If you are thinking about obtaining a new carrier, consider a few important points before you proceed.
Do you need another carrier? Many agencies seek new carriers just because they like the idea of having another one. Or perhaps they just want to add to their plaque collection. (Seriously, I have seen agencies display decades-old company plaques on their walls.) Others approach company representation the same way some people take medicine: If taking two pills every four hours helps relieve pain, then four should totally eliminate it. Likewise, if having 10 carriers is good, then 20 must be better.
Other agencies suffer from the-grass-is-always-greener-on-the-other-side-of-the-fence syndrome. Of course, the grass sometimes is greener with a new company, but sometimes it is not. Good due diligence will indicate whether an agency will be well-served by entering into a relationship with a new carrier, but many agencies don't perform due diligence.
An agency should pursue a new carrier only when it has clear, specific reasons for doing so. Here are some questions to ask before proceeding:
Can you give a new carrier sufficient volume without damaging your relationship with the good carriers you already represent? Agencies should heed the adage, "A bird in the hand is worth two in the bush" and take on new carriers only if they believe the positive results will outweigh the negatives ones–and there likely will be some negatives consequences. Even the new carrier will want to know if doing business with an agency will damage the agency's relationships with its current companies–although whether the carrier asks this question is another issue, and whether it accepts the agency's answer at face value is still another.
Agencies must confront the volume/relationship issue for two reasons. First, carriers prefer not to deal with agencies that regularly move their business from one company to another. If an agency can show a solid plan for producing enough new business and demonstrate that it moves accounts only for specific reasons (such as because the agency has lost a carrier or because an insurer is no longer competitive), the company will be more eager to plant with that agency. Second, strong companies tend to appoint agencies that grow organically rather than those that resort to desperate measures for quick growth. A carrier's attention to such matters can help agencies determine whether they should do business.
What carrier do you need? Once you determine that you really do need a new carrier, the next step is to identify the one that best fits the agency's needs. A common mistake is chasing the latest hot market. Our research into company stability shows that hot markets often are also rocky markets. By the time an agency gets up and running with a hot market, it may have turned cold. Therefore, the primary consideration should be the agency's long-term needs, like the desire to enter a particular line of business or to better diversify the size of the companies the agency represents.
If, after answering the three questions above, you are fortunate enough to have more than one carrier on your prospect list, determine which characteristics an insurer must possess for your agency to achieve the greatest success with it. For example, must it be highly automated? Must it direct bill? Must it pay good commissions? Must it pay good bonuses? Must it have good field underwriting? (For more information on carrier characteristics, see my column in the November 2005 issue of American Agent & Broker.)
The plan
Once you've determined the best carrier for your agency, you need to develop a carrier acquisition plan. A key part of it will be creating a "prospectus" designed to persuade your target company to appoint you. Here is an outline of the points it should cover:
A. How the agency will help the carrier achieve great results with little extra effort.
B. The agency's future direction and growth projections.
1. Projected growth.
2. Spread of risk/loss control.
3. Whether the new carrier gets its choice of new business.
C. Current carriers.
1. Why the agency is happy with each one, and, if applicable, why the agency is considering moving any books.
2. Provide a chart showing the results with those companies.
3. Explain the reasons why the agency needs a new carrier.
D. Loss ratios.
1. Explain all loss ratios above 55% or 60%. State what loss ratios you expect to achieve in the future.
2. Recalculate all loss ratios for stock losses.
3. Explain what the agency has done to improve loss ratios, if applicable.
E. What the agency is looking for in a new company.
1. Stability.
2. Competitive pricing (but with realistic, sustainable rates).
3. Strong agency/company relationship, if applicable.
4. Current knowledge of the carrier's underwriting appetite.
Most agencies should evaluate their overall carrier strategy before seeking new carriers. It is a fairly simple process that can also be quite effective. The hardest part is putting together an organized plan, but doing so is well worth the time and effort.
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