EXPLORING THE BOX

March 2008

      Let's imagine that a box represents the auto insurance industry representatives that we unfortunately see on TV and hear or radio everyday - mainly the inside. There is the outside of the box which has no boundries and its area is infinite. In my humble opinion, the "old box" analogy still holds true but I see it a little differently now that some time has passed since the "hundred million dollar club" entered our business. This is the exclusive club for those companies who are throwing unbelievable amounts of money on advertising. Just yesterday I was at a San Jose Sharks hockey game and the half time entertainment was a tricycle race around the ice rink while being overseen by someone dressed up in a lizard outfit. Enough already! Anyway, we are not part of the inside and that is a good thing. 

      If you would take a good look at their model, they are easily defined and they don't stray far from their marketing plan. The ads run, the phones ring and they write the auto insurance and not much else. Yes, they claim to offer home and umbrella policies also but they are outsourced to carriers unrelated to them (their umbrella policy is actually written thru R.L.I.) I called AIG to get an auto quote and a home insurance quote but was told that the homeowners policy had to be bound from a different division at a different telephone number - inconvenient and a guaranteed lost sale as a consumer. When I talk to my agent, I want him/her to handle it all in a timely fashion. Evidently, GEICO, for one, is not willing to take on any more risk than necessary so they outsource the other products. The disadvantage to them and the advantage to you is that you can write a , or combination package with multiple discounts and destroy their rates. I did compare what they had to offer and it was more expensive and a hassle to get all of the policies bound and took special pleasure in telling them that I decided to go with another company because of the difficulty in dealing with their various departments and agents! LOL.  Don't let their excessive advertising convince you that they are a better company than you write for or have access to. These large behemoths are monoline producers and live off of pricing disparities. We are outside their box and they can not compete with all of the products you have to offer your customers - many producers do not explore all of the lines of insurance that they can be successful at writing.

      We have an advantage it that we can define, define and modify our model and change it at will. The "hundred million dollar club" companies are like the Titanic - as long as you steer them in one direction and don't turn too much, everything is fine. The small agency owner can be much more nimble and quick to conform or redirect -an advantage that you must embrace. The small efficient agency owner will do well during these times as long as he/she reads the opportunities and writes business that is being ignored. I am proud to say that there are brokers like Matthew Pickett, Donald and Lola Browne and Roger McCluney who have found niche markets that are helping them thrive. These are 1-3 person agencies which have little overhead, good bottom lines and loyal customers. They are not dependent on new business broker fees!  Writing 2-3 policies a day is all it really takes if you are binding business that has good retention. Commercial auto and business customers are everywhere but you need to see if this is your niche. There are numerous types of businesses to go after but choose those that you understand the best. Did you formerly work in the construction trade or cut hair or was a dental assistant? These are the businesses that you should look to insure because you have some inside knowledge how these companies are run and what they need for coverage. This is another one of your advantages. These are great customers and if you can write them an inexpensive , you will open the door for other insurance possibilities. I personally lead with homeowners insurance and that inevitably leads to an auto quote, rental property, some small business policies and even their toys and top it off with a $1MM umbrella. Though I am not a commercial insurance producer, I will accommodate customers if this is what they want. If you are a commercial producer and need to sell a homeowner policy, gather enough knowledge about the product to sound like you know what you are doing. If you don't, ask a fellow agent or broker or an underwriter - they will be more than happy to walk you through what you will need. 

      During these times, we have to be flexible for our customers, even if it means going out of our comfort zone for a while. Here is an example. I insured a clients primary and secondary home in Monterey and received a call from his secretary. She told me that Dr. Silva was interested in having me quote his Statefarm Business Policy for his dental offices. I had not clue what to do. I called Safeco Insurance Company and they walked me through the application. The nice thing about these B.O.P.s is that they include all the coverages you need. Fortunately, the endorsements Dr. Silva had were very similar to Safeco's, including the buildings he owned with his partner. It was found money!

