Insurance Vendor Management has many different components. Many financial institutions oversimplify insurance management into just a few areas: size, ratings, stability. The problem with oversimplifying insurance vendor management is that many companies may look strong on paper but lack good customer service, claims handling, and adequate coverage in their policies. It is not prudent Vendor Selection and Management to have a large, financially strong, A+ rated insurance company with poor service and claims handling.
The critical areas lenders should evaluate when selecting an insurance vendor are below and are listed in order of importance:
- Specialization in the product lines by agent
- Insurance policy for that product
- Claims Handling
- Ratings/Financials of the insurer
- Stability/Longevity in the product lines by the insurer
- Stability/Longevity in the product lines by the agent
- Disaster recovery plans
- Information security
Some might place these in a slightly different order, but most place number five in our list (ratings/financials of the insurer) first in order of importance, and they usually stop there. Endorsements are also sometimes placed on the list; however, many endorsements are given on insurance products by non-insurance people or insurance people who do not specialize in those product lines, so it is not a good way to gauge a vendor.
Many organizations typically only look at ratings/financials and the amount of money they will make from the company they are endorsing. However, choosing a vendor that is not specialized in those product areas puts the lender at a significant disadvantage in making the best choice for their borrowers. “Who pays us the most” should not be a factor at all in their decision process. Unfortunately, this is a considerable influence in many vendor selections.
Read: Does your vendor care more about Wall Street?
The order above is a good framework for ongoing vendor management and selecting new vendors. The first question about any insurance vendor should be, "Is this product one of their specialties?” If not, that is a massive strike unless that vendor has related/existing products in place with you where they are strong on numbers 3-10 on the above list. If someone gets past specialization, policy, service, claims, and ratings, you must then evaluate stability/longevity for the insurer/agent, followed by their disaster recovery plans and information security.
Read: Is your insurance agent just another vendor?
Check out the next blog in this series with more on Specialization.