Everybody in our industry has heard of the professional designations such as CPCU, CLU and CIC. But I'll bet that nobody has heard of the Insure and Ignore Club. The I and I club is not exclusive; it does not require any testing or special qualifications save one, and that is the belief that agency responsibility ends when the application is completed and the down payment is received. Members of the club leave all servicing responsibilities and relationship building to the insurance companies they represent. After all, avoiding these responsibilities leaves more time to sell more policies. Although this may sound funny to you, don't laugh; you may be surprised how many insurance agencies are members of the club.
In my completely biased opinion as an expert witness, the agents reading this article are by definition not just lucky, but great. The prima facie evidence for my opinion is the fact that you are reading this article to keep up with our rapidly changing industry. It's been almost 2 years since I began to write articles relating to E&O issues in this magazine. In that time, I've written on such topics as the duty to follow instructions, the duty to procure, reasonable care and diligence and the significance of special relationships. All of these issues deal with the external relationship between the agency and its clients, and the insurers the agency has agreed to represent.
I believe that no successful insurance agency that has managed to avoid the angst of litigation has done so without careful planning and foresight. My agency was one of those agencies that never had to deal with litigation over a 30-year time span, and I can assure you that it wasn't because we were lucky.
Have you spent as much time planning your internal relationships and agency workflow and leadership issues as you have with your external dealings? My definition of internal interactions is how you deal as an agency manager or principal with producers and other key employees of the agency. Workflow and leadership refer to how effectively your agency functions.
In the "good old days," hiring producers or customer service people, especially those without experience, was simple. When I started in the business, I was handed a telephone book as a list of prospects and told to start calling. Similarly, the practice of parking service staffers at a desk and hoping they learn by osmosis is just as out of date. These days it is far too expensive and difficult to get new hires off the ground without giving substantial support and education.
Okay, you are a forward-thinking agent and agency leader. You encourage education for both producers and service staff. The agency avails itself of the latest prospecting services and is a good corporate citizen and a leader in the community. Your efforts are producing results: you're producing new clients on a regular basis.
There is no basis for satisfaction if you cannot remember the last time you reviewed your agency agreement or the agreements that you have with various members of the agency team. Are your agreements updated and reflective of today's legal environment? Are you maximizing all of the benefits that you have in your agency agreement, particularly as it relates to binding and claim settling authority?
If your agency retention rate and lapse ratios seem to be much higher than they used to be, you may unwittingly become a member of the Insure and Ignore Club.
The following statistics are taken from the growth and performance standards text published by the National Alliance Research Academy. The average retention ratio for both small and large agencies across the country is approximately 88 percent. When you apply this statistic to the day-to-day operation of your agency, that means you have to replace 10 percent to 12 percent of your agency revenue every year. That means you are running very hard just to stand still. Even more shocking is the fact that national statistics indicate that approximately 75 percent of all agencies have their clients report claims directly to the insurance company.
I think all insurance pros would agree that the insurance business is a relationship business, and building successful relationships is a key factor in building a successful agency. By encouraging agency clients to report losses directly to the insurance company, the agency is depriving itself of the prime opportunity to build agency client relationships. I do not have actual statistics, but my intuition and experience leads me to believe that the retention ratio of the insurance companies you are entrusting to handle the servicing your clients is not very attractive
In my own agency, we maintained a 95 percent plus retention ratio. I attribute that success to encouraging our clients to report all claims, big or small, to our office, and by maximizing the claim settling authority that was contained in every agency agreement we had. Having all claims reported to our office gave us the opportunity to interact with our clients at a crucial time. By maximizing the use of our claim settling authority, we were able to settle almost 50 percent of first-party claims on our own. In case you think it would be too expensive and time-consuming to do this, consider the benefit to your bottom line if your retention ratio increased by 5 percent to 7 percent, which is what I experienced at my agency.
This subject matter may seem to be drifting away from my assigned subject of errors and omissions issues, but actually it's right on topic. Satisfied producers and staff go a long way toward having loyal and satisfied clients. Disgruntled clients are prime source of litigation. Common sense dictates that if you improve your internal relationships with producers and staff, you create a potential win-win situation, higher retention ratios and less exposure to litigation. Every insurance agency has enough problems coming in the front door without creating problems that come in the back door. We are all insurance professionals whose main task is to manage risk. After a lifetime of building an agency, why endanger your most valuable asset by failing to maximize all of the tools and skills you've gained over the years to manage the risk relating to your own agency?
