Here is our second “Bulletin” which aims to provide a forum for debate on issues of generic interest, rather than a commentary on market conditions, capacity and pricing.
Here is our second “Bulletin” which aims to provide a forum for debate on issues of generic interest, rather than a commentary on market conditions, capacity and pricing. Tendering The subject of tendering is to some an anathema – an unnecessary evil that can obstruct the established relationships between clients, their brokers and insurers. To others it is a very necessary part of the “audit” process – a means to achieve an independent audit of the company’s insurance programme, its suitability and value for money. It comes as no surprise to reveal that it is almost exclusively the insurance broking community that forms the first group. Larger multi-national and state owned companies tend to comprise a significant proportion of the second. It is natural that there is some trepidation in the insurance broking community towards tendering. The possibility of the loss of a valued account that has been held for some time will be a major disappointment for a broker, in some cases having a meaningful effect on the bottom line. But the “fear factor” should be far less if the account has been well managed, is properly resourced, and where the holding broker has constantly strived to achieve a competitively priced insurance programme that is right for his client. In such cases the need for a tender is more in the nature of an audit on the broker’s current performance and product. Brokers will often react to the possibility of a tender by suggesting that they will hold the tender on behalf of the client. Alternatively, a retail broker, particularly in the USA, will tender the account, on behalf of his client, amongst London or other international brokers. The process involves the broker approaching three or four insurers for quotations and selecting the best. Whilst this process may deliver benefits in terms of improved pricing or product, the missing factor is that the client has no means of benchmarking the broker’s service. This process often means that the opportunity to canvass innovative thought on the insurance programme and risk management is lost, as the broker will most usually tender the existing insurance placement. Industry in whatever shape – whether it is energy, shipping, power, utilities or any other for that matter- is dynamic. The macro-economic forces acting upon industry are constantly enforcing change in a company’s direction and philosophy. These changes will need to be reflected in the strategies selected for risk protection. A tender creates a formal opportunity to enable companies to approach several brokers for innovative thought, whether on programme structure, risk retention, or alternative risk financing, whilst at the same time enabling companies to asses their brokers’ performance and compensation arrangements. At INDECS we have handled a number of such tenders. Invariably they deliver benefits; in many cases where the holding broker has been retained and frequently allowing continuity with existing leading insurers. We have long held the view that the tendering process acts in the best interests of all parties concerned. Given the current and perceived state of the market in 2011, where we feel there are mixed messages as to the level of pricing that will be available, there is a distinct opportunity to test out the market through a formal tendering process, which ideally should be conducted through a truly independent party. Should you have any comments or questions related to the subjects discussed above, please do not hesitate to contact us. We would be delighted to hear from you.