If your credit union engages a third party to help review your fidelity bond and other insurance protections, be sure you understand whether the third party is an independent consultant working strictly for a fee or a broker that could be working at least partly on commissions from carriers.
The consulting services provided by a neutral third party and a commissioned broker may look identical. And either type of third party may have the expertise to evaluate your current protection program. The key is knowing whether the third party makes recommendations solely based on your credit union’s best long-term interests.
For example, if a "consultant” waives the consultation fee for reviewing your current protection package, this could be a red flag. How is this consultant being compensated? If the compensation comes from a carrier, that could sway the consultant’s recommendations.
Beware of Price over Stability Ask plenty of questions, especially if a recommendation is weighted most heavily toward finding the lowest initial cost. This approach could steer you toward a carrier that may not be in the business of insuring credit unions for the long haul.
Several carriers have entered the credit union bond/insurance market since the 1980s, often to compete for the lowest price point, only to cut most ties with credit unions less than a decade later. Service can suffer at both ends of this lifecycle, as carriers learn how credit unions work and as the carriers stop committing resources in advance of leaving the market.
Questions for Third-Party Consultants A thorough coverage review with your current carrier, while conducting an in-house comparison of other carriers, can be an effective strategy. And there’s no ambiguity about the carrier’s motivation. If you’re working with a third-party consultant, however, use this checklist to be sure the consultation yields the best choice of protection options:
Is the consultant objective, or is it also a broker paid on commissions?
What broker fees and/or management fees apply to the transaction?
Are all carriers being evaluated? If not, which carriers are included in the search?
How long has the recommended carrier been in the bond/D&O/property/casualty business, and specifically, how long has it been serving the credit union market?
Would your credit union have direct access to the carrier’s underwriters, risk management experts, and claims specialists?
Does the carrier focus on product development to address emerging exposures specifically for credit unions? For example, how many new coverages has the carrier introduced in the last five years?
Can bondability verifications be conducted online? How many credit union employees are in their database?
How many different carriers are involved in the insurance program, and what potential gaps or overlaps exist between the various policies?
Does the carrier have educational resources that help your credit union prevent losses and mitigate damage after a loss occurs? Do these resources, such as online content or webinars, cost extra?
Does the carrier work on behalf of the credit union industry to help shape, clarify, and modify new regulations?