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Insurance Specifications and The Bidding Process
Whenever insurance cost goes up the first reaction of most people is to say, "Let’s get another quote". Sounds easy enough in theory, but in practice it can be a daunting experience for both a Manager and the Board. The reason I say this is that in almost every case, the proposals that are received are not identical with one another and your current insurance program. This inconsistency leaves the both the Board and the Manager only one common denominator in which to make a decision, price. It must be remembered that price is a function of coverage. The more coverage the higher the price? Not always but in most cases this is true.Today’s marketplace offers community association’s limited insurance alternatives. With only few alternatives available, how and what is the best way for Managers, Boards and Unit Owners to decide on a particular insurance program?
The answer is putting together detailed insurance specifications and following a regimented bidding process. In both a "hard" or "soft" market this is the only way that a true comparison can be made and for the board of managers to fulfill their fiduciary responsibility.
Once the board of managers has decided to bid out their insurance program, they should work with the present agent to develop insurance specifications. These "specs" as they are sometimes called, should entail all the insurance requirements as outlined in the association documents, along with the coverage presently in effect for the association.
Once these specs are complete then the process of selecting agents to present a proposal should begin. In selecting prospective bidders, the association should try and recognize those agents who know the subject of community association insurance. Finding these agents can be accomplished by either a recommendation from your property manager, speaking with other boards or contacting the local CAI chapter for names of members who are insurance professionals.
The Board should limit the number of agents included in the bid process and ask for a list of companies for which they will be supplying proposals from. All agents are not created equal even when representing the same company. The extent of an agent’s expertise, relationship and thoroughness with a particular insurance company will produce the best possible program for an insured.
Once this list of companies is received from each agent, it is then up to the board to assign companies to each particular agent, because insurance companies will only provide a premium indication to one Agent on any given Association. It should be noted that it is common practice to allow the incumbent agent to use the markets available to them. (Unless the current agent has caused the board to lose confidence in their services).
The bid package, including the insurance "specs", should then be sent to each agent requesting a proposal from the companies that have been assigned to him or her.
The proposals should include a statement from the agent that his/her proposal meets the entire requirement as outlined in the association documents and in the insurance specifications. Any deviations from these two areas should be clearly outlined in the proposals.
The presentation of each bid should be done in person by each agent and conducted at a board meeting or at a special insurance presentation meeting. This will allow each board member the opportunity to have any questions they may have answered immediately. This will also help the board in assessing the extent of community association insurance knowledge each agent possesses.
At the conclusion of the meeting the board should discuss the merits of each proposal and make a recommended selection. With the proposals fresh in everyone’s mind a decision may come easier to everyone at this time.
Finally, it is imperative that price takes a back seat to coverage in this process. When the coverage, expertise of the Agent and thoroughness of a proposal is understood, then and only then can the cost of a proposal be adequately determined, compared to all proposals submitted.
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