Small Agency Sees Big Savings In RM

Some agencies might believe that adding a new account or keeping a renewal on the books is all about getting the lowest price for insurance. As the Grace Group sees it, however, that short-term outlook does the customer, and the agency, a disservice.

The answer, according to the agency's principal, is to think long-term by putting maximum effort into education and reform of the clients risk management practices. This approach is the only effective means of bringing the cost-of-risk down, said Ted Grace, head of the Little Rock, Ark., agency–one of four to receive an “Honorable Mention” in the National Underwriters inaugural “Commercial Insurance Agency of the Year” award program.

An agency with just 11 staff members that has only been around for six years, the Grace Group has a lot of ambition and one mission in mind–improving risk management at their commercial accounts so that, over the course of a few years, the overall cost-of-risk and insurance is improved through sound loss control.

“We take the long-term approach,” observed Mr. Grace in discussing his agencys philosophy, which has translated into $12 million of premium volume. “Yes, markets go up and down, but we talk about doing something about risk. Anybody can talk about cutting premium. We talk about lowering the entire risk graph.”

It is not an approach for those agencies and clients looking for quick results through lower premiums driven solely by whether an insurance market happens to be soft, Mr. Grace admits. Those customers simply do not fit into the agencys strategy.

Instead, Grace Group looks for clients willing to sign on for a five-to-10-year plan. This approach involves educating clients in controlling their exposures, and working through a process that might eventually result in dropping their cost-of-risk by as much as 20 points on a fundamental basis.

“We know it works–the education process, but it takes time,” Mr. Grace explained. “As an account grows in controlling their risk, they can move into taking larger deductibles and maybe a self-insurance program. But first we must get the risk management philosophy imbedded into the company. Then they will save millions of dollars over a period of years, if they are any size at all.”

The process begins with the agencys own employees, who meet each week to discuss risk and claims management challenges. The agency looks at each client's standard and unique exposures, identifying the methods to improve the management of those risks.

“Anybody can say I can cut your premium by 5 percent,” Mr. Grace noted. “We talk about lowering the [risk] graph properly. We do it from the clients side and our side, and lower the entire [cost] graph.”

After graduating from Georgia State University, Mr. Grace worked as an underwriter for Home Insurance Company. After getting this grounding and “a broad-based knowledge” of his profession, he struck out on his own.

However, from the beginning of his career as an independent agent, Mr. Grace held onto his underwriter's perspective. He said he always wanted to do more than just “peddle policies,” and maintained the view that by taking the initiative on risk management, he could develop programs that eventually would have a positive impact on the cost of his clients insurance.

The process of recognizing and controlling risk is more involved than an agency representative making regular contact with the client. It involves the use of technology, in-depth risk analysis, and working together to find loss control and coverage solutions.

As part of its loss analysis, the risk management process helps determine which exposures should be insured, and which could be self-insured or budgeted as a recurring expense. Where a client finds constant, unavoidable losses, the plan is to restructure their insurance package so that such anticipated losses are treated as an expense, accounted for either through a formal self-insurance program, or under a simple deductible.

“A lot of people forget that the intent of insurance is to cover catastrophic costs,” advised Mr. Grace.

The process then takes another step beyond risk analysis to the management of claims. A clients claim does not go directly to the carrier. Instead, a report is made to Grace Group personnel, who are available by pager 24-hours-a-day. Claims can also be filed directly with the agency over the Internet.

The purpose, explained Mr. Grace, is to keep the agency “in the loop” on the claim, and make sure everything is handled properly and promptly–from the filing of the report, to the adjuster's involvement, to the report to the carrier. The agency's online system is also used to report claims directly to carriers.

“The reason we are doing all this is that any given point can be a critical factor in the claim process,” Mr. Grace pointed out. “If we are not involved, and the claim goes south, it is hard to get it back on track, and that can polarize the relationship [with a carrier]. If we manage everything upfront, that lowers the cost in claims. Addressing a program that is custom-tailored to our clients needs results in lower costs down the road.”

To accomplish this, the Grace Group's Web site has to be more than just a static advertisement or electronic brochure. Clients can find an account diary of their claims available online at any time. There is also a claim “report card,” through which the client can track their claims history, see where their patterns are leading them, and use the information to work at preventing future losses. The site has an aggregation of data that can go back as far as 10 years over a clients history, Mr. Grace said.

In addition, to help increase the agency's exposure and educate both clients and prospects, The Grace Group takes to the airways to broadcast a monthly, five-minute television spot on Arkansas station Channel 16, called “Insurance Matters.” The spot, which is part of a weekly television show, “Talk Business,” produced by Roby Brock, advises viewers on events in the insurance world.

In production for more than two-and-a-half years, the Grace Group made viewers aware of the hard market before it arrived, as well as discussed the effects of the Sept. 11 terrorism attack on insurance, and the impact of the mold crisis on coverage and costs. The agency also keeps clients informed on insurance issues via newsletters sent by e-mail.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 23, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Small Agency Sees Big Savings In RM

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