Broker Replacement / Consolidation

Put simply, broker replacement is the act of removing tasks (usually claims or accounting) undertaken by the original placing broker or intermediary and putting them with a service provider.

Although there are a number of reasons why an insurer, cedant, reinsurer or retrocedant would consider replacing their broker(s) in this way, they generally result from the brokers failure to service claims in a satisfactory manner, leading to:

• Ageing debtors
• Claim processing backlogs
• Service team changes, both personnel and locations
• Poor responses to queries and administration issues
• Late claim presentations
• Time bar scenarios
• Lack of regular and accurate reporting
• Regulatory complications

Once a client or cedant has identified a notable drop in service levels, there are some regular reactions:

Do nothing, hope it might improve?  Not a sensible or realistic option.

Attempt to negotiate or leverage a service improvement with the existing broker?  If you are a large live insurer, or have other commercial leverage this may be possible.  If, however, your book of business is in decline or indeed you have no ongoing commercial relationships with a non-performing broker then this is also an unlikely or effective option.

Incentivise the current broker?  On the surface this may appear to be the best option however, although some cedants report that the situation has improved when they have followed this course of action. For most cedants paying twice for what they consider the same service is an issue.

Replace the poor performing broker with another provider?  Despite the advantages of broker replacement, for a number of cedants it is the decision of last resort.  Before taking this step they will want to consider a number of questions, such as:

Should I let the placing broker off the hook? The reality here is that many cedants have tried and failed to convince their brokers to pay a contribution or have considered resorting to litigation to prove the issue. Both are time consuming and rarely offer satisfaction.

When is the right time for a transfer? Like all reinsurance recovery issues, things rarely improve with age so sooner rather than later is essential to maximise asset and mitigate loss.

Should I replace just the worst-case performers or consolidate the whole portfolio? Replacement of a portfolio of business, i.e. across multiple brokers, policies and claims is most common. However the transfer of servicing can be achieved on a totally variable parameter, for example: one claim, one policy, one reinsurer, one broker, or multiples of all these.

What is the cost and how significant does the asset have to be to cover the costs of transfer and set up with the new service provider? Broker replacement has been completed for remarkably small and large portfolios, however the key has to be constructing an agreement that is fair to both parties and will lead to a significant improvement on the current position.

How do I go about selecting the right provider? Clearly there are some key attributes to identify before employing a service provider for broker consolidation: established track record; infrastructure to handle large numbers of risks and claims; organisation with few or no conflicts of interest; and staff with experience and enthusiasm. 

"Helix is the market leader in broker replacement ...."