So far in our series on reducing service costs, I've addressed how to reduce legal fees and bank charges. This process is very different from getting annual quotes from materials providers. That's because service providers build intellectual capital over years of working together. Unless their fees are exorbitant, this knowledge makes it worthwhile to continue working with them.
But as we've noted, that does not mean your company shouldn’t examine the current deal you are getting. However, the cost of disrupting business needs to result in a significant savings.
To make changing service providers worth the disruption, I set out three guidelines:
1) The new service provider provides a 25% reduction in cost.
2) Your company has a plan to sustain the cost reduction over time.
3) You have CEO backing. This will help protect against pushback from the parties who want to maintain the status quo.
Business Insurance Quotes
Business insurance is usually quoted and managed by a broker who has access to a wide variety of insurance companies. Businesses rely on these brokers to get annual quotes for Property and Casualty insurance. This is insurance that covers buildings and equipment, product liability, and workers’ compensation. It can also cover any profits lost due to an interruption in business. If your employees work in manufacturing, construction, or assembly, workers' compensation will be the most expensive part.
Make sure that you get an understanding of the current status of the insurance market. Is it a "soft" or "hard" market? This will help you to set expectations and respond to the brokers. Brokers should understand the stability of the carrier and risk management. Brokers should also be able to review in-depth claims, claim reserves, and the workers' compensation modifier. A broker needs to be able to provide a service plan for claim review, loss control, interim audit and coverage analysis.
Getting a competitive quote for insurance requires a different approach than the ones used for legal services or banking. An individual insurance company will only allow one "broker of record" to represent you and get quotes.
Choose which insurance companies your current broker will contact, and which ones your alternative broker will contact. Brokers develop deep relationships with specific insurance companies. You want to make sure your current broker gets the best quote from your current insurance company. Both brokers should know about your goal: a 25% reduction in premiums for the next year without any increase in risk level.
Choosing an Alternative Broker
For the alternative broker, you will want someone who has the resources to help you manage a sustainable reduction in cost. You don't only want a 25% reduction in cost for one year, but for the next several years. Insurance companies use metrics to determine what your premium will be, and claim tracking management will be key to determining your premium base.
Does your prospective broker have other accounts in related businesses? If so, they likely have the expertise to contribute to your insurance premium management. If you are a manufacturing company, look for a broker who has managed safety issues and workers’ compensation premiums.
If you are in a higher risk service category, your broker needs to have relevant experience. Talk to references about what support they have gotten in managing the loss metrics and the premium base. Give both brokers enough time to get the relevant premium quotes. Starting 120 days before the end of your current insurance plan should result in strong competition for your business.
The Final Selection
When you have received your quotes, it's time to make a choice. Ideally, you will get two quotes lower than your current premium level. You may want to share the information with each vendor in order for them to make a final competitive quote. Remember, you will not likely be revisiting this issue for the next 3 to 5 years, so you want the best quote you can get now. The insurance brokers should both know when they quote that they can expect the winner to have a stable relationship with you for several years.
Once you have made your selection, be open to discussions on risk avoidance, risk retention and risk transfer. These issues can substantially impact premium levels. I have not discussed cyber security in this post, since that is an issue unto itself. Make sure to talk about this with your broker or a trusted advisor to protect your organization.
The next post in this series will be on audit fees, which are all over the map. As with major banks, the fees for the Big Four firms are considerably higher than for other audit firms. Be sure to check back in to see how to save your organization money on these fees.