Insights from risk managers on working with purchasing

Authors: Dorothy Gjerdrum, Sandra Burgess, Sarah Perry, and Ed Lastinger

In larger K-12 education and public sector organizations, the purchase of insurance or brokerage services is likely managed by the purchasing department. Public sector purchasing agents rarely have risk management expertise, so it is important that the organization's risk manager or insurance buyer participates in that purchasing process. In conversations with risk managers and insurance buyers from across the country, I heard story after story about ways that this process goes awry. What can risk managers do to avoid a bad process and assure better outcomes?

I explored the topic with risk managers from three diverse cities and asked for their insights and advice. Sandra Burgess is the risk manager for Memphis, TN; Sarah Perry is the risk manager for Columbia, MO; and Ed Lastinger is the director of human resources for Waycross, GA.

Engaging with the purchasing department for public entities and K-12 schools

Public entities may have rules that require the engagement of their purchasing department for contracts above certain dollar amounts. Usually a contract for insurance and brokerage services would be large enough to require a formal bid process that would be managed by purchasing. In addition to entity-specific rules, there may be local or state laws that govern how and when bids for service must be issued. For many jurisdictions, insurance bids are required every three to five years.

The risk managers I interviewed advise that you look beyond those requirements and infrequent engagements, and seek to develop an ongoing working relationship with your entity's purchasing department. Some ways to build relationship and trust include providing education on certificates of insurance, offering advice about the insurance requirements in contracts with vendors, and reviewing contract language for city projects and services. In organizations with large purchasing departments, they recommended working with a designated agent whom you can educate over time. Sandra Burgess explained that it is important, "Explain the complexity of insurance and risk management. Help them understand how important it is."

During the bid process itself, planning ahead, meeting deadlines (important to the procurement process) and sharing your technical expertise were cited as effective ways to strengthen the partnership. "It's a collaborative group effort. We make our purchasing manager's job easier because we bring our knowledge to the table," said Ed Lastinger.

When asked about roles, all risk managers reported that purchasing serves the important function of assuring that the correct (and legal) process is followed and bidders are treated fairly. Sarah Perry said, "Purchasing manages the process and I manage the content. I write the scope of service and all of the details specific to those services, but not the bid spec requirements. The purchasing agent reviews what I submit, to make sure there's nothing that could get us in trouble regarding purchasing rules." Managing the process also protects both the risk manager and the public entity from allegations of favoritism. Perry continued, "When we have a bid out, prospective bidders cannot contact me. That assures consistency and transparency."

"It's a collaborative group effort. We make our purchasing manager's job easier because we bring our knowledge to the table."

Drafting the bid documents for your insurance coverage purchase

The risk managers recommend reviewing examples from peers to find ways to improve the content of your entity's bid documents. Potential vendors can also provide sample RFPs. They advise reviewing more than one and customizing the best examples to fit your entity's operations. Perry noted that she improves her bid documents each time they are issued and that over the years, they have become smaller and more precise. Regularly reviewing recent RFPs can help keep specifications up to date, and may provide ideas for emerging risk financing options or new risk management practices. Lastinger advises risk managers to "Be open minded. Identify what you want and what you need, and go after what fits your needs."

The bid review process and its review committee

All the risk managers include someone from purchasing in the bid review process. Some have the purchasing department "prequalify" the bids against minimum requirements such as the day/time submitted, inclusion of all required forms, the correct number of copies and signatures or other process requirements. They all utilize a committee to review and rank the qualified responses against the technical specifications; purchasing is not necessarily part of that process. However, purchasing is involved if oral interviews are conducted, and that is to assure a consistent and correct process is utilized.

Engaging the right people on the review committee is an important aspect of the bid process. "I get a team of city employees to interview the two or three best respondents. I look for people who have worked well with risk management and understand what we do," said Burgess.

Examples of possible bid process challenges

A new risk manager was surprised to learn that his city had worked with the same broker for 11 years in spite of poor service and obvious gaps in insurance coverage. There were no risk management or safety committee activities and no relationship with the insurance carrier, in spite of a history of catastrophic claims. Further research uncovered a flawed purchasing process dictated the current insurance broker was the only person who scored the RFP responses and recommended the winning bid to the city council. It was a legacy process that began on the health insurance side and then carried over to the property and casualty placements. The purchasing process has been corrected and now includes the city manager, risk manager and purchasing manager, and in addition to a newly-formed safety committee, the city has changed brokers.

In another example, a city had a requirement that its insurance broker had to be domiciled in state. An RFP process generated multiple bids, and the review committee identified three finalists.

Before the final recommendation was made, a member of the review committee met with a low-scoring local agent and coached them on improving their bid. She then brought the improved bid to the attention of the mayor and he awarded the business to the local agent (who coincidentally was a large contributor to the mayor's political campaign). The mayor stated his desire to keep the business in the community and bypassed the procurement process by calling it a professional contract. The city's risk manager is waiting for a new administration before rebidding the business.

Playing with twisty puzzles is the best way of improving your dexterity and problem solving skills.

Educate yourself so that you can educate others.
Sandra Burgess

Managing politics and managing change

The previous story illustrates that sometimes, managing politics means waiting for change. Eventually there will be new leaders and new opportunities. There can be wisdom in knowing that sometimes, timing is not in your favor. However, in support of the longer view, it's also helpful to consider what you can do right now and make a plan for how you can build change over time. For example, the risk manager who discovered the broker was reviewing the RFP responses created a multi-year plan to change the bid process and improve the city's risk management program. The multi-year plan included educating decision makers, presenting accurate loss data and improving communications overall.

One truth is that the higher the level you are in the organization, the easier it is to accomplish change. If you aren't at a top management level, you must find others who can champion risk management at that level. All three risk managers emphasized the importance of educating people about risk management and the complexities of risk financing arrangements. It's important to educate people using "their language," to increase their understanding and buy-in (using financial data for CFOs or productivity data for HR directors, for example). You should use data, case studies and examples from peers to build knowledge. Seek ways to educate across your organization — individuals, department by department and organizational leaders.

And finally, when asked to comment on the most important thing relative to the purchasing process for insurance and brokerage services, all the risk managers cited the importance of communication and networking.

"Reach out and call someone. Network with your peers and other people who have knowledge," said Mr. Lastinger.

"Ask questions and get examples from others," encouraged Ms. Perry.

"Educate yourself so that you can educate others," said Ms. Burgess.

Welcome advice from three professionals who continue to improve their risk management programs through effective collaboration and communication.

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