Choosing a risk advisor
August 1, 2012 by David Bowcott
Change abounds within the construction industry. Never has your choice of business advisor been so important, and given the increasing level of risk dialogue going on in the Canadian construction marketplace, your choice of risk advisor could mean the difference between losing or winning jobs.
Before we delve into the specific attributes you should measure your existing risk advisor against, lets start by defining the role. A risk advisor should be fully equipped to provide you with all your risk management advice, as well as access to all risk management tools available in the marketplace. This role has traditionally been defined as “insurance broker” or “surety broker,” but in recent years it has evolved into risk advisor.
Now that we’ve defined what exactly a risk advisor does, we can delve deeper into the attributes that he/she should possess:
Relationship – You need to have a close relationship with your risk advisor. You need to be able to talk straight to each other. Your risk advisor may tell you things you don’t want to hear, but if the advice saves your company in the end, you need to hear those things.
Experience – Some call it “battle scars,” whatever it is called, it is the level of experience your risk advisor has with a myriad of issues. How big is the pool of construction activity that your risk advisor swims in (or has swum in)? Whether its new delivery models, contractual wordings, claims, or new products, the more they’ve seen it, the better the chances they have a solution for your risk issue.
Office network – Does your risk advisor have the ability to serve you with global solutions and deliver those solutions through local offices? The office network of your risk advisor needs to be a consideration.
Community – A local risk advisor that is involved in your community provides a measure of comfort when judging integrity. Industry-focused practice – The only way your risk advisor can truly advise, communicate and broker your risk is through industry focus. If they do not have a construction practice within their company and are handling your construction business along with a flower store and a hotel, then you should really consider how effective they are at maximizing your terms.
Independence – There are some companies that market themselves as independent risk advisors/brokers, but are owned or financed by insurance carriers. Independence, especially with broking functions, is vital to ensuring you are achieving the best terms available in the marketplace. Your advisor should have minimal to no conflicts of interest. The individual advising your firm should be providing you pure advice on what is best for your company. Self-interests should not drive their advice.
Knowledge of all delivery models – There are a multitude of delivery models that owners are using to develop (and operate) their assets. Does your advisor have experience in all of them, especially those that are growing in market share, such as public-private partnerships or CM at risk delivery models?
Benchmarking – How big is your risk advisor’s pool of construction business? The larger the pool, the better the benchmarking. Whether it’s insurance and surety terms and conditions, or it’s construction best practices, your broker’s pool size directly correlates to their ability to benchmark effectively.
Respect and leverage – A primary reason for choosing a risk advisor/broker is the comfort provided to you that they have respect and leverage within the insurance industry. How well they know the markets and how much business they do with the markets does matter. The following represent key areas of respect and leverage your risk advisor should possess within the insurance industry:
• Ability to get best terms and conditions. Both pricing and coverage.
• Ability to get claims paid on a fulsome and timely basis.
• Ability to stretch the insurance carrier’s appetite for a specific risk through their insurance/surety experience, relationship, respect and leverage.
• Ability to ensure there are minimal issues when your exit an insurance relationship.
• Respect and leverage with many markets.
Track record of innovation – Does your risk advisor have a record of innovating solutions to meet the needs of the ever-changing construction marketplace? You will likely be asked for more constraining security on future projects, are you equipping yourself with a risk advisor that has developed and has access to less constraining solutions that satisfy owner and lender specifications?
Transactional excellence – Is your risk advisor able to provide comprehensive, accurate and timely insurance documentation? This may include documents such as insurance prequalification letters, insurance certificates, insurance binders, insurance policies, surety prequalification letters, bid bonds, agreements to bond, performance bonds, payment bonds, contract reviews, etc. This documentation needs to be comprehensive, accurate and timely to ensure your company maximizes their opportunities.
Senior level insurance relationships – How high up the insurance company’s management structure does your risk advisor’s relationships run? Are they close with the local underwriters on your account? Are they close with the regional underwriting manager? Are they close with the national underwriting manager? Or do they know the top decision maker of that company for that line cover? If it is anything below top-level connections, you should be concerned.
Breadth of insurance relationships – Some risk advisors have strong relationships with an insurance carrier’s surety operation, but have virtually no relationship with that same carrier’s insurance operation. Having relationships across the carrier’s operations ensures your risk advisor has the ability to better integrate risk solutions.
Total cost of risk services – A risk advisor that understands the total cost of risk and can help you identify and quantify your risk appetite is vital to success in the future construction marketplace. Furthermore, can your risk advisor provide you with detailed retention analysis services and captive solutions?
Global knowledge — Is your risk advisor tapped into a global network for risk management solutions and is their global network an industry-focused leader in these global jurisdictions? Solutions to manage construction risk are coming from locations throughout the world (and likewise are being deployed into new countries throughout the world); does your risk advisor possess the knowledge of what these solutions are and how they
will help your business?
Network – Beyond the insurance company network your risk advisor has, do they know all parties to a project (owners, lenders, design firms, contractors, subcontractors, operators, etc.)? The more people they know, the better your chance their advice and connections will help your business.
Transparency – To what degree does your broker transparently disclose how they operate? Their compensation, conflicts of interest, procedures, errors and omissions, insurance, etc. Transparency is healthy and it builds confidence.
Today’s construction marketplace appears to be migrating to more transparent dialogues between all project stakeholders and much of that dialogue is around risk. Proper risk management, and communication of risk management, could mean the difference between winning and losing.
David Bowcott is senior vice-president, national director of large/strategic accounts, AON Reed Stenhouse Inc. Send comments to email@example.com.
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