Following more than 35 years as a senior executive with four different P&C insurance organizations, including serving as CEO, I was offered the rare opportunity to run a midsize independent agency in northern Indiana. Although I had relied heavily on my grasp and knowledge of independent insurance agencies in building successful insurance companies, I didn’t realize how little I actually knew about life at the agency level.
After two years in my role as president & CEO of the Silveus Insurance Group’s P&C division, I feel as if I have completed an MBA degree in insurance-company operations. While some of my experiences have been affirmations of approaches I had experimented with in my years at carriers, other lessons have shown me that the importance I once placed on certain agency-company interactions was far greater—or smaller—than what is truly required or desired by agency principals and their organizations.
My recent experience has given me a heightened awareness of what agencies need and expect from their company partners. I have developed a lengthy list of “dos and don’ts” that, given the opportunity to return to the ranks of insurance-company executives, I would immediately implement—and I firmly believe these changes would fundamentally alter for the better the company’s strategic relationships with its independent-agency partners. Oh, to have been given this opportunity much earlier in my career.
In what follows, I describe 10 key imperatives I believe every P&C company’s senior strategy team should consider adopting or avoiding to one degree or another. They are the result of my having now lived the life as their agency customer, infused with my heritage as an insurance-company executive.
Imperative #1: A Coke, Smoke and Joke: Marketing Representatives That Waste Our Time
We average no fewer than 65 visits a year from carrier personnel, with each visit generally lasting at least one hour. I would venture a guess that 90 percent of those 65 hours would have been better spent watching grass grow or paint dry.
In the past two years, not once has a marketing representative brought a list of submission activity from our agency—and worse yet, not one has been able to discuss the topic once we presented our submission log to them.
In 100 percent of the cases, they brought with them their most recent production report for our agency—which we received in the mail or via email several weeks prior.
On precious few occasions have the company representatives been prepared to advise us of specific classes of business written in the past 90 days in their respective territory. In nearly all cases, however, we were asked what classes of risks we were successful in writing.
I can count on one hand the number of visits from marketing reps or underwriters who arrived fully prepared to look at our new business prospects and upcoming renewals and engage in underwriting and quoting while in our office—or make a commitment to do so in the upcoming days and weeks. I could go on with describing the absolutely meaningless nature of the vast majority of visits from company personnel, but I won’t.
Suffice it to say that I have found the agendas of such visits—when there is one—to be one-sided monologues of information we already have; recitations of the company line and upcoming rate changes; and expressions of satisfaction or dissatisfaction with our production results. What I have not seen with any meaningful frequency is a roll-up-your-sleeves session where the company rep is willing and able to get into the weeds and help us write business.
Imperative #2: Say What You Do, Then Do What You Say
Few companies adhere to this most fundamental need of the agency. Their malfeasance comes in two varieties.
First, they claim to be generalists and willing to entertain risks across a broad spectrum of classes. However, they fail to send that message to the front lines where a “hidden” list of dos and don’ts is found tacked on their underwriters’ cubicle walls.
Second, and perhaps more insidiously, companies will provide their agents a list of classes of business in which they consider themselves players—and want to encourage the agency to submit risks in those classes. But when the agency does so, it learns that the carrier really only writes risks meeting other unpublished criteria or prices these risks so uncompetitively that the business is not marketable.
So my advice to carriers: Be very clear in defining your appetite.
One clever method I have seen employed is the use of green lights (willingly write competitively), yellow lights (write only the risks meeting other criteria, or which are best-in-class, or at prices which may not be competitive) or red lights (will not write under any circumstance).
And be sure to communicate this appetite broadly and consistently, both externally and internally—and monitor your underwriters’ compliance therewith.
While having a broad, competitive appetite will give carriers the greatest opportunity to grow within their agency partners, having a more selective appetite will still stand them in good stead, but only if: 1) it is applied consistently; 2) they offer comprehensive and unique coverage enhancements; and 3) their pricing is competitive.
