Running an insurance broker tender can be hugely beneficial for your business.
A tender can help drive innovation in your insurance program, potentially save you money in the event of a claim by helping ensure you have appropriate coverage, and allow you to find a highly-skilled and competent insurance broker to partner with.
However, running a tender for insurance broker services can be very complex, time-consuming and resource intensive.
So when should you run an insurance broker tender and what does a good tender look like?
Here we explain how to run a successful insurance broker tender for your business. But first, let’s start by looking at the basics.
What is an insurance broker tender?
An insurance broker tender process is a formal approach to review how and why a business transfers risk via insurance.
Tendering for insurance broker services can be extremely valuable as it provides fresh eyes and new ideas on how your program should be structured, and details the conceptual process for procuring and placing coverage.
The process can be quite involved so it’s best suited to businesses who have material and unique risks, and those who value the role that insurance can play in protecting their business and assets.
When should I use a broker tender process?
You shouldn’t tender for insurance broker services if you only want to review your current broker - this is best done via desktop research or through an independent risk consultant, such as KPMG, PWC, EY or similar.
If the purpose is a full review of services, including program design, innovation, service levels, and pricing, and there is the possibility of moving the account, then a tender could be used.
If you are dissatisfied with aspects of your current broker relationship and are unsure who to engage, a tender process may be best.
Be upfront with prospective brokers and provide feedback as to why you are not satisfied with your current arrangement - that way they can structure their proposals to accommodate.
Why should I use an insurance broker tender process?
There are many reasons why you’d use an insurance broker tender including:
A change in your business’ circumstances, such as recent mergers, acquisitions, changes to portfolios or expansion into new territories.
For program innovation to achieve a better outcome.
If you’re simply not happy with your current broker, a tender is a valid option to ensure you receive the desired level of service.
To validate the choice of broker (and by extension your insurance program) to your stakeholders, be it board members, shareholders or similar.
What does a good broker tender look like?
Key to a good insurance broker tender process is the establishment of an internal tender panel.
The panel should consist of your business’ main insurance-related stakeholders and key decision makers, including those managing the insurance relationships and senior leaders with ultimate decision-making responsibility.
This panel doesn’t necessarily have to be involved throughout the entire tender but should at least review your request for proposal, review the received tenders and be responsible for choosing a winning tender.
If needed, there are external consultants that can manage a tender process on your behalf, and work with you to execute the tender.
It’s important to create a clear timeline for your tender so brokers are aware of the key dates and deadlines. This may include dates for:
You should aim to complete the tender process within 3-4 months, depending on how complex the program is.
Ideally, when you tender for insurance broker services you will give the tenderers the opportunity to meet with the tender panel to understand the company’s attitude towards risk and insurance, its business critical risks, how the business prefers to engage with its professional services providers, and how to structure their tender response accordingly.
As a rule of thumb, a final decision from a tender should be completed about 4-6 months prior to the renewal date of the program, although this could be less for less complex accounts. This will allow the new broker to prepare adequately for renewal.
Here is a high-level timeline for completing an insurance broker tender.
How do I decide which brokers I should invite to tender?
When deciding which brokers to invite to take part in the insurance broker tender, there are a range of aspects you should consider.
These include their expertise, knowledge of your business sector, previous experience, cultural fit, niche or specialist areas, ability to influence (both internally in your company and with insurance providers), their service offering and remerunations structure (e.g. commission and/or fees).
Given participation in a tender can be very time intensive, some brokers may decline to participate if they feel they’re not going to be successful, or if the businesses are not the right fit, culturally or otherwise.
Ideally, you’re engaging a range of brokers prior to the insurance tender process to build relationships and provide brokers an opportunity to understand your business, and its risk objectives. It’s also a good opportunity for you to better understand who might be interested in participating.
When it comes time for brokers to participate in the tender, ensure you arrange a non-disclosure agreement as you’ll be handing them sensitive information within your Request for Proposal.
