2004 Houston Marine Insurance Seminar Price or Service? A London Broker’s View by Alan Brooks Willis Energy, London

Price or Service? The Service record of the industry is awful The immediate conclusion therefore must be: PRICE

Notes for Alan Price or Service? The standard of service in the insurance industry generally is poor. In 2003 the average time taken from inception to sign a policy was estimated at 250 days. The source of the delay can be: Brokers Lead Underwriters Bureaux Clients

Price or Service? The specific question was from a London perspective. This causes me to ask the Mariners’ Committee: Have you ever been to London? What were you thinking of?

“Waiter, what’s that fly doing in my soup?” “Don’t know Sir, but it looks like breaststroke” Price or Service?

In order to answer the question we should ask ourselves: What does Service entail and what does Price include? It is rarely (but increasingly) laid out in a Service Agreement. In the absence of an agreement the brokers own standards or market custom has applied.

Price or Service? A London broker may be: A Wholesaler A Retailer Both A Quasi-Retailer Different skills and services may be required but some common and fundamental principles should apply:

Price or Service? Global services delivered locally to the client (Insured, insurer or retailer) A Client Advocate approach Delivery of a Value Gap A Service Agreement or a Terms of Business Agreement must be in place.

Price or Service? The broking industry has grown up with and is obsessed with the view that the transaction and therefore the price IS the service - BUT Premium variance is not the only exposure of the client Poor security Rogue traders Errors and omissions Poor advice Uninsured risk/perils Are just some of the exposures beyond the premium and any retention that a client is exposed to. N.B. Brokers E&O may not be a safety net

Price or Service? The Price of the Service is also a factor The broking community has not always been clear Are they commission based agents of the underwriters? Are they fee based agents of the Insured? Are they a hybrid of the above? Are they both?

Price or Service? There is a fundamental difference between commission and fee based income Commission income should pay to service a policy for its life Fee income normally covers prescribed services and is for a specific period of time. But the edges have become blurred.

Price or Service? We are in an era where contract certainty and clarity is more important than ever: All parties in the transaction should Be clear what Service is expected Be clear what the Price is Be clear what the broker’s remuneration is and what it is for

Price or Service? Back to the question! Is it Price or Service? The question implies that separation is a choice. The broking community has grown up with an is obsessed with the view that the transaction is the Service. I believe this to be a fundamentally flawed view

Price or Service? The transaction is an important part but only a part of the service. And anyway, even if I didn’t hold this view….

Price or Service? Are there any Clients out there that do not expect both?