      There are those agencies who are hanging on by a thread but are not willing to be flexible and I hope that through these articles and their fellow successful agency owners that they learn what the "new model" has become. The double truck junkies are throwing money in the crapper. There are a handful of these "old-schoolers" who don't adapt well and live in white-ivory tower worlds that have no windows and lots of mirrors. They see nothing but themselves. It is just a matter of time before they either sell out or collapse under the weight of their mounting fixed expenses and dwindling new business sales. They are being robbed in broad daylight, during regular business yours and simply open their pockets for the easy pickins'. If they want to give the business away, I fell obliged to relieve them of it....heeheehee. Have you had enough of the silly analogies? Ok, I will stop the regression.

     I recently read an article about an agency owner who has numerous Southern California insurance agencies which almost exclusively writes auto insurance for the hispanic community. For now, this is a strong niche. The owner is a smart guy but as I looked at the D.O.I. website under his agency appointments, there were none. He is a broker in the pure sense of the word. So why is that a problem if he is doing well with his business model? I believe he is missing the big picture completely. I believe it is a short term marketing plan that has been extended by the influx of hispanic immigrants and this may continue for a while. Here is the problem. Eventually, many of his clients will assimilate and will have greater needs than a nonstandard auto policy. I am sure this agency owner has almost all of the major "broker agreement" appointments that he can handle but it looks like he has not a single major preferred market to roll his better clients into. From experience, I can tell you that customers will leave their "best friend and favorite agent of 20 years" over price. If you really think that your wonderful personality is going to keep a customer over paying for insurance, you are either narcistic or stupid. Ouch, that hurt but truth normally does. I can remember talking to a broker similar to this one at a Las Vegas convention and asked him what does he do when a customer comes into his agency and wants to add his new Corvette to his Progressive insurance policy (or any other market that has non-competitive physical damage programs). He told me that he would add it on and would not think twice about re-shopping the risk with another market unless the customer complained. It got even better. I asked him, "If you had an agency appointment with a preferred company that could cut the new Progressive rate in half but you could not charge a broker fee, what would you do?" He again said that he would rather leave the customer with Progressive and earn a higher commission for as long as possible than to rewrite the customer with a better company with a better price. What would you do? Are you motivated by short-term greed or do you embrace deferred monetary gratification?

     It comes down to your viewpoint of customer relationships. Are you willing to make less money in the short term to later realize a long and healthy retention of a trusting client? Do you try to get every last dime out of your customer until they leave your agency for another? Have you had experience in both of these examples? The answer to these questions are personal but they do define you - clearly. I have experienced both of these marketing approaches and the one that has paid dividends and unsolicited referrals is the obvious one. When a client believes you are looking at for them and you "have their back", it makes you stand out above the rest of the pack. Currently, I am trying to roll a book of Workmens Auto Insurance homeowners policies to a stronger carrier that also offers other lines of insurance. When their renewal comes in, my assistant pulls the file and I send them an email with the new cheaper quote. I am concerned about the current rating of Workmens and I know that if I can write them with the other carrier, I may be able to round the account out during the year. This is a superb marketing plan that works for everybody. You look like the good guy and everybody is happy. That is a winning combination.

   I will probably never convince that guy in Las Vegas that his greedy and short term minded approach to business will eventually lead to a competitor eating his lunch but then again, I really don't care. I ain't his momma. This is the mentality that makes the general public view agents and brokers in a dim light. I am not willing to let that happen with my agency. Many of you already follow this point of view - it is common sense and the right thing to do.  Working in that flexible area "outside the box" is for those who use their imagination to better their agency. That is the winning combination and that is the agency you will need to be for the future. The monoline producer is quickly becoming a dinosaur. The large monoline companies that are in the box are stealing customers from each other as they lower their rates further. Isn't it curious that Berkshire Hathaway had a vested interested in both Esurance and GEICO yet they compete? Recently, BH sold their interest in White Mountains, the company that created Esurance. In any case, they will continue on the same predictable marketing course but you know what to do about that. "Competition is good but being the winner is a must" Not sure who said it but that summarizes it all - clearly.

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