Instead of Agents As RMs, Why Not Have RMs In InsuranceAgencies?

The subject of agents serving as risk managers has come up quitea bit lately. Most of the articles address the need for thisexpanded role, as well as the importance that agents not overextendthemselves. However, I think the industry will see somethingdifferent than traditional insurance agents picking up riskmanagement designations on their way to sell more insurance, assome have suggested. One option that is often overlooked is thatreal live risk mangers may in fact find themselves working ininsurance agencies.

I am an Indiana State University Insurance and Risk Managementgraduate, Associate in Risk Management, and veteran of two largecorporate risk management departments. Now, I work for a smallinsurance agency.

My original goal, and I believe the goal of most people in riskmanagement, was to work my way up the ranks to Director of RiskManagement for a large corporate department. You may wonder how Iinstead ended up in a Main Street, USA, insurance agency.

The answer is simple; I discovered there is a huge group ofcompanies out there in dire need of risk management, who for themost part have limited or no knowledge as to what risk managementis. These companies are what the insurance industry would typicallyconsider middle market accounts.

Many times these middle market accounts are large andsophisticated enough to need a risk manager, but simply lack thevolume of work to justify a full or even part-time position. Fromthe traditional insurance agencys perspective, it would be verydifficult for anyone to decide to begin to develop the skillsnecessary to truly fill the role of risk manager, especially ifthat someone still has a sales quota to meet. Risk management issimply too diverse a field.

Large national brokers may not be any better equipped to fillthis role for the middle market either. I dont think anyone canargue that they lack the talent or skills necessary, but rather thewillingness or ability to bring those skills to bear.

For a large broker the amount of commission a typical middlemarket account brings in is simply too low to justify the timecommitment and level of service necessary to go through the riskmanagement process with a company and flush out exactly what theirissues are.

The limitations of the typical small insurance agency inexpertise and the large national broker in hands-on service createa unique opportunity for Main Street, USA, insurance agencies andrisk managers to team up. Adding the expertise of a risk manager toa smaller insurance agency provides the right balance of localservice and expertise, in order to provide middle market accountswith comprehensive risk management services. This also creates aunique opportunity for the risk manager.

Dont get me wrong. I loved working for a large risk managementdepartment. There are some downsides, however, that I think mostrisk managers can agree with.

The period between renewals can often be slow, and dealing withwhat is often a static list of exposures can become tedious.

I also believe that in many companies there is often a generallack of appreciation for what the risk management department does.Once the risk management department has been running smoothly, andin particular when there are no major losses, it is often easy forthe corporate higher-ups to forget why exactly they pay thesepeople. It is hard to garner praise for preventing and having themechanisms in place to mitigate something that may in fact neverhappen.

I now work for a regional insurance broker as the in-house riskmanager, providing free risk management services for our top 20-25accounts. I have no production responsibility, nor do I wantany.

I am strictly a value add for our clients. As a Risk Manager Ifind this role very challenging, as I am now gaining experience inseveral different industries at once. It is also a much moreexciting pace, as there is no longer any lag time betweenrenewals.

I think the greatest single benefit is that the middle market,whether they realize it yet or not, is starved for risk managementservices. Oftentimes the “risk manager” is really the controller orCFO who wears the risk management hat along with about 14others.

They have never had the time to review insurance andindemnification sections, track certificates of insurance or verifytheir workers compensation experience mod (or modification factor).They are very grateful when they learn how important these thingsare and the impact they can have on their business.

Since most of these companies have never had a comprehensiverisk management plan, there is a lot of low-hanging fruit, andhence there are a lot of opportunities to be appreciated. From theperspective of the insurance agency, that appreciation translatesinto higher client retention levels and increased new business.

If the breadth of companies you can help as an agency riskmanager were the major benefit, then the depth of those serviceswould have to be the biggest disadvantage. I do not believe that Iwill be involved in setting up a wholly-owned captive anytime inthe near future.

Agency risk managers need to be careful to stay up on theirreading and conferences in order to ensure that their knowledge ofhigher-level risk management tools stays current. I think theexperience gained working with a multitude of industries andinsurance carriers more than makes up for this potential risk.

Anyone selling commercial property and casualty insurance shouldhave at least a cursory understanding of risk management, however,I believe in order for insurance agencies to truly be able toprovide risk management services for their clients, there will alsohave to be a help wanted sign in the window for risk managers.

Zachary Finn is a senior risk management consultant forHenriott Financial Services in Lafayette, Ind. He can be reached at[email protected]

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, November 26, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.