Know the difference between an agent and a broker.

In Insurance 101, we learn that agents represent the insurance company and brokers represent the insured. When I began my career, there was a difference between an agent's and a broker's license, with more extensive experience and educational requirements for brokers. The difference seems to have narrowed in the last decade or so, however, with even state licensing laws referring to both groups as “producers.”

This may be further blurred by the fact that many independent agents offer an extensive array of services in addition to placing insurance coverage and speak of themselves as representing the buyer not the insurer.

Regardless of what they call themselves agent or broker vendors who pledge to represent the best interests of their clients should be held to that promise.

Provide timely, accurate information about your business and its exposures.

Allow your broker access to your company so a complete exposure analysis can be done, and subsequently report changes when they occur.

I frequently talk with agents, brokers and adjusters about problem claims they're working on. Too often the claim is an issue because the client didn't report a change in exposure or complete exposure information from the start.

Buyers have a responsibility to be sure that the information they provide is complete, timely and accurate, or they must shoulder some of the blame when an exposure is not treated properly.

Negotiate a written service agreement with agents or brokers.

Although such agreements frequently are used with accounts that are set up with fee-based services, they also are valuable for accounts written on a commission basis.

From program design through implementation and auxiliary services, it's always best to have it in writing. The agreement should quantify expectations and identify how fulfillment will be judged. For example, the agreement may specify that quarterly written service completion reports be submitted to the corporate buyer so progress is gauged throughout the term of the agreement.

If fee-based services are provided, consider a formal incentive bonus structure.

Just as with employee-bonus systems, these can be tricky to develop and implement because it's difficult to keep them objective and based on quantifiable accomplishments.

Such incentive bonus systems can promote above-average service, however, when both sides have input into how they are set up. Sample bonus structures may be available on the Risk and Insurance Management Society Web site (www.RIMS.org), and one is provided in The National Underwriter Company book, “The Tools & Techniques of Risk Management & Insurance.”

Regardless of whether the account is written on a fee-based or commission basis, incorporate a provision for an annual broker evaluation.

Just as with any evaluation system, buyers shouldn't wait until the annual review to gauge performance. An annual formal review, however, can go a long way toward holding agents and brokers accountable for their promises. It can also serve as a basis to reward good performers and penalize poor performers.

Remarket the program for both brokers and insurers periodically but not every year.

In addition, when remarketing, set guidelines upfront and stick to them.

Successful risk managers typically issue a Request for Proposals that outlines needs and establishes guidelines for quoting the program. Some risk managers issue two RFPs one to use in selecting a broker, and a second to establish the actual program. When this is done, the successful broker typically plays a key role in the insurer RFP.

Buyers who market their program every year get the reputation of shopping for price solely, regardless of whether they talk about the importance of service or not. A corporate risk management and insurance program is too complicated to market every year, and those who try to do so may eventually find that very few brokers, if any, are interested.

Although it is best to keep a level playing ground by providing the same information to those invited to compete, creative brokers or insurers should be rewarded for going beyond a mere response to the Request for Proposal.

Know with whom you're doing business and recognize that they may have financial relationships with some of the companies with which they place business.

If part of the coverage is being written with non-admitted carriers, it may be prudent to ask questions about how, and through whom, the business is being placed.

A great number of independent wholesalers place non-admitted business, but many are owned by retail brokers. Either approach can be valid for an individual corporate buyer. If transparency and independence are important, however, it's best to ask about these arrangements before entering into a contract.

Vendors may have financial interests in other subcontractors that service an account, and it would be wise to inquire about such relationships.

A corporate buyer remarketing a program should be willing to move the business if a non-incumbent presents the best proposal.

All too frequently I've seen buyers allow incumbents to match a particularly competitive proposal in effect punishing the creative vendor who developed a superior proposal. Repeatedly allowing an incumbent whether agent, broker or insurer the last look can ultimately dry up the competition.

Buyers need to be just as forthright in their dealings with brokers as brokers need to be in their dealings with buyers. Laying out expectations for both sides as candidly as possible before beginning a relationship, and then evaluating that relationship periodically throughout the contract's term, may prevent the types of problems now being probed by Mr. Spitzer from occurring in the future.

Diana Reitz, CPCU, a former producer for a regional independent agency, is editor of “The Tools & Techniques of Risk Management & Insurance” as well as the “Risk Funding and Self-Insurance Bulletins,” published by National Underwriter and available at www.nationalunderwriter.com/nucatalog/.

Reproduced from National Underwriter Edition, March 4, 2005. Copyright 2005 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.