Risk Management by KeviN QuiNLey, CPCu
SELLING BROKER RELATIONSHIPS
TO UPPER MANAGEMENT
Persuasion and Due Diligence for Risk Managers
tain broker or to change partners.
In preparing the case to keep or switch
insurance brokers, risk managers must
make a convincing presentation. expect
to answer questions from higher-ups,
such as:
E “Have you put the brokerage arrangement out for competitive bidding?”
E “You say we are getting the best deal.
exactly how do you know that?”
E“Should we split our insurance programs among multiple brokers to ‘keep
them honest’?”
E “even if you are happy with the current
broker, should we not consider other
brokers on regular basis, just to keep
the incumbent on his or her toes?”
These are tough questions for sure.
Many risk managers may not welcome
them. They may seem intrusive and awkward. Nevertheless, even those risk managers with long-standing ties to specific
brokers may be challenged to justify and
rationalize that relationship on financial
and quantitative grounds. Generalities
carry little weight. Historical inertia or
the incumbency of multiple years is simply not a compelling factor to higher-ups.
Yogi Berra once quipped, “Nostalgia ain’t what it used to be.” Risk manag- ers can relate. even though Yogi was not referring to relationships with an insurance broker, he very well could have been. On top of their many other oles, risk managers should expect to have to justify the current brokerage
relationship to upper management, more so than ever before.
When risk managers “manage” the relationship with outside insurance brokers, they
should prepare for headwinds from upper management. Bland assurances of value-added relationships may not placate the top brass. C-level executives and boards of directors
feel heightened pressure to demonstrate transparency in all financial transactions. The
Sarbanes-Oxley Act and other corporate governance initiatives require that directors
and officers ensure that the organization gets full value from every business relationship.
This includes the insurance brokerage arrangement. Risk managers must assure upper
management that the current broker is not involved in contingent commission arrangements or bid-rigging.
Building the Case for Broker vs. Broker
The risk manager’s case for choosing one broker versus another (or multiple “others”)
must be well-thought out, rehearsed, and distilled to a concise essence. If the risk manager wants to change brokers, this is also a challenge that merits meticulous preparation.
The risk manager may have 10 minutes (if that) before the board to advocate for a cer-
Questions to Anticipate
One reason is that organizational layers above the risk manager are typically
populated with quantitative and financial
types. There is nothing wrong with this.
Given their training and background,
though, they will have questions that risk
managers will be expected to adequately
address. Lines of questioning might resemble the following:
E“How much money has the broker
saved us?”
E “What specific coverage enhancements
has the broker obtained that we could
not have leveraged anyway?”
E “What exactly differentiates the incumbent broker from the competition?”
E “What services do we get from the current broker that we could not obtain
elsewhere?”
