How to Choose a Benefits Broker

Benefits RFPs are universally awful and not ideal for making the most informed broker selection. Even well-written RFPs are a 20th century tool unsuited to the challenge of identifying the right 21st century benefits firm. RFPs are suited for buying a commodity, but not selecting a benefits consultant.

Who knows more, a licensed benefits consultant or a prospective client, about employee benefits, plan design, alternative financing arrangements, compliance, cost-mitigation strategies, benefits technology, population health management, benefits communication, etc.? Obviously, the benefits professional has the expertise; that’s why the client needs them. Most benefits RFPs use ineffective questions, likely created when employee benefits were a commodity? In today’s world, it’s a classic case of the blind leading the blind.

choosing-brokerAn RFP itself is too crude an instrument, given the increasingly sophisticated toolset and strategic capabilities of today’s best benefits firms. How can an RFP possibly be effective when choosing a benefit adviser is no longer about the agency’s process and people but about strategy and solutions? Using an RFP for the critical task of selecting a benefit adviser is like using a meat cleaver in the operating room. Both constitute gross malpractice.

It helps to realize that you’re not buying a commodity; you are hiring an expert. This is the reason a procurement-driven RFP format feels so clunky to everyone involved. Yes, there are real metrics one can measure, but what you can measure is often not the things you want to measure.

A simple analogy is hiring a law firm: you can measure the number of attorneys at the firm and their hourly rate, but those metrics won’t tell you if the team in question will be the best at helping you win your litigation. What you really want to measure is the performance of the team that will litigate your specific case.

The 5 Question Benefits RFP

Most formal RFPs start by asking for a written response, after which there is an oral interview. While the best approach is going straight to the oral interview.

You should ask each broker candidate (including your incumbent) to come in and do a “capabilities presentation.” Putting the request this way means that you will end up seeing what each broker thinks is important for you to know about their firm and approach to managing risk.

Of course, every good interview has some structure. This helps ensure that you get the information you need, and allows you to compare your interviewees effectively. It’s fair to share upfront your areas of specific interest with the teams you have invited to speak with you.

There are five questions that are useful in a benefits brokerage interview process. These five questions are all you’ll need to understand a firm’s credibility and capability:

  1. What can you tell me about your firm and its culture?  You will be listening for things like team cohesion and stability. You’ll also likely learn something about team dynamics, including whether the team members you are interviewing actually know and like each other. This matters because in difficult situations, you need your brokerage team to row hard in the same direction on your behalf.
  2. How do you assess and manage health care risk for credit unions like us?  This question is your chance to get some free advice from the experts you are interviewing as well as your chance to gain insight into how the brokerage teams are thinking about your risk. In the best case, the question will reveal the broker’s style of communication: are you talking to someone who loves “buzz” words and speaks only in jargon, or is the broker seeking to have a practical, useful dialogue with you?
  3. What do I need to know about the benefits strategies you would recommend, and your process for accomplishing them? Your benefits strategy needs to be customized to your credit union’s specific risk profile and needs. This question will give a good broker the chance to identify critical risk management strategies and share their process for you being able to accomplish your goals. Another important element of this conversation is how a broker proposes to help you decide what your risk tolerance is and where you may need insurance and where you may need to self-insure.
  4. What additional services do you provide for credit unions like us? This question is about client resources. Some brokers offer client resources such as access to databases, secure online platforms, consolidated billing and other services. In general, most good brokerages provide a lot more support than just placing insurance. You may want to take advantage of these services.
  5. What is the cost? Cost is important, and a good broker will break down the costs for you in an understandable, straightforward way. Remember that your cost of insurance has two elements: the premiums you are paying insurance carriers, and the amount you are paying the broker to do the work. In this part of the interview, you are looking for a discussion that reveals not only how your broker thinks about premiums, but also what are the levers the broker is pulling to manage your premiums over time. In addition, this is where you find out if your broker wants to work on commission or fee. Finally, to the extent you access the additional services the broker has described to you, you’ll find out if they are charging separately for certain services, for example, consolidate billing.

A More Logical Process

What goes into getting those candidates to the interview? To run a more effective RFP for benefits broker services, refrain from starting by inviting a dozen insurance brokerages to answer a raft of questions. Instead, start by doing the pre-work of thinking about what is important to you.

For example:

  • Why are you doing this RFP? Do you have real concerns, or are you conducting a diligence exercise?
  • Are you more concerned with the quality of the benefits or the price?
  • Are you counting on your broker to bring you updates on market trends as well as exposure trends, or do you prefer to rely on others for this information?
  • Do you prefer to buy all your employee benefits from one broker, or do you want to hire subject-matter experts from different firms?
  • Do you need someone who can talk directly with your board, or is this less important to you?
  • Are you concerned that you will be lost in the crowd at a mega-brokerage?
  • Do you have a board member or senior executive with a strong preference for a particular brokerage firm or broker?
  • Is long-term cost containment important

Next, call a couple of CFOs, CEOs, and/or HR managers you respect to get a few names of brokers (not just firms) that they respect.

After considering what is important to you and talking to your trusted business peers, make a short list of two brokers to invite to the RFP; your incumbent broker plus two others that your business colleagues recommended or ones that seem best able to help accomplish your goals. That’s it.

You will be happier with the time you spend and the RFP results if you limit yourself to inviting only a small number of insurance brokerages to the process.

Closing Thoughts

At the end of the RFP process, you will have gotten to know a few savvy business advisors who are worth having in your network. You may also have learned some interesting and useful things about ways to manage your credit union’s risks.

Finally, you will have seen that experts don’t need a lengthy RFP document, elaborate PowerPoint, or other smoke and mirrors to help you get to the nuts and bolts of your risk exposure and your options for handling them.

You have better ways to spend your time than grinding through multipage RFP responses with appendices ad infinitum, much of which was drafted by the brokerage firm’s marketing department.

The benefits brokers who will do the best job for you are those who can explain issues clearly, and who are not afraid to have a candid conversation with you.