August 2005
To G.A., or not G.A.: that is the question. Hamlet did not say this but had he been an insurance broker, he most certainly would have. The question often arises as I stare down my
comparative screen on its final page. I observe the rates and I find that many insurers are very close in their underwriting and pricing and I have to decide what to do. I now chose companies that have rate but also have a strong rating and a track record of consistency. For may years, I ignored these characteristics and concentrated solely on price and to later find that the carrier either pulled out of the market, went belly up or changed its rate structure and underwriting guidelines to such an extent that the vast majority of the customers did not renew nor called me back for a new quote. There have been equally numerous carriers represented by general agencies and direct company insurers who have come in like a lion only to leave like a gutted lamb. Shall we name a few: National Auto and Casualty, Seneca, National Colonial, American Security, Legion, Superior, Harleysville, Cascade National and the list can go on and on. Granted, some of them are still in business in different lines but the fact remains, they cost many brokers and agents a lot of lost revenue. Once the customer receives that letter of non-renewal or cancellation(due to their exit strategy from the market), you have become the source of the problem whether you believe it or not. Many customers believe you to be the company since you chose who to insure them with. The odds of
rewriting this book is not very good. I have experience this at least a half-dozen times and quite frankly, it gets old....real quick.
So what is the solution? Well, its simple. Use only those markets that have proven themselves through the many soft and hard markets. If you don't have access to these markets, put together a business plan and a list of your best carriers and loss ratio runs. Time and time again, the squeaky wheel gets the oil. The more you ask for an appointment and prove your agency's worthiness, the better chance you have of obtaining it. Whether it is a general agency or direct company appointment you are wanting, you need both in your agency. Some agents have boasted how they will do everything they can to avoid using general agencies due to poor service, inconsistent and/or unstable markets or limited technology resources. But as we have seen, the list of Technostuds has grown quickly as web-based, interactive websites have driven producers to their computers and away from the time-consuming telephone service calls. The Technoduds, what few their are left, have excuses why they are not up to speed like most of the industry but that is not satisfactory for agents and brokers. We are all looking for ways to work smarter and cut our costs. Progressive was one of the first companies that I can remember that spoiled me with their
savvy bridge from FSC to their own interface. I was amazed at how quickly I could fill in the drop down screens and bind the policy and print the application, not to mention the endorsement features. I remember thinking, "....if only my other carriers could do this, I wouldn't need as many agents nor CSR's." Ten years have passed and many of the strongest general agencies and carriers are offering the same features as Progressive and this has saved my agency a great deal of time and money. I can operate an agency that would normally need 2 producers and 2 CSR's with 1 producer and a part-time CSR(8 hours/week); however, I do employ a company service center, which costs 2 commission points.
I find that I migrate my business to those carriers who have been in the same market niche for at least 10 years and whose reputation is known for being user friendly and who do little to compete with me; in fact, they do the little things to help my agency. A good example is Infinity and AIG who have special agreements with DELL computers which gets me the same corporate discount that they enjoy. AIG has just signed me up with 18% commission for new and renewal flood insurance business. Many general agencies have offered lucrative production contests (unfortunately they have slowed in the wake of the broker compensation issues that the D.O.I. is looking into). Anchor General Insurance and Access General Insurance have both done something for their producers that should bring more market stability. They bought their own insurance company. Now that changes the playing field. No longer are they using someone else's money but much of it is their own(of course they have borrowed millions to put the deal together; nevertheless, it is their money, reputation and future that is much more at risk). I can't recall when this has happened before but it makes perfectly good sense.
Your agency needs both general agency and direct company appointments and as you narrow your focus to a handle full of the best relationships, you will make more money. Do whatever you can to make your office a "Virtual Agency" and as full automated as possible. I insist that my customers not to come in but rather call me to process their payments over the phone and to do their endorsements by fax, email and by using the interactive websites. As much as you think it is profitable to encourage insured's to come in the office to take care of these simple tasks, it cost me approximately $35/customer (this is my own personal estimation of cost) every time they walk through your door(including the cost of employee payroll, supplies, and time away from the phone in closing new business). It takes me about 3 minutes to process an E-check or Credit from login to printing the receipt which I immediately fax. As broker fees become more and more controversial and harder and harder to collect due to competition, many agencies will eventually turn to the
"Virtual Agency" model. You want to see a good example? They are on television and boast all of these attributes and you hate them. Its the damn Gecko!! That's right.....the lizard is eating your lunch and so is 21st Century. They get it. Their websites are a breeze to use and the service over the phone is just as good. Endorsement documents are rarely faxed and the customer is asked to complete their payments and endorsements online, whenever possible, 24/7. That IS they way you will eventually work if you are going to thrive in the next decade.
As much as we dislike the direct writers, they are offering up some good lessons in how to take their customers. Duplicate their business model and improve on it. Why not offer a
referral fee to your customers? Print up a flyer that looks like a $25 bill and promote this feature. This is one of the cheapest and most lucrative forms of advertising that I have used. The other day, one of my clients brought in his girlfriend. I insured her and as they were walking out, I handed him $25 in cash and thanked him for bringing her to me. He was blown away and she asked it the same offer extends to her
referrals. That $25 investment and goodwill will come back three fold. Another flyer that I use is the URGENT - YOU DON'T HAVE THIS COVERAGE!. I print it in bold on company letterhead and bellow this I have a very simple description of a coverage they rejected at time of application that I want them to have. With nonstandard auto clients, it might be uninsured motorist, with homeowners clients, it might be Contents Replacement Cost Coverage or an Umbrella. Within the letter I give an example of what can happen if you don't have this coverage in order to illuminate its importance. I have the letter saved on my desktop and I print them off as needed.
Every time a renewal comes in the mail, I send a copy of it to the client with this letter attached to the top of it. You would be amazed at how many calls you get regarding the letter. Not all of your clients will purchase it, but they will ask you about it again. If they ask for it, CYA and have them either email or fax you a request to add the coverage and inform them that an additional premium bill will come soon that must be paid to avoid policy cancellation.
Let me tell you, it is much cheaper to spend your time with these efforts than to throw good money away at overpriced advertising. You have a gold mine in your file cabinets in both new, existing and cancelled status policies. Do those little things that nobody else wants to and that will make you money. Ever wonder why the Alhambra man constantly comes in to try to get you to change your water service provider? They know that if they invest the time and money
consistently seeing you, they will eventually get you to change and they have good closing ratios. Though the profit in the water cooler business seems low, don't be fooled. They make it up in the persistency of their customer base and they know how much they can raise their prices before they lose you. It's all well calculated and it works and so should your agency. Put your time and money into winning propositions instead of throwing it against the wall and wondering how much of it will stick.