Our industry has been compared to a three-legged stool--held up by carriers, brokers and clients. All three legs are intended to work in harmony so that our business remains healthy and vibrant. Competition is at the heart of our vibrancy, along with new revenue growth and the ability to provide clients with value.

Over the course of the past several years, however, an entirely new perspective has entered the competitive arena. The firms that have embraced it will prosper, while those that don't will sink into the abyss of price and commodity sales. This new perspective is the ability to differentiate based upon a quantifiable value proposition.

There are several reasons why this new business style has gained a tremendous amount of momentum inside the brokerage/carrier/client relationship. Here are just a few:

o The successful brokerage firms have evolved into substantially more than just insurance sales and service organizations.

This "Brokerage Darwinism" involves the ability to provide resource capabilities. The ability to deploy these resources and quantify their impact is critical to the consultative brokerage sales process being adopted by these quality firms.

o Carriers are beginning to see their resource capabilities as a "profit center" when offered to their broker representatives.

While in the past, services such as loss control and claims were considered overheads, astute carriers are repositioning assets to demonstrate a return-on-investment.

o While large clients have understood this for some time, now the middle-market buyer is awakening to their "True Cost of Risk."

These buyers are beginning to understand that in many cases, the smallest cost of their risk is the insurance premium. They are looking for representatives who can help them reduce their costs in many other ways.

Quality brokerage firms are using the TCOR technique coupled with a broker of record letter request as their main competitive strategy for these reasons:

o It allows them to compete on a highly profitable basis without wasting overhead on marketplace submissions.

o These brokers are able to select the right prospects/clients--those who understand and desire a value proposition.

o They are better able to build relationships with carriers that offer a value proposition which aligns itself with client solutions.

For the first time in the history of our industry, astute brokers are able to take the focus off the price of the commodity and put it back where it belongs--on their ability to help clients reduce costs that impact their balance sheet.

However, a dark shadow still looms inside our industry, weakening the strength of the three-legged stool. What is it?

It is the reluctance of some carriers to wholeheartedly endorse the "Brokerage Competition Model" and the broker of record letter method of competition.

Unfortunately, some carriers do not understand the importance of the BOR strategy for those brokers who know how to create a value proposition.

In the past several months I have heard a number of brokers express frustration in the responses their improved business style is receiving from their carrier partners. Here is what they are saying:

o "Our firm has an 80 percent hit-ratio on our broker of record letter sales, yet some of our carriers are complaining about seeing a lessening of our submission flow."

o "We recently were appointed the broker on a national account through a BOR. The carrier resisted the appointment because it was underwritten in a different territory."

o "Several carriers have expressed disdain for the broker of record method because it does not count for 'new business' on their books."

It is time for all of us to climb onto a "platform of value." The outdated commodity competition method will continue to make all parties victims of the historical insurance cycles. These cycles have nothing to do with the creation of client value--they are simply a function of commodity supply and demand.

The astute brokers who have adopted the consultative brokerage model are learning to compete with immunity to the pricing cycle. It is time that carriers follow these examples to get closer to their most profitable accounts. These accounts and their brokers understand the important difference between price, cost and value.

In the event a forward-thinking insurance company intends to position itself in the mainstream of these changing client and broker expectations, here are some of the ideas they must consider and adopt:

o Understand changing buyer expectations.

As clients become more financially astute, they demand more services from brokers. Carriers must position their resource offerings to work in tandem with those of their broker/agent representatives so that a transparent partnership will exist.

o Break down territorial barriers.

Buyers do not consider underwriting territories when selecting a broker. With the seamless adoption of technology, clients and brokers are able to do business across geographic boundaries. Underwriting territories are not part of the equation, but merely accounting methodologies.

o Select agents/brokers who understand value.

While there are thousands of licensed insurance agencies, there are a finite number of firms committed to providing resources and a TCOR value proposition. Carriers should focus their efforts on these firms, as they will provide an extremely high hit ratio.

o Expect more from broker/agent representatives.

When a broker/agent competes on a brokerage selection basis, they must demonstrate a superior service, resource and cost reduction formula--the same features that allow carriers to reduce their distribution costs. Carriers should work closely with the broker to harness this distribution and acquisition cost reduction.

o Understand their ability to provide ROI.

Many carriers list a great number of features, such as superior loss control, claims handling and specialty resources. Once a carrier understands how to quantify its impact, however, they are in a position to establish a long-term relationship that is not based on the price of the commodity. They become part of the client's business operation and cost reduction formula.

o Refocus the message to agents/brokers and clients.

Successful carriers must understand that their best agent/brokers are changing their business styles. While coverages and stability are still important, in a softening marketplace it becomes about differentiation through cost-reduction resources. These resources and their quantifiable impact should become the hallmark of a carrier's marketing materials and message.

The brokerage selection model is rapidly becoming the exclusive competition choice of quality brokerage firms and regional agencies. With its high hit ratios, lower acquisition costs and superior differentiation, the firms that have adopted it are reporting tremendous results.

It is time that the third leg of the stool--the carriers--joins clients and brokers in making this process the cornerstone of value in our industry.

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Three-Legged Stool Will Make Or Break Insurance

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