And a caveat is in order: If a carrier has mastered the “selective appetite”—but is forever adding and deleting classes and underwriting criteria to and from it—they will have gained nothing. Agency personnel will remain confused and uncertain about what the flavor of the month is.
Imperative #3: Just Because You Want an Organization with ‘Silos,’ Don’t Expect Your Agencies to Buy the Farm
We have a contractual relationship with a very large Fortune 100 insurer that shall remain nameless. Actually, let me correct myself: We have five contractual relationships with that insurer. At this carrier, we have five marketing reps and five underwriters: one each for personal lines, small commercial accounts, midsize commercial accounts, large and specialty commercial accounts, and Agribusiness accounts.
We have five profit-sharing agreements, none of which acknowledges the presence of our total relationship.
Although we write in excess of $1 million in premiums with this carrier, we were recently notified that one of the five contracts was going to be cancelled due to lack of satisfactory production.
It has become more common for carriers to silo personal and commercial lines internally, and I understand the need to do so.
However, I do not see the need to have two marketing reps calling on the agency. Nor is it acceptable to separate personal-lines from commercial-lines production for the sake of profit-sharing eligibility. I cannot stress this point enough.
For example, we represent another quality carrier that has established a $500,000 premium threshold for personal-lines eligibility and a $500,000 premium threshold for commercial-lines eligibility.
In total, we write $1.2 million in profitable business with this carrier. Unfortunately, $900,000 of our volume is commercial lines and only $300,000 is personal lines. Despite the fact that we have delivered $1.2 million in very profitable business to this carrier, we receive profit sharing only on $900,000.
Fortunately, carriers parsing business in this manner for profit-sharing purposes are an exception and not the rule.
I understand that there are generally good reasons for designing a carrier’s organization around macro-business segments, processing demands and strengths of personnel. But it is critical that carriers present to their agency partners a single face (and profit-sharing agreement)—both literally and figuratively.
In our agency, there is a direct correlation between the carriers with which we have superb relationships and their understanding of this critical element in carrier-agency interface. And superb relationships will always yield greater results for all concerned.
Imperative #4: Speaking of Profit-Sharing Agreements, Did You Hear About the One Designed by an Actuary and Written by an Attorney?
Carriers should ask themselves: “Why do we offer profit-sharing agreements to our agencies?” The answer is self-evident, or so it would seem.
Insurance companies desire profitable growth from, and a meaningful share of the business produced by, their agencies. Therefore, they offer agencies an incentive to do just that.
From the agencies’ perspective, those agreements represent a major opportunity to generate significant revenue with no associated marginal expenses.
In our agency, we attempt to calculate potential profit-sharing commissions each month on a trailing 12-month basis. We certainly do not want to approach the fourth quarter without an awareness of our position with each of our carriers. To the extent that we can direct business without sacrificing our clients’ best interests, we do so.
It is necessary for us to perform these calculations because none—I repeat, none—of our carriers provide interim profit-sharing projections throughout the year.
So lesson No. 1 to carriers: If you want your agencies to produce the kind of results you are incentivizing with your profit-sharing agreement, shouldn’t you provide them with regular updates throughout the year?
That disappointing oversight notwithstanding, lesson No. 2 is even more significant than the first lesson.
Our agency has 19 profit-sharing agreements offered by 14 contracted carriers. They range from one page to 13 pages in length. While the length of the agreement may be an indication of its complexity, that isn’t always the case.
If agencies are unable to project profit-sharing results from monthly production and experience reports provided by their carriers in a relatively straightforward Excel spreadsheet, then (coupled with the fact that carriers are not providing interim projections) these incentives are powerless to cause desired behaviors. They simply become “cross-your-fingers” lottery payouts.
Carriers should test their profit-sharing agreements for simplicity by asking one of their staff members—a staff member with 1) no more than a basic understanding of Excel; 2) a copy of the carrier’s monthly production and experience reports; and 3) no advance knowledge of the agreement—to calculate an agency’s projected profit-sharing results on a trailing 12-month basis. If he or she is unable to do so, determine why that is the case and then simplify your agreement so that he or she is able to do so.
