How to choose a commercial insurance broker

Choose a commercial broker the way you would choose an accountant or a lawyer: confirm the license and the broker's own errors and omissions coverage, look for experience with your industry and account size, test how many insurers the broker can reach, ask exactly how the firm is paid, and check the service model and references. Do this with two or three firms using the same information, not by taking the first referral. Price promises made before anyone has seen your exposures are a reason to keep looking.

What a good commercial broker actually does

Knowing the job tells you what to test. A capable broker identifies exposures you have not thought about, designs a program of coverages and limits, markets the account to insurers, negotiates terms, reviews contract insurance requirements, issues certificates, helps with claims and runs the renewal strategy every year. The quote is one deliverable among several. The rest of the work is the part you cannot see until you need it. For the legal difference between brokers and agents, see independent agent, broker, captive agent or direct?.

Step 1: Verify the basics

• Licensing. Confirm the individual and the firm are licensed in your state. The NAIC advises checking that both the agent and the company are licensed and checking for complaints through the NAIC's Consumer Information Source or your state insurance department (NAIC, How to Choose an Insurance Agent). Most state departments offer an online license lookup that shows status and lines of authority; state insurance departments and what they can do for businesses and producer licensing for agents and brokers explain how licensing works.
• Errors and omissions coverage. Brokers can make mistakes: a missed endorsement, a wrong class, a lapse. Ask for a certificate showing the firm carries its own professional liability coverage and at what limit. A broker that will not show it is a poor risk for you.
• Insurer appointments. Ask which insurers the firm is appointed with or has access to for your class of business. A long list matters less than relevant ones.
• Credentials. Letters after a name show training, not performance, but they are worth asking about. Examples include the Chartered Property Casualty Underwriter (CPCU), which The Institutes describes as eight courses plus an ethics requirement, and the Certified Insurance Counselor (CIC), awarded by the Risk & Insurance Education Alliance, which requires passing courses and exams and annual updates to stay current (The Institutes; Risk & Insurance Education Alliance). See Insurance designations: CPCU, ARM, CIC and more for what the common ones mean.

Step 2: Match their experience to your risk

Ask the broker how many clients in your industry they serve, what size they are, and what claims they have helped with. A broker who places hundreds of small offices will know the BOP market well and may be out of their depth on a roofing contractor with a wrap-up requirement, a trucking fleet or a restaurant with liquor sales. Look for evidence: industry associations they work with, programs they place, loss-control resources, contract-review experience.

Size is a trade-off. A large national firm brings analytics, specialty practices and negotiating leverage; a regional or local firm may give you more of the principal's attention. Ownership also matters more than it used to. Many brokerages have been acquired by larger groups, including private equity-backed platforms (private equity and the consolidation of insurance brokers). Ask who owns the firm now, whether it has changed in the last few years, and whether any ownership arrangement affects the insurers it prefers.

Step 3: Test market access

Ask: "Which insurers would you approach for my account, and why those?" A good answer names markets suited to your class and explains their appetite. Ask whether the firm has a path to specialty and surplus lines markets through wholesale brokers or managing general agents (wholesale brokers and surplus lines placement: how hard risks get insured), and whether the firm will tell you which insurers declined and why. Be careful with a request to sign an exclusive authorization before the broker has approached anyone, because an underwriter will often deal with only the first broker to submit an account, and a premature commitment can limit your alternatives.

Step 4: Ask how they are paid

Brokers are paid by commissions from insurers, by client fees, or by both, and some also receive additional insurer compensation. None of this is improper when it is disclosed, but you should know it. Ask for the commission percentage or fee on each policy, and whether the firm receives any contingent, supplemental or other payment from insurers based on volume or results. The full picture is in how commercial insurance brokers get paid.

Step 5: Understand the service model

Many brokerage relationships go sour over service, not coverage. Ask:

1. Who will be my day-to-day contact, and who is the senior person on the account?
2. How quickly do you turn certificates, and can I generate my own for routine requests?
3. How do you help with claims? Do you attend meetings with adjusters, push on slow claims and review reservation-of-rights letters?
4. When do you start renewal work? Complex accounts normally need several months, not weeks.
5. What do you provide beyond placement: contract reviews, loss-control services, benchmarking, mid-term audits, safety resources?
6. What are your fees for additional services, and what is in the scope of the commission?

Step 6: Check references and compare

Ask for two or three references from clients of similar size and industry, and ask them about a claim, not just about renewal. Give each finalist the same information so you are comparing the firms, not different submissions. Writing a broker RFP for a commercial insurance program describes a formal process for larger accounts.

A scorecard you can use

A hypothetical comparison

Say a 40-employee machine shop asks three firms to propose. Firm A, a large regional brokerage, shows a manufacturing practice, a safety consultant on staff and a claims advocate, and discloses commission plus a fee for risk-management services. Firm B, a small local agency, is responsive and cheaper on commission but places mainly through two insurers and has no one who has handled a product-liability claim. Firm C promises 15% savings before seeing a loss run. The owner drops C, asks A and B for the same market list and quote specifications, and calls two references on each. Firm A wins on depth even though its first quote is not the lowest. The decision turned on claims support and market access, because the shop's biggest exposure is a products claim.

Red flags

• A guaranteed lowest price before reviewing your exposures or loss history.
• Reluctance to explain compensation or put the scope of services in writing.
• Suggestions to understate payroll, reclassify employees or leave off a subcontractor to reduce premium. That moves the cost to a premium audit or a denied claim, and it can amount to fraud; see commercial insurance fraud: premium fraud and staged claims.
• Pressure to sign a broker-of-record letter (the document that appoints a broker for a policy with an insurer) before the terms of the engagement are clear.
• Inability to explain a quote's exclusions and sublimits in plain English.

If you are changing brokers

Time the change away from the renewal crunch if you can. A new broker needs your policies, loss runs, schedules, contracts and a list of open certificates. A broker-of-record letter tells an insurer which broker represents you; insurers have their own effective-date and notice rules, so ask the new firm how it will handle the transition. Keep a copy of everything. how to buy business insurance, step by step shows the full buying process.

Key takeaways

• Verify the license and the broker's E&O coverage before anything else, then match the firm's experience and size to your risk.
• Ask which insurers the broker would approach for you and how the firm is paid, including any insurer incentives.
• Judge service as closely as price: account team, certificate turnaround, claims advocacy and renewal planning.
• Compare two or three firms on the same information, and talk to references who have had a claim.
• Walk away from guaranteed savings, vague pay answers and any advice to understate exposures.