Selecting An Independent Consultant

If a company has had numerous losses and coverage is difficult to place, a consultant may be able to offer alternatives that have worked for similar organizations. Risk management and insurance consultants, in addition to counsel, should review risk-transfer agreements.

Problems with a broker, carrier or third party administrator could be a signal that its time for a change. A consultant may be able to suggest a different arrangement.

Insurance and risk management consultants can assist companies seeking bids on service-related contracts. They can establish a market search for the best coverage among various brokers and evaluate proposals. In addition, the consultant can suggest risk transfer agreements, which can be utilized in the bid proposal.

The consultant may be able to assist with research involving new acquisitions or new business ventures. Be aware that your enlightened competition may be using consultants for just this purpose.

A consultant can also support designing a disaster recovery plan to prepare an organization company for a quick recovery.

When contemplating the hiring of consultants, verify exactly what types of service they are providing and find out if they can devote the time necessary to acquaint themselves with your business operations. Some consulting firms will only review your insurance program and work on increasing coverage and reducing premiums. Others will perform risk management and loss control services. And some will offer both services, which ideally is the best of both worlds.

Be on guard against consultants involved in large projects who indicate that they can "do it all." Some consultants will learn on the job, which may be acceptable. A worthwhile consultant, however, is aware of any limitations and knows when to call in a specialist.

A consultant should work with various brokers to select the best coverage from the markets available. Coverage specifications will be submitted to the brokers. These specifications should be specific to the clients operations.

The consultant should be aware of areas where large losses may occur, such as environmental, products, workers compensation and general liability.

Unforeseen environmental losses can cripple a corporation if they are not adequately covered. Activities of some employees may increase the companys liability. Facilities in flood zones present a significant liability. A good consultant will visit your premises and discuss your past and potential liabilities.

The consultant will also be able to evaluate the various risk management software and claims management services provided by brokers and/or third party administrators being employed for claim volume.

When selecting a consultant, first review his or her background and discuss work experience. Some states require an insurance consultant to be licensed.

First-hand experience working in an insurance claims operation or a TPA is invaluable. This type of experience also increases the consultants effectiveness in assisting the risk manager in filing claims and providing answers to insurance company inquires.

A consultant with an insurance claims background will be able to assist in reviewing legal invoices. Broker, underwriting and policy drafting experiences are also ideal, as the consultant will have knowledge of the brokerages and their dealings with various carriers.

A designation such as the ARM, CPCU, CIC or a law degree is beneficial, as it signifies a consultants pursuit of higher education and increased knowledge in the field.

Pay attention when a consultant mentions "attendance" at a college or university, as this could indicate that he or she did not actually graduate.

If the consultant states attendance in a law school, ask if he or she graduated and obtained a Juris Doctor degree. In addition, try to review the consultants publications in trade journals.

A written agreement should be entered into initially when hiring a consultant. The advantage is that each party knows exactly what is expected. Define the type of work to be performed and who the consultant will be. The language of the agreement can rectify any disagreements at a later date, provided the agreement is complete.

Require that all changes in the agreement be confirmed in writing by both parties. The agreement should include a rate of pay structure if applicable addressing who pays for increases due to promotions; if the fee is a constant rate through the life of the contract; if the contract is long term and will there be fee negotiations later.

Also, the firm hiring a consultant should know the fee involved. Expense reimbursement should be discussed up front, including travel, car rentals, the costs of taking limousines to and from the airport, meals, lodging and incidentals.

A retainer may be preferred as the consultant is always at your call. A reasonable retainer and outsource arrangement, however, may be preferable for a smaller company which does not have the assets to hire a full-time risk manager. If an ongoing retainer agreement is contemplated, allow each party the right to terminate with a specified amount of timely notice30 days is more than sufficient.

The requirements of the risk manager will dictate which size consulting firm is necessary. If a company has frequent losses, is multinational and is involved in political risk situations, the larger consulting firms with their worldwide offices would be able to provide personnel and software programs to meet the needs of complex multinational companies.

Be advised, however, that these larger firms may overstate their actual risk management personnel and combine them with the total numbers of employees in their insurance consulting or other related service areas. Often these services are separate and may only be involved with consulting to specific industries.

Although this type of service is expensive, this may be a worthwhile investment for some organizations, as larger firms can offer services their competitors cant match.

Many mid-sized insurance and risk management firms associate with larger brokers and TPAs to work with international clients. This alternative arrangement will compensate for the smaller size of the consulting firm and allow competition with larger brokerages.

Some mid-sized firms may appear to have a large staff, but in some instances these individuals are independent contractors working for the firm. As such there may not be uniformity in handling accounts or any real interaction with other consultants within their group.

While some of these firms state that their senior consultants have minimal turnover, what they fail to explain is that there may be a high turnover of associates. This can be a problem if the associates are involved in the day-to-day handling of your account. Inquire the reason for this high turnover.

Some senior independent contractors in mid-sized firms may have a significant client base. If you are not being provided with the service you expect, let the consultant know. If no change occurs, take your business elsewhere. When approaching this type of firm, inquire who will be in charge of your account and who will handle the account in his or her absence.

Smaller insurance and risk management firms can take the necessary time to interview brokers and perform a market comparison to provide the best coverage for the least cost. With computer and Internet accessibility, these small firms can provide the same quality service as many mid-sized firms for substantially less.

These smaller firms or one-person operations do not have the overhead normally associated with their larger counterparts, and as such can reduce their costs.

Many of these consultants have access to a developed network of professional insurance and risk management consultants, lawyers and accountants. These smaller consulting firms dedicate their efforts to satisfy their clients demands, as a loss of just one or two clients can be a serious financial drain.

The consultant will be able to assist the risk manager or other company officials with an independent review of the companys insurance program. The consultant will also be able to review and suggest modifications to the loss control and loss avoidance mechanisms in place, while working with the brokers to provide the most coverage per dollar.

Kevin Gallagher, ARM, CPCU is a vice president at Chiltington International Inc., located in Holmdel, N.J. He can be reached at kgallagher@nj.chiltingtonusa.com.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 10, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.