Managing the timing of the renewal cycle is also advantageous. Buyers have learned that it doesn't pay to get a late start. They need to drive the process by staying on top of their broker's activities and being responsive to requests for more information.

Although one best practice allows a four-month lead-time before expiration, this might not be enough. Why? Because underwriters will demand more information and the outcome is likely to be higher costs. Now is the time to start working on August-to-October renewals.

Other steps that risk managers can take are to ask brokers to formulate a renewal strategy, and get input and advice from sources outside the present broker relationship.

Risk managers also should alert management and internal customers about possible increases in risk costs, and they might want to consider converting the broker to a fee-for-services basis.

They should also strengthen premium and self-insurance loss projections in the budget, as necessary.

Concurrently, the insurance broker should be discussing the forthcoming renewal with the incumbent insurance company to ascertain their intent to renew. The broker needs to canvass the market for other possible insurers, including alternative markets, and recommend adjustments in the renewal strategy as necessary. Ratings of carriers participating in the renewal should be monitored.

Underwriters will be asking for more information than before, and this will require drilling down deeper for that data. It will be important for the risk manager to give the broker an information advantage. For example, ever since Sept. 11, workers' compensation underwriters are requesting information relative to the concentration of employees.

To gather the necessary information, the insurance buyer should organize a team to gather prospective sales, payroll, values and other exposure information. Risk managers should be updated on the status and outcomes of all large or potentially dangerous claims, analyze loss trends, and be familiar with statistics such as the calculated loss ratio.

Meanwhile, the broker needs to find out what information prospective underwriters will need. The broker should order and review loss runs, and help the risk manager identify specific claims and suits that might be of interest to underwriters.

The broker also should engage technical staff, including actuaries if appropriate, to project losses.

During the soft market, the customer and the broker had the upper hand, but this no longer is the case. While costs are going up, coverages are being watered down. For example, we recently heard of a risk manager whose flood coverage extension excluded losses below street level.

As they approach the due date for the delivery of renewal quotes, risk managers might need to adjust expectations as to the outcome of the renewal process. They should prepare by determining what coverage the organization can buy less of, or even do without.

Risk managers should have benchmarking data available, and they should look for opportunities to avoid risk through outsourcing. They might even want to discontinue certain business activities.

Risk managers also should consider the pros and cons of bringing in another broker to obtain competitive quotations.

At this stage, the broker should be getting the carriers to disclose the coverage items that are likely to be lost, and obtain and analyze specimen policy forms. To minimize reductions in coverage, brokers should gather benchmarking data based upon the most recent experience of other clients.

Best practices recommends having firm renewal quotes in hand 30 days before expiration. In this market, however, carriers are more likely to withhold their quotes until the last minute. Organizations with rigid procurement standards might need to relax their rules. Accordingly, risk managers should obtain the authority to change carriers and issue firm orders at the last minute.

Risk managers should be prepared to make a change if a competing broker has come up with a competitive alternative, and learn the differences (if any) between the available quotes and expiring policies. It's important to disclose any changes to management and internal customers affected by these changes.

The broker should use leverage in the market to provide the customer with at least one competitive option, and assure that non-renewing incumbent carriers have complied with applicable prior-notice laws.

Published advice is available to guide risk managers. Two publications are for sale at www.rims.org, the Web site of the Risk and Insurance Management Society. One is a general guide, “Selecting And Working With A Broker.” The other is a more broad-based booklet outlining “Risk Management Best Practices.”

In the Free Tools section of my Web site, www.RiskConsult.com, I have published a worksheet that can be used to grade the performance of competing brokers. In the “Perspectives” section, I offer a list of the traits of good insurance brokers. Additionally, The National Underwriter Company offers a variety of “how to” booklets. To check their catalogue, go to NationalUnderwriter.com.

Admittedly, some of this advice might not work in the hard market. Despite the turmoil, however, the market still has an adequate number of financially secure insurers looking for business.

Douglas H. Hartman is owner of Montclair Risk Advisors Inc., a property-casualty insurance and risk management consulting firm in Upper Montclair, N.J.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, May 13, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.