their best quotes, or quotes at all, to the presentation. The options an agent can provide to your organization is a crucial piece of information that should be factored into your decision. But, starting with quotes just leaves too many opportunities for other factors, like their experience, strategy, approach and services provided, to be significantly outweighed by the price you see.
The second thing I would recommend would be to approach your RFPs more like job interviews. The reality is that when you choose an insurance agent, you’re hiring them to work for you as a consultant and advisor. This is why your focus should be on so much more than the best quote they can offer. For those of us as agents who work within your niche, the carriers we represent will be very similar if not identical. There is always a possibility that one agent may have more options than another due to how difficult and inconsistent some carriers are with their appointment process but most of us have similar access.
Instead of anchoring yourself to whoever has the best price on paper, focus on what the agents you’re interviewing can do for your organization. How they will represent you to the markets they approach. How their strategy and approach differ from their competitors. What kind of results they have helped similar organizations achieve. How they will respond when you ask them to shop your policies for you.
One of the reasons why I would recommend doing away with the RFP process altogether is because once you’ve found your ideal broker, unless some unforeseen issue arises that makes doing business with them unsustainable, you really won’t have a reason to use a cyclical approach to comparing them to others. Your ideal broker is irreplaceable, is an integral part of your organization and feels like a bargain at any price.
If you’ve made it this far I appreciate the time you’ve taken to consider my thoughts on the RFP process as it relates to commercial insurance. I hope you’ve found this information valuable and want you to know that if you have any other questions or would like to discuss this further I would be more than happy to have a conversation with you.
About the author – Drew Colwell is a commercial insurance agent and risk manager who specializes in working with nonprofit organizations, healthcare providers and other human service related businesses all over the US. If you would like to contact him his contact information is below.
Phone: 406-204-3666
Email: andrewc@wafdinsurance.com
LinkedIn: https://www.linkedin.com/in/drewcolwell/