how do you choose a portfolio broker?

what work should the broker be able to show?

An independent sponsor or a lower-middle-market fund is not hiring a vendor for a single renewal. The portfolio produces a short list of jobs that a generalist commercial account may never have been asked to do. Ask for the work product, with client names removed, rather than for a league table.

• Ownership-change reporting. NCCI’s ERM-14 is the form a carrier in an NCCI state uses to learn whether entities combine or stay separate. Ask who prepares it, who signs it, and how two open cases, combination and no change, get into the model. What happens to the mod.
• Lender evidence. A certificate does not create additional-insured or loss-payee rights. Ask to see how the broker turns a credit-agreement insurance section into endorsements, and how notice of cancellation is handled when the certificate itself will not grant it. New York DFS.
• Board designees. Ask the broker to walk a sample capacity exclusion and an outside-directorship clause with coverage counsel, not to promise that a portfolio-company policy covers the sponsor’s directors. Does portfolio-company D&O cover designees?.
• One view of fund and company. McGuireWoods notes that fund and portfolio-company buyers often use different brokers, and that gaps show up when nobody compares the two programs. Ask whether one team will read both, including holding companies and blockers. McGuireWoods via JD Supra.
• A calendar after closing. The company-team list is the first 100 days. The sponsor list is the operating partner’s 100-day plan. Ask who owns open insurer conditions once the deal team leaves.

Who owns each of those jobs on a live deal is mapped in the independent sponsor insurance workstream.

what licensing questions should you ask?

NAIC Model Law 218 says a person shall not sell, solicit, or negotiate insurance in a state for a class of insurance unless licensed for that line of authority in that state. The model act is a pattern for state legislatures. The statute in the state where the sale happens is the rule. A license does not, by itself, authorize the holder to bind an insurer. NAIC Model Law 218.

• In which states is the agency licensed for the lines you need, including the sponsor’s home state and every state where it will sell for a portfolio company?
• Who is the named licensee on the account, and what happens when that person is out?
• If a company hires people in a state the agency cannot serve, will the agency say so before a policy is marketed there?
• If a line sits outside the agency’s licenses, who is the licensed person for that line, and is that relationship disclosed?

Riza Risk is a licensed insurance agency. The states are listed at the bottom of this page. If we cannot serve a state, we will say so. That is the standard to apply to every firm on the list, including ours.

what should you ask about pay and conflicts?

New York Insurance Regulation 194 requires an insurance agent or broker who sells a policy in New York to give the buyer an initial disclosure of the broker’s role and of compensation, and to give more detail on the compensation if the buyer asks. The New York Department of Financial Services states that the duty follows the sale made in New York, not the state where the building sits. Other states write their own rules. Ask anyway, in writing, even when the state does not force the form. New York DFS, Regulation 194.

• Is the firm paid by commission, by fee, or by both? What insurer incentives, contingents, or overrides apply to this placement?
• Will the firm put that answer in writing before you appoint it?
• Does the firm also represent the seller on this deal, or a competing bidder?
• If two portfolio companies share a limit, who decides how a loss is allocated, and is that disclosed to both boards?
• Will the firm tell you when it cannot place a line, instead of forcing the submission into a market that does not write it?

None of those answers makes one firm universally better. They tell you whether this firm can work on this portfolio without a conflict you have not priced.

which jobs should stay with the company’s current broker?

Replacing the seller’s broker is not the default. The local broker often knows the carriers, the claims, the audit rhythm, and the certificates the customers already expect. Those are reasons to keep them. The sponsor’s reasons to add someone else are narrower:

• Sponsor board designees, fund versus company wording, or holding-company entities.
• A credit agreement written for a sponsor-backed borrower.
• A planned add-on, and the question of whether programs should combine.
• A PEO exit or a change of the employing entity.
• A first renewal where limits or structure need to change because ownership changed.

If the current broker can do that work, and the licenses and the compensation answer are clean, keep one firm. Write down which firm owns certificates, which owns the sponsor policies, and who the company calls on the day a demand letter arrives. Two firms without that note is how a claim gets noticed late. McGuireWoods treats late notice, and a failure to notice both the fund and the company policy, as a coverage problem of its own.

what does an illustrative selection look like?

The example is a way to sort answers. It is not a score, and it is not a promise that any placement will be offered or bound.

which questions belong on the appointment checklist?