Why RiskOptics?

Insurance Market
Conflicts of Interest

Insurance agents are “agents” of the insurance companies. They do not represent your interests, but represent the interests of the insurance company. Agents are the insurance companies’ sales force and are directly compensated by the amount and type of insurance sold to you. Agents are directly conflicted. This is the classic “fox guarding the henhouse.”

Insurance brokers are supposed to be independent of the insurance companies with whom they place insurance. However, they are also either directly compensated as are agents, or are indirectly compensated.

Even if your broker does not officially take contingent or direct commission, there are other incentives to increase premium from your account:

  1. Large brokers often have ownership or other interest in reinsurance companies to which your insurer agrees to pay premium if the broker gives the insurer profitable or volume business.
  2. Even if you convince them to take a fee instead of a commission, the fee they charge you will often be based upon what they could receive if they charged you a commission.
  3. The broker usually holds onto your premium after you pay it and gets the benefit of the interest or investment income until they pay it on to the insurance company.
  4. There are competitive and other ancillary benefits for premium volume. They can sell you on an idea that because they place more volume with a particular insurance company, they can get you a better deal.
  5. Broker’s internal politics, culture, incentives and budgets are based on commissions, fees—and therefore premium volume—not on client results.
  6. The strategic importance of any one insured pales in comparison to any one insurance company to a broker. The loss of a reputation or a relationship with an insurance company would harm the broker far more than the damage from any one client.

RiskOptics can help you hold brokers and agents accountable. Our risk managers know how to incent brokers to be the best they can be.

Insurance Industry is Structured to Benefit Insurers

Insurance companies are in the business of insurance to make money. Insurance can be an effective tool to smooth the impact of catastrophic losses. However, trading dollars with the commercial insurance market is a losing proposition.

  • Over time, on average, commercial insurance costs almost twice as much as self-insurance.
  • Most companies’ primary insurance premiums are more than twice what their retained losses would have been, and over time will remain so.
  • In the long run, self-insurance is the cheapest way to finance low-level losses, but may be destructive to firm value because of variability in earnings.
  • Many companies elect not to self-insure because the risk of earnings variability is a concern for senior management.
  • Insurance companies make money by delaying and denying claims. Insurers want to hold on to your premiums for as long as possible, and unless you have a trusted advocate, it’s unlikely you will receive fair and timely claim payments.

RiskOptics expert risk managers and attorneys know how to take advantage of the structural weaknesses in the insurance market. RiskOptics can help you create an insurance program that is designed for you instead of one designed for the insurer.

Dwindling Broker Resources

In addition to inherent performance limitations from conflicts of interest, your agent or broker is suffering under increased pressure from the insurance companies they represent, and decreasing resources within their own business. They are simply unequipped and unable to provide you the service you used to receive.

  • As the insurance brokerage business has consolidated over the past few decades, brokers have had to cut costs and eliminate services that are not related to the insurance placement transaction.
  • Recently, the financial pressure related to reduced income from contingent commissions has further reduced broker resources.
  • Mid-size and smaller companies with lower premium and commission volume struggle to get brokers to pay attention to their needs or staff their account teams with their best talent.

RiskOptics expert risk managers know how to access the top resources in the best brokers throughout the world. RiskOptics can help you access the most motivated and professional insurance brokers and hold them accountable for performing in your best interest.

Dwindling Internal Resources

As businesses are looking for ways to cut costs, internal risk management departments are suffering under decreased resources and increased pressure to make every budget dollar stretch further.

  • Most small to mid-size companies do not have professional risk managers handling their insurance programs.
  • In most companies, the primary job of the person handling annual insurance renewals and managing the risk management program is not insurance or risk management.
  • Even if the company has a professional risk manager, he or she is overwhelmed with the variety of tasks and duties required of typical risk management departments, and typically does not have specialized support staff.
  • Risk management at most smaller to mid-size firms does not require a full-time department.

RiskOptics expert risk managers can provide a back office resource for an internal risk manager, freeing the internal resource to focus on their core expertise. Or we can act as your risk manager on a fully-outsourced basis. RiskOptics allows you to access a world-class risk management department only when you need it, and for less than the cost of an entry-level employee. In addition, our services can often be provided on a success-sharing basis where we would be paid out of the savings we provide.