Historically, there have been two main ways that public sector organizations procure their insurance policies; Full insurance RFPs and Insurance Broker Services RFPs. While the ultimate goal is to find the best combination of price, coverage and service, the ways in which these are accomplished by the different types of RFPs vary a great deal. In this article, we will break down the advantages and disadvantages of these procurement processes and help you decide which may be best for your organization.
Full Insurance Quote RFP
In this type of RFP, the organization is looking for a complete, firm price for their insurance program. Multiple providers, whether they be insurance brokerages or direct writers, would solicit the insurance market for quotes. The pricing would include all insurance premiums and either include a fee for service or commission. Risk management services would be either included in the total pricing or be listed out as separate items.
Advantages:
- The buyer knows exactly what they will pay for their insurance program for the upcoming term as these are firm quotes.
- Only experienced bidders who know they can most likely secure full program terms will be involved in the RFP.
- Certain brokers may have programs in place with insurers that can offer more competitive terms for smaller, less complex risks.
Disadvantages
- The organization needs to release all information to the prospective bidders, including previous coverage, claims history and exposure data. Many questions will also be asked throughout the RFP by potential vendors as they need to know exactly what the exposure is in order to secure pricing.
- The insurance market only has a finite amount of insurers who are willing to underwrite certain risks. As well, they will usually only release terms to one broker. That means that there is the potential there could be limited capacity in the market.
- The organization’s insurance program may not be optimized as one broker could secure the best liability terms, while another may secure the best property terms. The organization will be forced to choose the best “package” even though the individual coverage premiums may not be the best individually.
Insurance Broker Services RFP
In this type of RFP, the organization looks to choose an insurance broker who will source the entire insurance market on their behalf in order to place their insurance program. In most cases, the insurance broker chosen would charge a flat fee for their services, which could include other value-added services on top of placing the organization’s insurance. Because the broker is soliciting insurance quotes on behalf of the organization, they have access to the entire insurance market, without being blocked by others looking for the same quotes for the same organization.
Advantages
- Insurance markets will not be blocked by other brokers, allowing the organization to decide through many different quotes to determine the best value per line of coverage and thus optimize the organization’s insurance program.
- There are potential cost savings as the broker will be paid on a flat fee and there would be zero commission on the insurance premiums.
- The broker will have the ability to learn more about the organization including its needs, strategic goal and risk tolerances. This can be helpful in creating the most aligned and cost-effective insurance program for them.
- There is a less work burden for the organization’s staff during the RFP process as underwriting information (such as applications, automobile count, etc.) does not have to be provided to the proponents.
Disadvantages
- The organization must trust that the chosen broker has the capability to access the entire insurance market. Some brokers will bid on a broker services contract, but then go to other, larger brokers who have programs in place to get quotes. This gives the illusion that they are accessing the market, but in reality they are just adding in another layer of cost to the transaction. In this scenario they are not getting the full benefit of utilizing a broker services RFP as the chosen broker should be negotiating with insurance companies directly, not other brokers.
- The total cost of insurance is unknown at the time the successful proponent is chosen for the broker services RFP. This adds an additional element of risk to the RFP. That being said, it is important to look for brokers that have experience as the chosen broker for other public sector ensure their references and past experience are a large part of the RFP scoring.
- This process could exclude some direct writers or managing general agents who prefer to go directly to organizations or through their own selected brokerages.
Ultimately, it is up to the organization to determine what the best RFP strategy is for their own individual organization. Insurance procurement is taking up a larger role in organization’s financial strategy and it is vitally important that they choose a risk management partner who can help them meet their individually organizational goals. Hopefully this article can help you to decide what avenue is right for your organization and will help to optimize the insurance buying process.