Imperative #5: Trying to Take the Easy Way Out Will Work—If You Don’t Get Caught
I’m not going to spend a great deal of ink on this lesson because I have not seen widespread deployment of this cowardly practice.
It is referred to by some carriers as “Share Shifting,” but it goes by several different monikers. And it is perhaps the most one-sided strategy yielding one-sided benefits used by several otherwise successful insurance carriers that I have encountered.
Simply described, such carriers seek to grow their books with agencies by encouraging agency principals to move existing books from other carriers with accompanying commission-rate enhancements. They have adopted this as their primary marketing strategy and lead every meaningful dialogue they have with agency managers with the topic.
I certainly understand the benefits derived by the carrier. They will inherit controlled business which is generally more profitable than business new to the agency. And their growth within the agency will not be a function of the agency’s ability to grow its overall book of business.
However, they fail to realize or choose to ignore the fact that the agency’s primary objectives are to grow its book of business by high retention rates and a steady stream of new accounts—and to move existing business from one carrier to another only when it is in the best interest of its client.
Generally, other than a couple of points of additional commission, there is no benefit to the agency—and in fact, the process generates additional expense in moving the business, thereby offsetting the additional commission revenue received. There is no benefit to the agency’s client unless their coverage is enhanced or price is lowered, in which case the movement would likely have occurred without a deliberate share-shift in play.
Imperative #6: Remember, Agency Principals Have a Company to Run—and It’s Not Yours
I would be remiss if I didn’t express my utter disgust with the nearly universal practice of carriers that annually send their marketing representatives in to see agency principals asking for a production goal for the upcoming year.
This process originates in the home and branch offices of carriers where dictates are issued to marketing personnel to set goals for each of their agencies for their internal goal-setting exercises.
My primary responsibility to the shareholders of our agency is to profitably grow revenues. To that end, our staff spends considerable time crafting strategies and objectives and projecting estimated outcomes for the agency and each producer for the upcoming year.
We do not—I repeat, do not—attempt to parse those projections among the carriers we represent. Where that growth lands is a function of carrier appetite, product offerings, price competitiveness, ease of doing business, and the quality of the interpersonal relationships between carriers and the agency. And those criteria change year to year (and often week to week).
Establishing carrier goals for the agency benefits the carrier, not the agency. What benefits the agency are carriers that seek to learn the agency’s overall goals and the strategies underlying the achievement of those goals, and then suggest the ways that they can be of help in the agency’s future success.
Based upon that process, the marketing representative should be in a position to project production from his or her agencies in the upcoming year to report back to their superiors. But don’t ask me to do it for you.
Imperative #7: Is Your Agency Appointment Strategy Well-Defined and Comprehensive, or Does It Lead to Shotgun Weddings?
In the past 24 months, our agency has either pursued or has been pursued by prospective carriers on 11 occasions. In those instances where we were pursued (six times), the carriers’ marketing representatives never satisfactorily explained why entering into a contractual relationship with our agency was a mutually beneficial union for both parties.
In all 11 instances, only three times did the carriers’ representative ask to see our business plan—or attempt to learn where their company would fit in our current and future class-of-business concentrations.
But what I have found most disturbing is how little in-depth underwriting of our agency was performed and how seldom marketing representatives were able to differentiate their employer from our current stable of contracted carriers.
When I have inquired as to the profile of successful agencies contracted by the prospective carrier (which I routinely do), none of the marketing representatives have been able to articulate an acceptable response.
Our agency reviews and seeks to improve the quality and breadth of our carrier partners on a quarterly basis. We do so in a formal and deliberative process—and we expect the same from carriers that come courting us. We are still waiting for a meaningful courtship, having experienced too many requests for shotgun weddings.
