After so many years of a “soft market” that people began calling it
“the market”, the inevitable hardening
had finally arrived by the beginning of 2001. Primarily evidenced
initially by increasing premiums, many
agents applauded the increased commissions they were earning on
static books of business. The biggest
problem was learning how to present the increased renewal premium to
the client without forcing them
to put their business out to bid. Sales trainers were adapting their
presentations to “teach” producers
how to sell in a hard market because it was estimated that over half
of the producers had never
experienced this phenomenon.
Within a short time, the applause quieted as the hard market began
to express itself in diminishing
markets in which to place the business. Suddenly agents began to
realize that they truly had to “earn” the
higher commissions by spending hours trying to find markets that
would accept the risk. Wholesalers
and program managers began to step into the spotlight as they became
the most viable markets to place
Then came an economic slowdown, the 9/11 terrorist attacks, a
full-blown recession, increasing
unemployment, Enron and K-Mart. Ouch! Now the conversation has gone
beyond shrinking markets
and skyrocketing premiums to questions about claims reserves,
decreasing commission percentages and
strength of the reinsurance market — not too even mention the stock
market, bond market, etc.
As a result, traditional carriers are pulling out of markets faster
than anyone thought possible. (Just look
at St. Paul and the med-mal market.) State legislatures are looking
at possible actions to hold health
insurance costs in line. Workers’ comp has again become extremely
difficult and costly. Companies are
mandating terrorist exclusions, yet the DOI’s of some states (like
California) are hesitant to embrace the
company’s proposals, while other states are accepting them.
Whatever happened to such simple problems as asbestos and mold?
Agents call me on a regular basis to bemoan the situation. A Chicago
agent presents a substantially
increased renewal premium to a top client. The renewal is
begrudgingly signed by the client and the
paperwork goes in to the company. Suddenly the underwriter calls to
say the premium is too low by
$100,000. The agent protests that the underwriter just presented
that premium quotation five days
earlier. Unfortunately the underwriting guidelines had changed over
those five days. Luckily for the
agent, the client took the hit and agreed to the additional
increase. Another agent calls from Oklahoma
looking for a market to provide umbrella coverage for a local YMCA.
Premiums had increased from
$7,000 to $25,000 and the underwriter was refusing to renew a
previous exception to a sports
coverage exclusion. Another agency in Northern California calls to
say they’re looking for another
carrier to represent — do I know of any “good” ones. Apparently
they’re so disgusted with their current
carriers, they don’t even know if there’s any carriers worth
representing. The saga could go on and on,
but I think you’ve got the point.
Amidst all of this, let’s not forget the state of the clients. I’ve
talked with many manufacturers, for
instance, who are struggling with a 40-50% decline in business since
9/11. Some are doing better,
others worse, but everyone seems to be struggling at the moment.
Employees are being laid off and
expenses cut in order to survive. Faced with rising insurance
premiums, many businesses are cutting their
coverages to the bone and some are even making the decision to drop
coverages entirely and go naked.
(Shades of the last hard market.)
So what’s the answer?
Without delving into the financial and actuarial statistics, I’ve
noted some general observations on both
the company and the agency sides. I’m not trying to over-simplify
the situation, but I believe we need to
have a starting point for recovery.
Carriers must acknowledge that, in most cases, their primary
customer base is the independent agency
system that represents their product. General Motors provided
Oldsmobile dealers with a three year
notice to drop the line. Carriers sometimes give their distribution
network less than a month notice. So
first and foremost, carriers must make some hard decisions about the
markets in which they want to play
— then they must opening communicate that strategy with their
agency base. There’s no place for
surprises in the agency/company relationship. Open and honest
communication is critical to the success
of any and all relationships.
Now about underwriting. Let’s face facts, most underwriters hope to
get promoted out of underwriting
as they climb the corporate ladder. Like our “hard-market virgin
producers”, there are a lot of
underwriters that have never experienced a hard market. They started
in their positions in a soft market
and honed their skills on market share underwriting. Loss history
was secondary to the company motto
— “He with the most market share wins!” Suddenly these same
underwriters are being ask to underwrite
on the basis of loss history.
Not knowing how to do that, the pendulum has swung to the other
extreme. Every company, every
market has become an inordinately big risk despite the reality of
their actual loss history experience.
Underwriters need to be taught and directed to underwrite on the
basis of the individual risk — taking
into account that risk’s specific loss history, as well as existing
and planned loss prevention programs.
Not all risks within any given market are equal.
Speaking of loss prevention, it’s amazing how quickly carriers will
cancel value-added loss prevention
programs in order to cut expenses. Such carriers rationalize that
it’s up to the agents to do that — loss
prevention can be their “unique difference” to the client. Meanwhile
the agents say they need help from
the company level to do that. Ironically, they’re both right — but
in the interim, their stalemate merely
penalizes the client with exorbitant premiums. Carriers and agents
need to work together on a
cooperative basis to provide the tools and resources that will
enable clients to better manage their risks.
When that happens, everyone wins regardless of whether the market is
hard or soft.
