Managing Vendors Is

No Picnic For Buyers

In doing their jobs, risk managers rarely act alone, often relying on a team of outside vendors–including brokers, third-party administrators, safety experts, captive managers and other outside professionals–to implement their coverage and loss control programs. Making the most out of these relationships hinges on clear and ongoing two-way communication, experts warn.

“At the time you're hiring and bringing a new service provider on, you need to make expectations clear and relay them to the provider,” according to Janice Ochenkowski, director of global risk management for Jones Lang LaSalle in Chicago, a commercial real estate company, as well as treasurer of the Risk and Insurance Management Society.

The risk manager, she continued, should establish the criteria as well as timing–how quickly things should be turned around, the error rate expected, and what type of communication is anticipated. Communication parameters, she said, include how often and what kind of reports are needed, the frequency of the reports, and what kind of detail is expected.

“If you tell the service provider early on what you expect, as you are working through the year of service with them, you know whether they are meeting your goals or not,” Ms. Ochenkowski explained. “You don't have to wonder whether they are doing a good job because you've identified what a good job is, and they know what making you happy will take.”

Knowing the needs of the organization helps a service provider to more accurately price the services and staff, “and you evaluate your service relationship on an ongoing basis as the various target dates come up,” she added.

For instance, she noted, “if you say you need quarterly reports and you expect it by the first week following the quarter's end, you know if they are meeting that or not. When you get the report, you can review it to see if it is the quality you are looking for.”

If the report doesn't meet the risk manager's needs, she said, that dissatisfaction should be communicated immediately to the service provider, rather than waiting for a year-end evaluation.

“If a relationship is working properly, there should never be a surprise on either side,” she noted. If the service is poor, however, the risk manager should give notice to that effect, she suggested, giving the vendor an opportunity to fix the problem. “But if it doesn't work, you have to find another provider,” she added.

“You know what the key service areas are, so you can communicate that in the next bid process,” she said.

The most important elements in the mix, according to Ms. Ochenkowski, are service and price. “Generally it's a good practice–even if you are pleased with the provider–to test the marketplace every three-to-five years to make sure you are getting the market standard in terms of pricing, and that the service level and systems you have are best practice,” she noted.

Karen Beier, vice president of risk management at Shaklee Corp. in Pleasanton, Calif., and a RIMS board liaison for membership and chapter services, said an excellent resource for risk managers trying to identify the best service provider is networking.

She also recommended RIMS e-groups, where risk managers can post questions in general or specific categories for recommendations about service providers. She noted that risk managers also can contact service providers and ask for a list of clients who recommend them.

Ms. Beier also recommended the Quality Improvement Process, available through RIMS, which has two specific tools for dealing with vendors–the “Safety and Loss Control Provider and Risk Management Partnership Tool,” along with the “Claims Service Provider and Risk Management Partnership Tool.”

“If you use these tools–if you want an RFP, request for proposal, for example–they have 39 guidelines,” Ms. Beier said.

After selecting a provider based on identified criteria, the tools can be used to structure a service agreement. She added that RIMS is in the process of building an online tool to help risk managers select guidelines and create a service agreement. Another tool being built by RIMS will help risk managers evaluate a service provider's performance, she said.

The QIP tools, available in hard copy and off the Web, “demonstrate an understanding of the types of operations your company has, what its risk exposures are, and what safety and loss control practices are in that industry,” she explained. “So it lists points that are specific from an expectation standpoint and from an evaluation standpoint of how they perform the service.”

The tool also can help identify services a company should be getting, she noted. “The key is communication and evaluation,” laying everything out up front and measuring performance based on criteria.”

Stephen Cross, chief executive officer with Aon Captive Services Group in Dublin, Ireland, said risk managers should expect “face time with senior people in the [service provider] organization.” He said service providers can assure top performance in a variety of ways.

With some accounts, for example, “we will put an element of our fee at risk. So there is a fixed portion of the fee and then we'll have a portion that's variable depending on us meeting delivery and service standards. It's good for the client and it works for us as well.”

Nancy Gray, executive director of Aon Insurance Managers, Onshore Americas, in Burlington, Vt., added that “what's really important is to make sure that both sides understand the expectations from day one and establish service standards.” These standards should go beyond financial statement preparation to strategic objectives, “which means understanding their needs and making sure there is communication throughout the year,” she said.

The management agreement, suggested Mr. Cross, should clearly state the client's and the vendor's responsibilities. He noted that the dynamic has additional complexity because “it's not just a buyer and service provider relationship, particularly in the captive industry. You've got all sorts of people feeding into that, from our own brokers to other brokers on the account. You've got banks, fronting companies, regulators. So it's almost like a series of dominoes. Something that is late from one vendor affects the entire chain.”

The same is true on the client side as well, noted Ms. Gray. “You're dealing with corporate accounting, treasury, risk management and legal,” which demands coordination between service providers and client, she said.

Mr. Cross emphasized the importance of high technology standards in a service vendor. “I wouldn't work with an organization unless they had a good system to operate from,” he said. “If it's an IT-driven relationship, I would expect the service provider to have an outstanding global system, tried and tested.”

He added that risk managers should also find out “how we go about hiring people and what skill sets we look for.”

“It's a people-to-people business, so the buyer needs to know the provider is competent,” he added.

Caption for Buyers Report art of group of service providers, or risk manager at the center of a series of individual service providers:

Risk managers must clearly communicate what they expect from their many vendors and monitor results continuously, experts warn.

Flag: Checklist

Head: What Should Buyers Do?

To establish and maintain a satisfactory relationship with any service vendor, a risk manager should consider the following steps:

o Make expectations clear to the provider.

o Establish timing clearly–including turnaround expectations, the acceptable error rate and when progress reports are anticipated.

o Make clear the type of communication anticipated–written or oral? Mailed, faxed or e-mailed?

o Set forth how often reports are expected and what kind of detail is required.

o If the buyer is dissatisfied, that should be expressed immediately, with the vendor given a set time to correct the problem.

o If the problem is not corrected, or further mistakes or transgressions are committed, it's time to look for a new vendor, using experience as your guide in what to demand in the bidding process.

o Even if the risk manager is satisfied, it doesn't hurt to put the contract out for bid every few years to see what the market has to offer, even if you end up sticking with your current vendor.

Special Reports /

Managing Vendors Is No Picnic For Buyers

Related Stories

Recommended For You