Today's carrier marketplace is quite diverse. While diversity among carriers provides agencies with opportunities to build a strong stable of carriers, it also requires them to more carefully investigate their carriers. Neglecting to do so can open the door to failure.

Some companies, even prominent ones, focus intently on growth and seem unconcerned with profitability. Many agency owners working with such companies become frustrated because their agencies can deliver profitability, but not the significant growth the companies demand. Some agency owners spend a lot of time and energy trying to explain the advantages of their profitable books, but to no avail. If you want to do business with a company that values growth over profitability, consider the following:

–According to A.M. Best, fast growth is the second-leading cause of carrier insolvency. Will a rapidly growing company be stable enough to meet the needs of your agency and its customers?

–Is the company growing without adequate respect for its loss ratio because it plans to cut expenses enough to offset losses? Companies that do so sacrifice the quality of their underwriting and claims service, and cut back on commissions. Do you want to expose your agency and your clients to such a bare-bones approach?

–Some companies focus sharply on growing certain kinds of business, particularly low-maintenance accounts (those requiring the least amount of underwriting and service and paying the lowest commissions). They push hard to grow their premium within their preferred niches and often forego other business. I am not sure this is a good strategy; it is easily copied, and several companies (State Farm and USAA, for example) who work with captive agencies have outperformed independent agency companies in this realm. The challenge for agencies is to supply enough of such business to keep the companies happy.

–If you still want to do business with growth-hungry companies, your best strategy may be to provide them with the type of business they desire. Give them all the unprofitable and price-based business they can handle, while you build even more profitable books with your other companies.

A lot of agencies are frustrated because they have fewer “one-stop shopping” companies–traditional national carriers that can write accounts of any size in any location. By my count, only six such national commercial-lines carriers are now available to independent agencies. Furthermore, some of these national companies are the ones that, from an agent's perspective, act most irrationally. Instead of fighting them, agencies should just move on. Either work with them as I suggested above or find a replacement.

All but the smallest agencies need one national carrier, and I encourage every agency to find one that suits its needs and personality. Otherwise, find a role for the one that best fits your agency so you have a market for accounts regional carriers cannot write.

The industry has always had many strong, high-quality regional companies, but some have been too small to write the kinds of risks national carriers wrote. Today, many regional carriers can write much more than they could in the past, and agencies have a variety of good regional company alternatives. Don't overlook this important option. Find out which carriers operate in your region and what capacities they offer.

Regional companies tend to focus more on loss ratios and strong relationships with their agencies than do their national counterparts. They typically are not big enough to hide mistakes, so they have to operate smarter and more carefully. As a result, they generally are choosier about their agents, which means agents need to maintain good loss ratios, good submissions and good personal relationships with them. Also, don't undervalue the importance of attending these companies' social functions.

Unfortunately, few regional carriers serve the Western and Gulf Coast regions. In these areas' less-populous states, many agencies would be happy to have a high-quality regional carrier and could make up in favorable loss ratios what they lack in volume.

Agencies may overlook small carriers, but they play an important role. Many are fine markets and some offer excellent specialty programs. They're usually not too demanding and tend to conduct business on a rather casual basis, relying heavily on trust. Their approach seems to be, “You take care of us, and we'll take care of you.”

Still, placing business with small companies requires care and caution. Some are misused or overextended, and I have seen some very small companies write risks they are not equipped to reasonably write and do so at unreasonably low rates. Tread carefully with such carriers.

Access to standard, admitted carriers through brokers has changed. By going through a broker, an agency now can access most, if not all, standard national carriers, and even some regional ones. Agencies taking such a route don't have to maintain their own relationships with the carriers just to assure they have a spot for one or two key accounts. Nor do they need to form clusters or sell out to gain access.

An agency maintaining a company just for a few key accounts instead could write those key accounts through a broker and move the rest of that company's accounts to other carriers. The move would please the other carriers, and the agency would no longer have to struggle to maintain adequate volume with a company that is not really a good overall match.

As with other carrier-selection choices, accessing markets through brokers requires caution. Carefully consider such factors as E&O exposures and whether an account written through a broker will receive the same company consideration as ones written directly through the agency. Potentially lower commissions are also an issue but not nearly as important as many agents believe. The difference is usually less than 20%, which, if used judiciously, can be made up elsewhere.

In some ways, agencies have fewer national carrier options than in the past, but they also have alternatives that more than make up for the dearth. Agency owners who hold on to the old mind-set about building a stable of companies are fighting the new reality. Those taking advantage of the expanded opportunities, on the other hand, will have better success. Proactive company management and agility are more important than ever, and the rewards are considerable.

Chris Burand is president of Burand & Associates LLC, an agency consulting firm. Readers may contact Chris at (709) 485-3868 or by e-mail at Chris@burand-associates.com.

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For The Manager: Agents have more options for working with carriers

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