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November 27, 2006

COMMENTARY: Healthy competition | Don't automatically renew when your insurance contracts expire — put your business out to bid to get a better deal

By Scott Simmonds President
Insurance Consultants of Maine Inc., Saco

Here's an insurance tip that can save you 20%-40% on your premium: Next renewal, get quotes from other insurance companies and insurance agents.

The one sure way to control your workers' compensation, property, liability, auto and professional liability insurance cost is to put your coverage out to bid. Pit two agents against each other and let the fur fly. Over the past six months I have seen dramatic savings by insurance buyers who put their insurance out for competitive proposals.
Twenty-percent reductions are the average. Several Maine businesses have seen premiums drop by 30% or more. The record I've seen in the past year is a 65% drop, and in all cases cited the businesses' coverage improved at the same time premiums declined.

The key is competition. The fear of losing your business motivates your current insurer and agent. The hope of gaining your account spurs a competing agent to do great work.

I have to be fair here. Some commercial insurance buyers have seen increases even with a bid process. Construction companies, health care facilities and apartment owners continue to face a tougher insurance marketplace. However, well-run companies with a history of success still can realize gains in premiums and coverage through a competitive bid process. In all cases, premiums, though higher than last year, are lower than they would have been without competition.

Here are a few tips on seeking multiple insurance bids:

1. Start the process early
The bid process takes time and attention. Start the process at least 120 days before your insurance expires. Gather information on your current coverage, claims, vehicles and property. Project your payrolls and sales figures for the next year. Gather a complete list of employees who drive for you.

2. Select an agent to compete against your current representative
Interview several to learn who can provide you with the services you require. Talk with your trade association to learn if it has a sponsored insurance program or agent. Meet with the prospective agent and determine if her approach to service lines up with your expectations. Find out what insurers she represents. Talk with current clients of the prospective agent. There are many fine insurance agents in Maine. There are also some terrible insurance reps. Do your homework.

3. Assign insurers to specific agents
Don't work with more than two agents. It confuses the process and will hurt your chances for success. The insurance marketplace has a unique impediment to competition ˆ— most insurance companies will only provide quotes to one agent in a bid process. Having more than two agents splits the pie too finely. Ask the competing agents for a list of insurers they want to use and assign insurers to agents before agents approach their underwriters.

4. Manage the bid process
Keep the bid process fair. Do not divulge competing premiums until the process is complete. Don't give agents a second chance if their premium is uncompetitive. You entered the bid process to find out who can do the best job for you. Letting agents see the competition's quote subverts the integrity of the process. Tell the participants that you expect their best price and coverage up front.

5. Select the right program
The toughest part of the bid process is the last part ˆ— selecting the right program. You will have quotes from two agents. Both will claim to have the best coverage and service. You have to review the coverage, ask questions and build an understanding of what is important to your business.

Your decision should not be based on price alone. Compare coverage and the services of the agents and insurers. Ask yourself who you would want in your corner if your business were to have a major fire?

In sandlot baseball the rule is always "a tie goes to the runner." The same is true in most insurance bid projects. All things considered, if the coverage is comparable and the premium is close, stay with your current agent. However, if in the process you learned that your agent has not been as attentive as he should have been, it may be time for a change.
The property and casualty insurance market is vibrant, healthy and competitive. Obtaining competitive bids can put the power of the marketplace to work for you. The result can be a better program, a better price and better insurance service for your company.

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