What needs to be in my Request for Proposal?
Once you have identified all the parties you’d like to participate in the insurance broker tender process, you can formally issue a Request for Proposal (RFP) which sets out the guidelines for the tenderers.
The RFP should include all the information the brokers need to submit their proposals including:
When creating your RFP, keep in mind the key information you want from the broker.
This is likely to include a service proposal, detailed information on the program design, conceptual placement methodology (i.e. how the broker plans to create competition), estimated pricing of the program, broker remuneration, broker KPIs, how claims are managed, details of a transition plan with the incumbent broker, and client references, among other information.
What happens after I issue the RFP?
Once you’ve issued the RFP, some brokers may seek additional information from you to help with their proposals.
When all proposals are received, your tender panel can start reviewing the submissions to create a shortlist of brokers. The panel should aim to choose the top two or three brokers to take to the presentation stage.
The proposals should be scored by each of the members of the tender panel based on pre-agreed criteria, which is weighted towards what’s important to your business (e.g. price vs service).
The presentation stage is a final pitch to become your appointed broker. It can include your current broker if they have been part of the tender process.
The presentation format can be tailored to your requirements. You may want the brokers to focus on all or particular parts of their written proposals, or alternatively particular themes you want them to expand on further.
Allow for a Q&A at the end of each presentation, including questions from the broker to your tender panel.
Similarly to the written proposals, each of the tender panel members should score the broker and their presentation on pre-agreed criteria.
Important considerations when choosing the best broker
Using the scoring from the presentations, the tender panel should candidly discuss the options and make a final decision.
Here are some key considerations you should keep in mind when making your assessment.
Evaluate both the technical expertise of the broker, such as the tender objectives and criteria, and the subjective elements, such as cultural fit. Broker-client relationships are very close and the broker ultimately becomes an extension of your team, so you want someone who you’ll be able to work closely with.
Check if the broker has a ‘Limitation of Liability’. Some brokers may limit their liability to a specified value, for example $2 million. In the event that the broker has been negligent in providing services to you, contractually you’re only able to claim up to $2 million in damages, even though your losses from their negligence may be considerably higher. Although not ideal, being able to recover losses from your broker is a form of insurance in itself and provides another layer of protection for you.
Understand what services are out of scope. Typically, brokers will be able to charge additional amounts for your new service offerings, new acquisitions, or policies which have not previously been part of your insurance program, for example cyber liability.
Does the broker have ownership of connected service providers, such as underwriting agencies? It should be made clear during the tender what other interests a broker holds to avoid any ‘double dipping’, whereby a broker may recommend a product which is owned by the same group.
Brokers should clearly articulate any overarching revenue streams that may be connected to your account, including volume or claims bonuses or incentives. This includes placements through overseas offices who may also be earning additional revenue without your knowledge.
Typical broker appointments are in the range of 3-5 years, but they can be extended in the event of excellent performance.
Remuneration may be linked to broker KPIs, which the broker believes are attainable. This could be service, coverage or price related.
Once the preferred proposal has been agreed upon by the tender panel and a contractual agreement entered into, the successful brokers can be notified. Be prepared to provide honest feedback, if asked, as brokers have invested time to participate in your tender process.
It’s important to document the process as evidence for stakeholders. This should include how the brokers were scored and selected for both their written proposals and presentations.
Key takeaways for running a successful insurance broker tender process
Not sure if an insurance broker tender is right for you?
If you’re reading this thinking that you don’t have the time and resources to commit to a full insurance broker tender, fear not!
The tips above can be incorporated into negotiations with your current broker, or can be considered in a ‘lite’ version without full implementation.
If nothing else, it’s best to be informed about how to engage with your insurance broker and the key items you should consider when assessing insurance solutions for your business.
If you’d like more information regarding insurance broker tenders or insurance matters related to your business, please call Will Laundy on 0438 772 216 or email will@pillarbrokerage.com.au.
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