If you own a business, you know that commercial insurance policies are a huge expense! Often it seems, that much like our personal insurance, the costs of commercial insurance are always on the rise.
You may also think that, just like with personal insurance, when you want to get a better quote you should just “shop around.” You may think that you should meet with several different insurance agents to attain the best commercial insurance quote.
Unfortunately, most businesses have been trained to think this way – that endlessly shopping around for different quotes is the best way to get the best value and coverage for their company. What most businesses don’t know is that shopping around for commercial insurance can actually do the opposite!
One of these limitations is what is known in the insurance world as the “blocked market.” While this limitation is well understood among independent insurance brokers like me, it is not commonly understood among businesses.
In this article we will:
- Explain blocked markets
- Describe the broker’s role in the quoting process
- Give you tools to evaluate your current insurance broker
- Outline the next step after finding the right broker
What exactly is a blocked market?
Insurance companies will only accept an application and then provide a proposal to a single insurance broker. This effectively “blocks” other brokers from also submitting an application and getting a quote from their company. This is what is meant by a “blocked market.”
Unfortunately, in an attempt to keep your business and prevent competition, there are times that a broker will quickly submit sub-par or partially completed applications to an insurance company to intentionally prevent or block another broker from applying to the same insurance company.
Even though the broker knows that these applications will be declined by the insurance company or will result in inferior coverage or pricing because they were inadequate or incomplete, a new broker is blocked from getting you a better quote. This defensive tactic that some brokers use prevents other brokers from competing for a better price and ultimately limits your options.
This is even more significant when you consider that once an insurance company declines an application, they will not accept another application until the next year.
What can you do to avoid being blocked in the insurance marketplace?
The most crucial step you can take to ensure that you get the best pricing and coverage and prevent your company from being blocked in the insurance marketplace is to start with the right broker, one who is worthy of your trust.
Your broker has established relationships with insurance companies and should know which products will best meet the needs of your business. They will also be able to help with the following:
- Present you with the pros/cons of working with various insurance companies
- Implement the right tools to position your business and make you attractive to insurance companies
- Help find a company that will give you the best value for your money
All of these factors will affect the coverage and pricing you will get from these insurance companies and help you avoid the “blocked market” trap.
As mentioned above, multiple brokers can fill out the same application for the same insurance company and get very different results in coverage and pricing.
This is why you need to interview brokers to guarantee that you will have the best possible representation in the marketplace. Obviously, this should take place before submitting applications.
Quoting your insurance takes a lot of time (if done correctly). If it is not done well it can do more harm than good. This is why the broker interview process is essential.
How do I evaluate which broker to use?
Here are a few quick questions to help you determine the best broker or brokers.
- What is your broker’s relationship status with the insurance companies you will be seeking to quote your insurance?
- Which company does the broker think will be the best option for your specific business needs? If they don’t know, that is usually a sign that they are going to waste enormous amounts of your time, and you should probably remember the “emergency meeting you forgot” and let them know that you may follow up with them for your 2050 renewal!
- What is their premium volume (total premium dollars spent by clients) with these companies? If it is less than $1,000,000, they probably do not have enough clout to leverage for the best price.
- What is their current/historic loss ratio with these companies? If their “Pure Loss Ratio” is over 55%, the insurance company is not likely going to do any favors on pricing for your account.
I found my broker, now what do I do?
Once you have identified the best broker, it is time to assign markets. This means you determine which insurance broker will be representing you with each company.
It is important to note that quality is almost always more important than quantity. To assign markets, you will most likely need to submit a Broker of Letter record informing the insurance companies which broker will be representing you.
If you have a broker who can help you access 3-6 insurance companies who want to insure your business, your odds of success should be very high. Why?
- You will not frustrate insurance companies by wasting their time when they really do not have a chance of earning your business. This will keep them as more viable options in the future and make you more attractive to these companies.
- The insurance company will give your submission more attention. Imagine that you are an insurance company underwriter (the person who reviews submissions and determines what coverage to offer at what price). You have the option of working on a submission where you are one of four companies being solicited for a proposal versus another submission coming from a broker known for blocking markets. Which one would you work on first?
Underwriters are hired to effectively use their time to quote the best possible business at a fair price. I can not emphasize enough how important it is to partner with the right broker who will best represent you in the marketplace and keep your business from missing out on the best possible product due to a blocked market.
Summing It All Up
Finding the best pricing and coverage for your commercial policies is really about finding the right broker to represent you in the insurance marketplace. Without careful evaluation of your broker, you may be limiting your company’s options and preventing yourself from securing the best insurance package for your business.
At Baily Insurance Agency we want to represent our clients well! We know that insurance is a complicated business, and we want our clients to be well-educated about the decisions they will be making.
We also invite our potential clients to give us a call and ask questions that will help them determine if we should partner together to help them get the best coverage at the best price.
If you are looking for an independent insurance agent with the expertise to help you navigate this complex industry, we would welcome the opportunity to talk with you.