When the staff at my firm talks with prospective clients, two things we focus on are what you get for your insurance premium and what you get for the commission you pay your insurance agent or broker. The construction industry hasn’t evolved very much in the 30-plus years I’ve been practicing. It’s still an industry in which a company pays a premium to an insurer, and then an insurer pays a commission to the agent or broker who placed that business. It’s rare that a contractor looks at those numbers and says, “What am I getting for that money?”

Robert Phelan

Our industry is still too transactional, and we’re going through a period right now when risk advisers, or the better insurance brokers, are starting to offer a different value proposition.

Traditionally, insurance agents sell insurance policies and then service those insurance policies. But if you’re just buying insurance and treating it as a transaction, you’re not looking at the bigger picture, let alone your blind side. You’re not looking at the value of that asset and all the different risks that threaten it.

In today’s world, construction company owners need someone who can look holistically, creatively and proactively at their business—someone who can see all the different risks and act as a trusted adviser to your company.

As our world and its complexity grow, the blind side of a business—just like the vulnerable blind side of a quarterback dropping back to pass—gets bigger and bigger at an exponential rate.

I think compensation for insurance brokers and agents is long overdue for dramatic change.

Insurance brokers and agents shouldn’t be paid standard commissions by insurance carriers. They should be paid a fee, set with their client, for the work, advice and counsel they’re going to provide. In return for that, the client should receive a commitment from a risk adviser that his or her blind side is going to be protected.

There should be performance guarantees and compensation that is equal to the performance. There should be a larger team of professionals that protect you beyond simply insurance policies.

A Phone Call Away

There are good reasons to protect your blind side, especially from personal-injury attorneys. I don’t have anything against attorneys; I use attorneys all the time. But there are lots of personal-injury attorneys out there who are going for your blind side. When I travel and see a phone book or local business directory in my hotel room, I open it up to the attorney section. During a visit to Charleston, S.C., I took the phone book and found the attorney section runs from page 50 to page 125—it’s 75 pages long!

Needless to say, most of us don’t realize how big the legal profession is and how well it advertises.

My company doesn’t believe in insurance brokers competitively bidding based on the insurance cost. We have created a system that rewards the broker that produces the lowest premium.

In reality, the insurance broker has very little to do with the size of the premium paid by its clients. The premium is determined by the insurer and how competitive it wants to be at any given time. Its competitiveness can include everything from having a slow quarter at the regional office to an underwriter needing increased production to make their budget for the year. Maybe a manager will get a bonus for top-line growth (ignoring profitability), so he or she is able to low-ball the premium.

The premium also depends simply on the claim experience of the contractor. It has little to do with the broker’s talent.

The typical insurance agent focuses on the price of insurance and keeping the customer happy in the short-term, not the preservation of the customer’s business. He or she doesn’t bring any tough love to the relationship. Instead, they tell the client what he or she wants to hear—“I can get you the cheapest insurance!”—instead of what the client needs to hear. Meanwhile, the client thinks, “Phew, I have my insurance. Everything’s fine.”

You have to look at insurance differently and ask, “Which combination of risk advisor and carrier protect my blind side best?”

Robert Phelan is the author of “Broke: The Broken Contractor’s Insurance System and How To Fix It” (Advantage Media, 2009). He is chairman of the Litchfield Insurance Group, Torrington, Conn., an insurance broker and risk adviser. He can be reached at info@litchfieldins.com.