The Contractor's ROI (Return on Insurance)
Posted by Robert Phelan on Thu, Jan 14, 2010 @ 10:09 AM
You've heard the term ROI in the context of "Return on Investment". When you buy equipment, hire new people or invest in new technology, you try to figure out the ROI before you open your checkbook. Why do you make decisions about insurance differently? For many of you, the annual investment is significantly higher than hiring a foreman or buying new estimating software, but do you ever calculate the "Return on Insurance".
What do I mean by "Return on Insurance"? Simple. What do you get from your carrier for the premium you pay them but more importantly, what do you get from your agent/broker for the commission they are paid by the insurance company?
We visit with contractors every day and in most cases the ROI from their agent/broker is insignificant. What troubles me more is they don't seem to care. The system is so well-entrenched that most contractors accept it. They pay a large premium and a large commission and they accept whatever they get. I think it's because they don't understand that the agent/broker has a job to do beyond getting them quotes and providing reactive service.
Since agents/brokers aren't doing their job or defining their role any differently than their grandfathers', we've created a new category for what we think a modern-day agent/broker should be. It's called Risk Advisor. A Risk Advisor does everything that your agent/broker has done in the past (quoting and reactive service) but that is only half their job. The other half is this:
1) Design and implement a Risk Reduction Plan to reduce all the costs associated with risk in your company
2) By doing #1, they make you as attractive as possible to the insurance companies so you are offered the lowest possible premiums by the marketplace
Here's the real kicker. We believe that if your Risk Advisor doesn't provide the ROI you expect in the execution of jobs 1 and 2 above, then they shouldn't be paid. How do you like them apples? We really believe this. Execute or don't get paid. Execute or be fired. Execute or cease to exist. You don't get paid if you don't execute your contracts according to the specs, right? How come you're willing to pay your insurance agent/broker when they don't even have a plan to execute?
We think it's time for a change. In my next post I'll explain an alternative.