Today we’re welcoming guest blogger Phil Masi, CIRMS, Senior Vice President at Assured Partners in Lake Mary, FL. Handling over 200 associations throughout Florida, and serving as a community association board member himself, Phil knows a thing or two about how a board selects an insurance program. Read on, and share with your boards, as Phil breaks down the terms and common misconceptions about this sometimes overwhelming process for new board members.
Bidding Your Community Association Insurance Solutions Program
By: Phillip Masi
As President of two HOAs I understand the boards’ mentality when it comes to bidding services such as landscaping, painting, accounting services and the like. Most boards do not have the background in these specific areas so they rely heavily on their management company to make sure the bids come in correctly. My experience as both an Insurance Agent and Board Member has provided me with a unique perspective on the issue of “bidding” insurance. The purpose of this article is to provide you with the same insight on how Boards can ensure they choose the best insurance option at renewal.
Insurance Agency vs. Insurance Carrier: Let me first explain how the insurance process works. The insurance agent you go to (i.e. Assured Partners, BB&T, Wells Fargo, etc.)
does NOT carry the risk for the Association. These agents are middle men/women that negotiate your insurance contract with various insurance carriers (i.e. Travelers, Hartford, Zurich, Philadelphia, Lloyds of London, etc). The Carriers are the risk bearers and they’re responsible for paying damages in the event of a loss.
Multiple Agents Does NOT Equal Multiple Bids: Let’s eliminate a major misconception boards have; Most boards believe they need to bring in multiple agents to receive multiple bids. This is NOT true. In order to obtain multiple bids you do NOT need to meet with multiple agents. For any particular Association, two or three carriers at most will be competitive from a price, coverage & deductible stand point because carriers have different appetites and specialize in different types of properties (i.e. age, construction, location etc). Bidding insurance is NOT like bidding landscaping whereby each landscaper brings their trucks, crew and equipment.
Insurance agents, for the most part, all use the same pool of carriers. In today’s property insurance market, one agent can obtain multiple bids from various carriers, compare those options, and then deliver the most competitive options to the Association to choose from. So, if your current agent is doing their job correctly, he/she in effect is conducting the bidding and providing several options for the Association to choose from.
What Does “Blocking the Market” Mean?: Insurance carriers typically do NOT release multiple quotes to multiple agents. If your current agent is properly sending your information to all of the insurance carriers that would entertain providing a quote, then no other agent would be able to obtain a bid from the carriers that have already been approached by your current agent. Some agents try to mislead Boards by suggesting the current agent is doing something wrong by “blocking” the markets. This is NOT necessarily true. The current agent is most likely shopping the business and obtaining multiple bids, which is what you want them to do. I would argue that if the second agent is NOT “blocked” at the carriers he/she is approaching, it reflects worse on your current agent as that would indicate your current agent is not properly marketing your account for renewal.
Agent of Record (AOR) Letters: What is an AOR letter? An AOR letter is a very powerful piece of paper. When a board or property manager signs an AOR letter they are REMOVING an agent from control of the carrier listed on the AOR letter and they are putting a NEW agent in control of that particular carrier. These AOR letters can be very confusing and cause a lot of drama for an Association. An Association should make sure that they fully understand what an AOR letter is before signing it. Some agents will try to get this letter signed without fully disclosing what the implications are and this can have negative consequences for the Association depending on the carrier involved and the time remaining before the renewal.
When Should Agent of Record Letters be Signed: Assuming the board fully understands the information above then they know that there is little to no difference between the carriers each agent represents. The true difference between the agents being considered is the agent’s knowledge and the service that they can provide. Each agent will NOT put together the same insurance program simply because the carriers are the same. On many occasions, upon meeting with a Board for the first time and reviewing their policies, several significant gaps in coverage are discovered that are NOT the fault of the carrier rather the fault of the agent that put the program together. If a new agent comes in, reviews your Association’s insurance program, proves material errors exist in your current policies and provides an explanation of how he/she can fix these errors, then signing an AOR letter would be justified. An AOR could also be justified if your current agent is not providing adequate service to the Association or the Property Management team. The theory here is right horse (carrier), wrong jockey (agent).
How Should Associations Bid Insurance: If an Association is interested in bidding out their insurance program, then the best time to initiate the process is approximately four to five months prior to the insurance renewal. The board should have each agent attend a board meeting well before the insurance renewal to “interview” for the job. The board should keep in mind three factors; Coverage, Service, and Price. Coverage is the most vital. The agent should be provided with the basics of the current insurance program by the property manager. The agent should then meet with the board and should inform the board of the areas of the insurance program that are deficient and how they plan to correct these deficiencies. Service is the second most important criteria. Your insurance agent should make your property manager’s job easier. Check references of the insurance agents to make sure other managers have positive things to say about the day to day service of the agent. Finally, price is the least important criteria because, as we discussed above, the carriers each agent represents are identical which will lead to similar pricing from each agent. In these interviews the board should listen to what each agent’s credentials are and what game plan the agent feels will work best for the Association. After listening to each agent, the Association should pick the agent they feel is the best to market their renewal and then provide that agent with AOR letters if needed. This will allow that agent to control the market place and bid the various carriers and provide a proposal showing the options prior to the renewal. If the agent does not deliver on their promises, then the agent can be removed prior to the renewal by another AOR letter. This process holds the agent to his or her word. If they say they are going to do something this is how you make sure it happens.
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My Advice: The best advice I can give a board is NOT to purchase insurance like a commodity. Insurance is a professional service like your Attorney or Management. An agent does not provide better coverage, deductibles or service simply because their premium is 2% less expensive. If you interviewed two doctors to perform surgery on your heart and one doctor attended a better medical school, had performed 10 times as many surgeries as the other, and had superior bed side manor but the other doctor was 2% less expensive, who would you choose?