Where the actions suggested for the companies might seem overly
simplistic, the actions that agencies
need to take are far more complex. The reason is that agencies are
in the middle, which is exactly where
a true “broker” should be. They need to balance relationships on
both sides of the scale — company and
Expanding Your Horizons
On the supplier side, agencies must begin expanding their provider
base. The days of relying on 6, 12 or
even 18 traditional carriers to fill 90% of your market needs are
long gone. Agents must proactively
seek out non-traditional providers for the markets in which they
specialize on a regular basis. Even if
you’re happy with your current company source, there is no guarantee
that that company will be in that
market tomorrow. And, if they remain in that market, there’s no
guarantee that they will stay
Unfortunately most agents wait until renewal. For instance, one
agency that handles a lot of restaurants
just called me about a flagship 4-star restaurant client. The
renewal quote just came in from their primary
insurer and sticker-shock prevailed at the agency level — they
haven’t even presented it to their client
yet. “Where can we find some new markets for upper-end restaurants?”
was the question they asked.
The good news was that a quick search on the ProgramBusiness.com
wholesaler search engine
presented over 2 dozen wholesaler programs for them to investigate.
The bad news is that this agency
had not investigated potential alternatives until the renewal time.
A pro-active agency would have
investigated all of these options earlier — if not for their own
need, but to at least know what the
competition was offering.
I mention ProgramBusiness.com as only one of many sources an agent
can access to learn about
optional players in a market. From such free resources as
ProgramBusiness to membership-only sources
such as IMMS.com to databases maintained by some of the trade
magazines to rating services to simple
Internet searches, agents have never had it this easy to expand
their knowledge about products and
programs they can offer their clients. In essence technology has
given every agent the portfolio power of
a Marsh & Mac.
In either case, company or wholesaler, agents must become more
active in the communication process
with the market suppliers. Request and utilize resources that might
be of benefit to your clients in risk
management, safety plans, regulatory compliance, etc. These tools
will help position you as more than
just an insurance agent to your clients.
Traditionally most agents try to keep a pretty tight window on the
renewal process. Fear of competition
has mandated that agents begin the process 30 to 45 days in advance.
After all, the tighter the window
the more difficult for a client to shop other agents. Well I beg to
differ. Sticker shock can cost you your
best clients. Springing the renewal premium on them at the last
minute will raise too many questions in
their mind. “Why didn’t we have advance warning?” “Is the agent
trying to pull one over on us?” “If the
agent hid this dramatic premium increase from us, what else aren’t
we being told?”
Agents that are truly client-focused begin the renewal process 364
days out. Ongoing communication
and partnering with the client in risk management strategies that
will help reduce claims loss is only the
start. Schedule occasional brainstorming sessions to break out of
the envelope with new and unique
concepts to help the client control costs. Share information
relating to the hardening market and changing
underwriting strategies so that they can better prepare for their
own renewals. If the client doesn’t have a
written safety plan (now being required by some underwriters), help
them write (and implement) one.
Be their partner, not their insurance sales person.
The old adage “out of sight, out of mind” is perhaps most true in
the insurance industry. Believe me, your
clients are not spending a lot of time thinking about the trials and
tribulations of their insurance agent. Yet
sometimes it’s almost better to be “out of sight” than to become an
annoyance with unwanted
Communication is essential to any relationship, but it must be of
value. If every call, note or e-mail is an
attempt to sell something to somebody, you may be missing the boat.
Yet that seems to be the bulk of
our communication — “We’ve got a new program, let’s send everybody
a letter.” You can’t withdraw
from a savings account before you make some deposits. Know your
client’s business well enough to
know what is important to their business and try to provide that
type of information which they will
appreciate. Then, when you ask for their business, they feel that
you’ve earned the right to it.
A broker in the Northwest wanted to solicit a new market, which was
both tough and competitive. After
normal door-knocking and marketing attempts failed, they stepped
back and looked long and hard at
the industry. Talking with people in the industry, they learned
three major (and universal) concerns. In
each of those difficult areas for that industry, the top expert in
the field was identified. Our company then
produced one hour audiotape interviews with each of those three
experts. Over the next 6 months, the
broker sent a letter with an audiotape to prospects within that
industry. Each letter said, “We know this
is an area of particular concern and thought you might benefit from
this interview with an expert in the
The last letter in the series included an audiotape about the
broker, complete with testimonials from
existing clients. That letter stated, “We know the management of
your risk is another concern and we’re
ready to help.” When they began calling on these prospects for
appointments this time, the results were
far more enjoyable. In fact, some of the prospects actually called
them first for an appointment. The
difference: They took the time to earn the right to be considered a
risk management partner. They
showed their knowledge of the industry and their willingness to
bring value to the table before asking to
write the business.
Whether it’s a newsletter (print or e-mail), telephone calls or
traditional letters, the successful agent will
provide valued information and resources on a regular basis to both
clients and prospects. That earns
trust and respect, which eventually translates to business.
