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 certain risks.
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 client.
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 competitively priced.
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.
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 field."
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 action.
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 step.
Jack Burke is the founder and president of Sound Marketing, Inc. http://www.soundmarketing.com, author of Creating Customer Connections and Relationship Aspect Marketing, host/producer of Audio Insurance Outlook and editor of ProgramBusinessNews. He can be reached at by phone 1-800-451-8273 or by e-mail at firstname.lastname@example.org.