This past week, while working with one of our clients, an interesting situation came up that really caught my attention, and I believe will capture yours as well.

The scenario: Two brokers were given commercial auto insurance quotations by the same insurance carrier for the same client account. What was interesting about this was the way that the quotations came back. The client in question has an auto fleet containing roughly 10 vehicles, and the insurance carrier shall remain unnamed. A standard rule with most insurance companies (and one which often works very badly against the client) is that no broker shall be given a quote if another broker has already gotten a quotation from that insurance company. That rule was supposed to apply here, but somehow wires were crossed during the process, and the account ended up being quoted to both of the brokers.

Now, you might normally expect in a situation such as this that the quotations should be identical, or at least close to one another. However, they weren’t — In fact, they weren’t even close. One quote was over 30% lower than the other. The difference, as it turns out, was in the application of underwriter’s discretionary credits.

Just what the heck are discretionary credits, you ask?

Discretionary credits allow underwriters to discount base premium rates based on merit, or a competitive desire to write a account. Put simply, it’s the ’fudge factor’ in insurance rate quoting. In our scenario above, the high quote had no discretionary credit applied, while the low quote was the result of applying quite a bit of it. The discretionary part is just that, and it seems that it is completely up to the underwriter and the broker to apply these as they see fit. They use their judgment, and do whatever they wish – or are motivated – to do.

The best thing you can do with regards to all of this with your own business is to make sure the broker and underwriter have information that will encourage maximum use of discretionary credits. That will put money in your pocket. If you publish detailed specs to your broker, and avoid giving your broker a total monopoly on your access to the marketplace, it will do a lot towards getting more credits applied to your quotation. These are simply sound buying practices to help inoculate yourself against the broken and dysfunctional aspects of the insurance marketplace.

Last but not least, Happy 2007 to all of you! May the year ahead of you be filled with great success.

-Don