It’s a good time for independent commercial agents—a good time, that is, for those who love navigating around some daunting obstacles: a seemingly endless soft market; the continual problems associated with attracting and retaining talent; clients with increasingly global insurance needs. The list of business challenges is both long and constantly growing.
To hear how some of the country’s top-performing independent commercial agencies are dealing with today’s tough competitive environment, we invited the three winners of the National Underwriter/American Agent & Broker Commercial Agency of the Year Awards to a roundtable in New York where they could share their insights—and some of the secrets of their continued success.
The three participants—Richard Bartlett, principal in charge of the Philadelphia office of Bartlett & Co.; Robert Dietzel, managing partner and co-founder of KMRD Partners in Warrington, Pa.; and Greg Collins, president and CEO of our Grand Champion, Bellevue, Wash.-based Parker, Smith & Feek—fielded questions about existential threats, the current state of the market, competing against publicly traded brokers, growth strategies, tactics for attracting new business (and keeping existing clients) and much more.
The roundtable was hosted by Bryant Rousseau, NU’s editor in chief.
BRYANT ROUSSEAU: Let’s start with a nice, gloomy question. What are your biggest worries in terms of emerging trends with the potential to have a seriously negative impact on independent commercial agencies? What keeps you up at night? What is the existential threat lurking out there?
ROBERT DIETZEL: My biggest fear is a sudden change in the marketplace. I’ve been through one—a sudden hardening. The myth out there is that insurance brokers make more money when the market gets hard. But when you are focusing on accounts of our size and the transparency of revenue, you are working a lot harder for less, honestly. And do my employees have the capacity—not only the time, but the energy—to deal with a sudden change in the marketplace? The impact of a real hard market on the capacity of my folks’ ability to add value is scary to me.
ROUSSEAU: The fear of a sudden hardening—the perfect segue to my next question. Where is the market right now in terms of pricing? Have we hit bottom? Is it starting to harden?
DIETZEL: We call it a hypocritical market, and what I mean by that is when there is new business on the street, there is still a tendency among carriers to throw out rational price models. So we’re still seeing some significant reductions—though there are fewer examples of this than there were a year ago.
For existing business, those accounts that have had losses are absorbing rate increases. Those accounts that are clean are not getting more than 5 percent deductions.
GREG COLLINS: I completely agree with Bob on the hypocritical part. Every carrier is still looking to expand market share, and in order to differentiate yourself today, you still have to be competitive on price for a piece of new business. We know the carriers are talking more about trying to hold the line on some of the renewals, but we are still seeing on average a 5 percent decline.
So from the rate standpoint, it still remains a very difficult market. We expect to counter that [with an approach] where the fee for services is primarily what the compensation structure is, so as not to be so dependent on the rate premiums.
ROUSSEAU: With rates for new business being so attractive, how do you prevent accounts being “poached” by new brokers who say they can get a client a better deal on premiums?
COLLINS: Our account retention has been 96 percent, historically. So fortunately, the majority of our biggest clients have been with us for a long time—they’ve gone through other soft markets with us. They have grown up with us. So they are not as susceptible to being [enticed] by another broker who calls and says I can take 25 percent out of your premium—which is true, they can do that.
ROUSSEAU: In these tough, extremely competitive times, what are the biggest advantages of being an independent broker versus a large, publicly traded one?
COLLINS: It is a great time to be an independent broker. We don’t have to meet the requirements that a publicly traded company does, which gives us an advantage. We can look into the future, settle for lower margins and make investments in our company [without the pressure of quarterly earnings reports]. There is going to be a lot of dislocation in this business, and we’re going to see more opportunities for really good people to come the way of the independent broker.
DIETZEL: Small has served us well in this market. As you said, Greg, the larger brokers are trying to manage their margins. There is a lot of consolidation going on out there. Some agencies have actually changed their names four times in the last five years. I just want to be able to be their business-card printer. This [turbulence] is good for a very stable agency like ours.
Also, we can make longer-term decisions because we are in control of our own companies. We can take advantage of some of the market changes that maybe a national broker can’t—because they have to make sure stockholders are happy.
DIETZEL: I like to describe our company as “we sell insurance to people who use it.” With our clients, there is a frequency of claims—and we can add a lot of value in the claims-management piece.
RICHARD BARTLETT: Working in the middle-market arena, we’ve differentiated ourselves from other regional firms in terms of our global accounts—being able to be on the ground to service our clients where they do business. We have a footprint in four continents around the world. Focusing on the middle market also presents opportunities because these types of accounts may not be as well served by the bigger national brokers. We can offer a tailored service to meet their needs in innovative ways.
