Companies, large and small, regularly face decisions with respect to their insurance and risk management programs. Whether such firms employ a full time risk manager or assign the duties to an officer or partner, the role of an Independent Risk Management/Insurance Consultant should not be overlooked.
Selecting an independent consulting firm can be a daunting task since there are many firms and individuals that call themselves consultants. Perhaps the easiest way to clear up the confusion on the potential use of consultants is to answer some Frequently Asked Questions.
What differentiates an Independent Risk Management/Insurance Consultant from other so-called "consultants"?
Independent Risk Management/Insurance Consultants do not sell insurance, nor are they affiliated or associated with firms or individuals that do. Independent Consultants never work on a commission basis, and do not accept money or gifts from brokers, agents or insurance carriers. They work on a fee for service basis only and their recommendations are never clouded by the potential gain or loss of commission income.
How can I determine if a Consultant is truly independent?
Interview them! Ask about their parent companies or other affiliated entities. Ask if any members of their staff are members of the Society of Risk Management Consultants (SRMC). The SRMC is an organization that is devoted to the furtherance of the independent Risk Management and Insurance Consulting. Members need to be truly independent and must sign a statement that they will abide by SRMC's strict ethical rules and regulations on a yearly basis.
Can't my insurance agent or broker provide the same services as an Independent Consultant?
There are many competent agents and brokers, many of whom call themselves consultants. Their primary business, however, is that of insurance sales. Agency/Brokerage staff is comprised primarily of ``Producers," individuals charged with putting new business on the books. These individuals do not always have the technical capabilities to solve your complex risk management problems. In addition, reports and recommendations from agents and brokers may be viewed with some degree of skepticism if those individuals are perceived as having something to gain from their recommendations.
What kind of work does a Risk Management/Insurance Consultant perform?
Risk Management/Insurance Consultants can be called upon to perform a wide variety of tasks. Risk Management or Insurance Evaluations or Audits are among the most prevalent kinds of work. Risk Management Evaluations generally involve a review of insurable loss exposures, the adequacy of insurance protection, the extent of risk retention, the effectiveness of contractual risk transfers, and the effectiveness of the risk management function within the organization whereas Insurance Evaluations focus primarily on the insurance protection and pricing.
When consultants conclude that their client's insurance policies do not afford the necessary coverage and/or the pricing is high for the scope of coverage afforded the consultant may recommend taking the insurance program out for a competitive marketing. The consultant would then design insurance specifications, interview potential participants, supervise the process, review the proposals and make recommendations to the client of the most effective insurance program. The consultant's job does not end there either. The consultant must make sure that when the policies redelivered, they contain all of the protection that was promised during the proposal process. This is accomplished by performing a review of the ultimately issued policies.
Consultants are often retained for other special projects on an ``as needed" basis. Such projects can include alternative risk financing studies, assistance with mergers and acquisitions, cost of risk allocations and renewal negotiations.
Some consultants are also available to provide continuing service as your part-time insurance/risk management department. This service is often provided to firms where, for example, the CFO cannot devote sufficient time to risk management issues, yet the cost of staffing a risk management department is impractical.
If I hire a Consultant, will they obtain a reduction in my premium that will offset their fees?
The answer is maybe. Some Insurance programs are over priced and, in those situations the consultant may obtain a premium savings for you. Many times, however, programs that are over priced are also thin on coverage. As a result, sometimes savings found are used to purchase broader coverage. In addition, there are some cases where there are no premium savings to be had, without cutting into the client's protection. Consultants who guarantee premium savings are of questionable repute and those who base their fees on a percentage of savings are worse!
Cost of insurance and cost of risk are always issues that consultants should be and are concerned with. Obtaining bottom line insurance pricing without regard to the potential adverse effects is dangerous. If your only concern is buying the cheapest insurance available, you probably should not retain a consultant.
Risk Management Consultants reviewing insurance programs may recommend new coverages, coverage amendments and/or increased limits, all of which may improve protection, but may also result in increased insurance costs. Sometimes, the true benefit of retaining a consultant may not be realized for many years until you suffer a loss that is insured only because the consultant had identified an uninsured exposure that you subsequently insured.
Independent consultants will look at the overall program and balance cost with adequate protection.
What can I expect to pay for the services of a Risk Management Consultant?
Fees will, of course, vary by the scope of the project and the hourly rates used. Consulting rates can range from $150 per hour to in excess of $400 per hour depending upon the nature of work being performed and the experience level of the individual performing the work. Some consulting firms use blended rates that take into consideration the varying degrees of experience of the individuals that will be involved in the work. That blended rate is then used regardless of who performs the work.
Sometimes fees are quoted on a "not to exceed" basis where you are given an expected range of fees based on certain hourly rates, but the consultant agrees not to exceed a specific amount. In some cases, usually for smaller or well-defined projects, consultants may offer their services on a flat fee basis.
How do I select the right Consultant for the job?
Independent Consultants should be selected on the basis of their professional qualifications and experience. Be sure to look at the credentials and experience of the individual who will be handling your work. Check references, particularly those that are in the same or a similar line of business as yours.
Why should I consider Aldrich & Cox, Inc.?
Our firm provides independent risk management, insurance and employee benefit consulting services. The firms serve a national client base and have experience with a variety of businesses including manufacturers, retailers, health care and educational institutions, municipalities, professional sport teams, broadcast, cable and print media, contractors and real estate developers.
Aldrich & Cox is one of the largest consulting firms in the United States. The principals of A&C are members of the Society of Risk Management Consultants, an international organization whose members are truly independent and must adhere to a strict code of ethics.
FOR MORE INFORMATION, CONTACT ALDRICH & COX, INC.