Breaking the Long-Term Agreement on a 45-Plant Portfolio
Case Background
In the third year of a 5-year insurance agreement, a YOU, broker representing a client with 45 power plants have requested changes to the policy terms. You have argued that the insurance market had softened, meaning rates are now generally lower. You have begun by asking for:
10% reduction in premium → $4.05M
5% increase in commission → 20% ($810,000)
Current Market Setup
Insurer A (Lead): 50% share
Insurer B: 20% share
Allied World: 30% share
Current Policy Details:
Claims History:
Year 1: $2M (turbine failure)
Year 2: $0
Year 3: $5M (fire damage)
You are a hard-to-deal-with broker. Your client expects aggressive savings and better terms. Use time pressure (tight renewal deadline) and soft market conditions (competitors offering lower rates) to push the underwriter. Your goal is to secure a 10% premium reduction and a 5% commission increase. If Allied World resists, threaten remarketing and mention that other insurers are ready to meet these terms.
Goals
· Achieve lower cost for client (target $4.05M, but knows Client can pay up to $4.3M annually; They want savings but can stretch slightly above broker’s target if terms are favorable).
· Secure higher commission (target 20%, but willing to settle at 17–18%).
· Ensure coverage continuity and avoid remarketing hassle.
Levers
• Competitive Pressure: Use the fact that the insurance market is softer to get a better deal.
• Time Pressure: Use the deadline to push for a quick decision.
• Remarketing Threats: Say you will take the business to another insurer.
• Portfolio Promise: Promise to bring more business later if the terms are good.
BATNA (Best Alternative to a Negotiated Agreement)
Insurer B absorbs Allied World’s share and agrees to the broker’s terms of 10% reduction in premium and 5% increase in commission.