ROUSSEAU: How are you attracting new business? What’s working to develop relationships with prospects you’d like to have as clients?
BARTLETT: On cold prospects, we have come up with a video-marketing idea, which is different and gets people’s attention. We are running these video campaigns along industry lines, targeting different niches. For example, prospects in the technology sector would receive a personalized card with a “pick-up code.” They go to a unique URL, they put in the code, and they will be greeted with my smiling face and a pitch. In the video, we’ll bring in testimonials from clients, and we’ll look to the carriers we’re working with to use them in some of the campaigns if we’re doing this as a joint partnership.
ROUSSEAU: And you also offer prospective clients free audits of their insurance programs.
BARTLETT: Yes, if we feel there is a good fit between us and a prospective client, we will offer them at no cost an audit that will highlight any gaps in coverage and whether we believe the pricing is right.
ROUSSEAU: What is at the top of your clients’ list of emerging risks they are concerned about?
COLLINS: Cyber-liability is the number-one issue we’re talking about. There are a lot of different forms and offerings. Probably the biggest issue for our clients is going through the application process and understanding how their own systems are set up. And then there’s the risk management they need to start developing in order to cover the loss-control aspect. Buying the coverage isn’t as much of an issue as clients beginning to develop their own systems internally to manage their own exposure.
DIETZEL: We tell folks if you don’t buy the cyber-liability product, then [at least] go through the application process. It is not that hard—there is usually a two-page questionnaire with 25 questions. We find that many times, the CFO gives it to the IT department—and five out of 10 times, in answering the questions, our customers will find vulnerability in their system that can be fixed very inexpensively.
We are spending a lot of time educating clients on cyber liability—not educating them that it is a risk because it is in the paper every single day. Everybody knows it is scary and expensive. But what they need to understand is how it may impact them and what is covered and not covered. So we say, let’s break down the general-liability policy and understand what’s tangible property versus intangible property. Data is intangible property and not covered.
On the property policy, carriers are doing a great job eliminating that risk. So once clients understand data is not covered, then we say let’s focus on how do you mitigate the risk and is it worth insuring.
ROUSSEAU: While we’re on the subject of specific lines: For a while now, there has been an expectation, or a hope, that demand for environmental coverage would skyrocket among business clients—and that brokers would see a surge in new business as a result. What is your assessment of the current appetite for this coverage class?
COLLINS: I don’t think commercial clients have any greater appetite for environmental coverage today than they did seven or eight years ago. There are probably seven or eight carriers that do an outstanding job in environmental. It is a crowded marketplace. For contractors, most of our clients now buy pollution liability. That’s more typical today because of the cost of the coverage—and the breadth of the forms is much better than it was five or six years ago.
ROUSSEAU: Has the construction market begun to turn at all, or is it still a tough market?
COLLINS: No. That’s our biggest concern. That’s 30 percent of our business. Most of our major contractor clients have revenues of half of where they were three or four years ago. For the first time now, we are seeing in renewals that they’re projecting revenue increases for the coming year—but not nearly where they were in 2007 or 2008. In the Northwest it is going to be a while before commercial construction comes back.
ROUSSEAU: For independent agents with a personal-lines focus, the ability of consumers to buy insurance direct from carriers such as Geico and Progressive has presented a serious business challenge. But what about on the commercial-lines side—are you at all worried that certain commodity-type commercial products could be made available directly online? Or are you really not concerned that you could start to lose some commercial business to a carrier that aggressively tries to adopt a direct model?
BARTLETT: In the segments of the market we work in, the upper-middle market, the CFOs we’re working with value us for the advice we’re providing—not just simply for insurance policies. So I can’t foresee that the independent broker or agent will be taken out of that process. At the lower end of the commercial market, it is probably inevitable that more of the market will be taken to direct online platforms.
DIETZEL: Our target market is not buying a commodity from us. They’re buying advice on risk. And risk is not just insurance. If you allow even a small-business owner to buy his own insurance, he will make mistakes. When I do look at personal-lines policies for any business-owner clients of ours, I’m ashamed of what was sold to them on a direct basis. Business owners don’t have the time, nor can they understand the importance of certain coverages, to do this work on their own. If we encounter a prospective client who is looking to buy a commodity, we will very politely walk away and introduce them to somebody who sells in that way.