Those carriers that employ a well- defined strategy in building their distribution network and utilize highly deliberate criteria and processes in agency selection have my profound respect. They often “pass the test” in other agency-company practices as well.
Those that sign contracts with any Tom, Dick or Harry generally fail the test of building a long-term and productive agency relationship. Company executives who decide to approach distribution in this way appear to place no real value on their contract. Why then should I place value on contracts with these carriers?
Imperative #8: Ease of Doing Business Is Important—But Not as Important as You Believe
From time to time, I pass a motel advertising air-conditioned rooms or colored TVs or both. Offering “amenities” that the buying public expects or demands is a poor way to differentiate one’s business.
And so it is with insurance companies that tout the fact that they are easy to do business with. With the technology available today, being easy to do business with should be the norm. And the fact is: Most carriers have conquered this business necessity, though with varying degrees of success.
The message here is that “ease of doing business” (EODB) is a necessity, not a luxury. If your company expounds on its leading-edge EODB as its primary differentiator from its competition, you need to go back to the drawing board. If your company’s EODB score is low, you will have only one saving grace (see #10).
Imperative #9: Now Turn to Page 57 in Hymnal 13
I’ll take just a minute to recite something that managers and leaders of organizations in all walks of life learned in Management 101: When messages flowing down from the executive suite are meaningfully different than those wafting up from the grass roots, customers are confused, frustrated and often turn elsewhere to do business.
In my time in the agency ranks, I have experienced too many disconnected messages from companies. Carrier executives must create internal processes in which managers, marketing representatives, underwriting personnel and their contracted agency personnel all sing from the same hymnal. Otherwise, the perception will exist that the company is not well-managed, and its credibility will suffer within its distribution network. A fractured relationship will not be far behind—and desired results will suffer over time.
Imperative #10: Don’t Forget to Put an Underwriting Department in Your Company
Of course, carriers haven’t forgotten to include an underwriting department in their company; it just too often appears that way to an independent insurance agency. Why?
Agency principals universally agree on several points. First, they really want to do business with as few carriers as possible. The time and effort (and therefore expense) required to do business with multiple insurance companies increases linearly with the number represented.
Keeping track of various submission processes, reporting and remittance requirements, quoting systems, and so on requires an inordinate amount of energy. Also driving this desire is the need to maximize profit-sharing opportunities, which is infinitely simpler and more lucrative when there are fewer mouths to feed.
Secondly, agency principals are compelled to assure to the greatest extent possible that they have markets that will write the classes of risks they pursue on a regular basis (without continually turning to wholesale brokers at a reduced commission).
The solution to achieving an acceptable balance between these competing needs requires contracting with a relative handful of carriers that actually underwrite on an account-by-account basis.
Such underwriting places a greater burden on the individual ability of the members of a carrier’s underwriting staff. As such, it requires more precise selection of underwriters, better training regimens and strict auditing of accounts written.
Unwilling to succumb to this burden, the majority of company executives have tied the hands of underwriters. They have institutionalized what can be done, what cannot be done and what discretion, if any, underwriters are permitted to exercise.
What results from the myopia of class underwriting, however, is that many companies are chasing the same low-hazard, vanilla accounts as all other such companies, taking those accounts away from their competitors and driving the prices lower and lower.
And the ensuing, unacceptable underwriting results from their underpriced, vanilla book of business are exactly what they were attempting to avoid. True underwriting requires the exercise of well-trained judgment—not the ability to read the “Can’t-Do Bible.”
Finding the best-in-class risk in a difficult class, or risks in unserved and underserved classes, allows a carrier to get a premium price and improved retention because there simply is less competition for such risks.
I have discovered that there are carriers with true underwriters handling accounts in certain class niches. In all other classes, they are strictly by the book. As a result, many agencies are compelled to contract with more carriers than desired in hopes of covering as many bases as possible.
This imperative trumps all of the others: Give me a true underwriting company with a reasonably broad appetite, and I will tolerate every other shortcoming cited.