In insurance this has two meanings — marketing the risk and
marketing the agency. As for marketing the
risk, remember that underwriters are now looking at loss history,
not market share. Make your
applications complete. Have someone proof them before transmittal to
the market. And as in any
marketing, be creative — remember you are selling this risk to the
carrier. Package the application
nicely. Include photographs, copies of safety plans, OSHA reviews,
pictures of “192 Days of
Workplace Safety” posters. Position that risk so that the
underwriter will be salivating over writing such
a good risk.
On the client side, get creative too! The world is being bombarded
with more messages than ever
before. Where it use to take 5-7 advertising repetitions to gain
awareness, I now believe it takes more
than 15. The answer is to get creative enough to break through the
clutter to be heard more frequently.
For instance, a hand written letter will now gain more results
because it’s different. (When’s the last time
someone made the effort to send you a hand-written letter?) Think in
terms of alternative media —
audiotapes and CDs, videos and DVDs, even interactive computer CDs.
You can now take your
PowerPoint presentations, add a narrative and turn them into
QuickTime movies on CD or regular VHS
cassettes. There are hundreds of creative ways to send your message
if you take the time to allow your
creative brain to work on it. And don’t forget to seek out what
other industries are doing. A lot of their
creative concepts will work for insurance as well.
Too many of us think of technology as either: 1) the means to
automate the processing of our existing
business, or 2) a magic bullet that will cure all our ills.
As for the processing of our business, it may mean a lot to us —
but does it add anything to our client
relationships? The pursuit of efficiency is a double-edged blade. We
must provide our clients the
efficiency (and access) they demand, while simultaneously increasing
our own internal efficiencies for
productivity and cost control. Remember, if we become the most
efficient agency in the world, but
forsake our clients, what good will that efficiency do as we’re
closing our doors?
On the “magic bullet” side, technology is not “The Answer” — it is
merely one of many tools that can
allow us to better serve our clients. The trick is to find out what
our clients want us to do with
technology — and then to provide it. To do that we have to ask
them, listen to them and then take
A small agency in the Northeast has developed an admirable website.
Contractors can apply online for
their certificates and anyone can request a specific quotation on
just about any commercial or personal
risk. Additionally, newsletters are posted and archived as available
resources for clients and prospects.
It’s a good site that offers excellent value.
However the owner of this agency realizes that some people are not
comfortable with using that
technology. As a result, the agency has actually increased personal
servicing via the telephone and fax.
They’ve learned that service must be a blend of technology and
personalization — proportioned
according to the demand of the customers. Their motto might read:
“Although technology is a reality in
today’s world, we pride ourselves on working with our clients in
whatever way they feel most
comfortable. Be it on the Internet, in your home or office, over the
phone or via the fax — wherever and
however you need us, that’s where we’ll be!”
CE credits may be important, but that’s not the education I’m
talking about. Too many agency owners
wear blinders — focusing solely on their own business. Take off the
blinders and attend industry events
that allow for interaction with your peers. Share your thoughts and
experiences with each other and
re-ignite your passion. Nothing improves morale better than spending
time with others who are
committed to growth and success.
Likewise take time to learn about the markets in which you do
business. Attend their industry events and
trade shows to learn more about them. Every industry is in a state
of change today. Keep on top of their
most current concerns, so that you can arm yourself with the
resources that they will find beneficial. If
they see you contributing to their industry, they’re more likely to
contribute to your success.
As I mentioned at the beginning, this has been a broad-brush
overview to a very difficult market
economy in the insurance world. Some may consider it overly
simplistic, others may even think the
opposite. The truth lies somewhere in between. The pre-eminent fact
is that the world of insurance is in
the flux of change — those who will survive must adapt and change
with it. Company or agency, you
can’t sit back and wait for it to blow over. You won’t be here when
the winds cease.
Whether it is an hour, a day or a week, I urge everyone to take some
uninterrupted time to analyze
where you are, where you’re going and what your clients need you to
be doing. Ask the tough questions
about your operation that need to be asked. Are your communicating
effectively? Do your clients (or
distribution network) really consider you to be their partner? How
can you best position yourself for the
future? Have you really been “earning” the right to represent your
constituency? If you’re having trouble
do this, bring in some outside help. Often a fresh pair of glasses
can change the view.
But above all, take the first step. If you’ve seen yourself anywhere
in this article, pick one thing to change
today. If there’s an idea that sounds good to you, give it a try. If
nothing else, write your best client (or
agency, or employee) a letter letting them know how much you
appreciate them in your life. Ask them
what you’re doing right, what you’re doing wrong, and what they need
you to be doing down the road. I
believe you’ll be amazed at the response. In fact, I hope you’ll be
so amazed that you’ll try doing it again
and again and again until you’ve repeated the process for all your
clients, agencies or employees.
The race may be won at the finish line, but it begins with the first
Jack Burke is the author of Relationship Aspect Marketing and
Creating Customer Connections,
the editor of ProgramBusinessNews, host/producer of Audio Insurance
Outlook and the president
of Sound Marketing, Inc. For more information visit
www.soundmarketing.com, e-mail him at
[email protected] or call 1-800-451-8273.