DIETZEL: Limiting yourself to either folks just out of school or folks with insurance experience for that account-manager position is not a good idea. We don’t: We recruit from all industries that lead to having a detailed orientation—engineers, CPAs. And we show them that in this business, the sky is the limit.
For those who know how to delegate, know how to do the detail work and really have the intellectual curiosity that it takes to be a coverage expert, we tell them that our account managers have the same earning power as our producers.
People still think an insurance career means wearing polyester suits and doing door-to-door sales. It is not that. It’s sophisticated. It’s touring plants. It is meeting different people in different industries and helping them manage their risks. Just with the education piece of what insurance is, we can do a much better job of it.
ROUSSEAU: What can carriers do to improve their relationships with agencies? What would you tell them to do differently?
COLLINS: Our competition every day on the street is the publicly traded brokers. We don’t mind at all competing on an equal basis, but it feels like we’re moving to a situation where there are two classes of citizens. There is the carrier approach to the national brokers and the carrier approach to the independent brokers.
We don’t want an advantage in competition, but we don’t want to be disadvantaged either. So there is one thing carriers can do: Whatever decisions they make, and however they work with their broker partners, let’s focus on what is in the best interest for the about bringing value to the client, it becomes about how you generate and capture revenue at the broker basis. We’ve just got to stay away from that. That’s not client-friendly.
DIETZEL: We like the carriers that communicate often. If they have a particular appetite or are solving a problem that they identify in the marketplace with new coverage, more education is better. We like to say the squeaky wheel gets the grease. Water flows to the path of least resistance. The more we understand how a carrier operates, what the carrier does—so we can read each other’s minds at the end of the day—they are going to get more business.
I am a little bit fearful [of some of the ramifications of] the soft market. We’ve seen things said like “we closed 16 claims offices to serve our clients better.” I fear [statements like] that. As carriers are trying to get a profit, the first things they go to cut their expenses in are the most important services out there: loss controls and claims. We’re looking at that real closely and monitoring that and trying to stay away from the carriers approaching that type of model.
BARTLETT: Some carriers still don’t do things electronically, which is a surprise. If you ask for an electronic policy, I am always amazed: “Really? You can’t issue that electronically in a simple format, making our life easier in terms of efficiency?”
ROUSSEAU: All three of your firms do business around the globe. For an agency here in the United States that wants to expand its international presence, what advice can you give in terms of successfully developing a multinational footprint?
COLLINS: We have clients doing business in every region of North America and on six continents today. It starts with having somebody in your office who has some experience in international business. It isn’t overly complex, and there are a number of carriers doing an outstanding job in being able to help you place international business.
But after that, then you need to work to develop correspondent relationships on other continents with other countries. If you have a client that goes to India, then you need to have the correspondent relationship to do the admitted business there. You need a contact in India—another broker you can trust and have confidence in. Organizations like the CIAB [the Council of Insurance Agents & Brokers] can be helpful in identifying [partners].
DIETZEL: Often people are surprised that this little firm in Pennsylvania has what we believe is a very good model for handling international business. But you have to be able to do it in today’s world. Every client is international, especially with the use of the Internet. We have customers with manufacturing operations in mainland China, Australia, India, Sri Lanka, South Africa, the U.K.
The art of international insurance is making use of good, strong correspondent brokers in the field who can educate you on the types of coverages that may not be available in the United States. We’ve been successful by partnering with correspondent brokers overseas. They want to do a good job. They want additional accounts to be referred to them.
Having that strong relationship overseas simplifies the communication process. The insurance terms are different, and being patient and simplistic in your communications overseas is important. Ask questions when they use terms that you don’t understand: “What do you mean by that, ‘pure financial loss?’”
But the first thing I would tell people is don’t overcomplicate it. It is a small world. Microsoft is everywhere.
ROUSSEAU: As our award winners, other agencies and brokers will be looking to you for advice and leadership. How would you sum up the essence of what makes your firms so successful? What would be the best advice you could give to other brokers?
DIETZEL: Give great people better tools. And what I mean by that is those tools have to make them efficient and more productive so they can have the time to do what they want to do, what they like to do—like tackling a disaster-recovery plan for a client.
COLLINS: Hopefully, a lot of businesses will trend more back toward value creation as opposed to wealth creation. This focus on wealth creation is part of the reason we are in the situation we are—because people got away from making products and providing services to generating wealth.
The other thing is what we always talk about: Find out what your culture is, who you are, then run your business to manage that—to work with that culture such that you never put your employees in a position of having to act in conflict with your culture.