Agent Selection in the Bid Process - Case Study

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scott
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Agent Selection in the Bid Process - Case Study

Post by scott »

Agent selection is the toughest part of the insurance renewal bid process. However, nobody seems to talk about the actual dynamics of the process. I thought a snapshot of my thoughts and considerations from a current bid project would be instructive.

This is typical of the issues and thinking behind assigning agents in an agent selection or renewal bid process.

To set the stage... The insurance buyer spends upward of $150,000 a year on insurance. They have worked with the current agent for 5 years. The agent has done a great job. The client is quite comfortable with the service and coverage they have. The agent has managed claims and policy service issues very well. The client is bidding this year as it is a public entity involving taxpayer money. There is an obligation to seek bids every 5 years or so.

Agent selection questionairres were sent to five different agents and to two "industry" programs run by trade associations. All seven organizations responded with interest.

Now we have to decide which agents and insurers will be allowed to participate.

Here are the insurer requests (ranked by preference) of the five agents:

Agent Thomas - The incumbent
1. Insurer Oak - The current insurer
2. Insurer Maple
3. Insurer Pine

Agent Fred - Industry specialist
1. Insurer Maple
2. Insurer Pine

Agent Sam
1. Insurer Maple
2. Insurer Pine

Agent David
1. Insurer Maple

Agent Sarah
1. Insurer Maple
2. Insurer Elm


Background:

-Thomas is the incumbent and doing a great job for the client.

-Fred is an industry specialist and has a great relationship with Insurer Maple. I have worked with this agent extensively and think quite highly of his abilities. The client has no relationship with this agent.

-Sam is a local agent but has no relationship with the client. He has not differentiated himself in any way.

-David is an agent from a hundred miles away and has no relationship with the client. He has not differentiated himself in any way.

-Sarah is a local agent with no relationship with the client. She has not differentiated himself in any way other than requesting a market nobody has mentioned.

-All agents have fine reputations and handle other clients in this industry.

-Insurer Oak (the incumbent) has been a major force in this industry for 20 years, as have the two association programs. The client is pleased with the insurers work and claims process.

-Insurer Maple is the successful newcomer, making great strides in the past year and lots of noise this year. They are a competitive factor.

-Insurer Pine is an unknown. They have made noise in this industry, but never showed anything in past years. They are a fine, general insurance company.

-Insurer Elm is an unknown. No other agent requested this market, and to my knowledge they have never written such an account in the state.

The task is to select agents to participate in the bid and assign insurers that will give the best result to the client while keeping competitive forces aggressive in the process.

The easy part is:

-Both Association programs will be a part of the bid. They each offer viable competition to the other insurers.

-The incumbent agent will get the current insurer. At a minimum, the agent and insurer have earned that.

-Sarah is the only agent to propose using Insurer Elm. Sarah gets Elm.

What to do with Insurer Maple and Insurer Pine?

Sam and David bring nothing special to the bid process. They are not bad. They just have not differentiated themselves in any way.

As Fred is an industry specialist, and has a special relationship with Insurer Maple. The logical choice seems to be to give Fred access to Insurer Maple.

However, the client is quite reluctant to change agents due to the exceptional service they perceive that they have received. I asked the client if another agent presented a proposal that was 20% better (price and coverage) than what the current agent presented, would they switch? My client says they might not.

So, I have a situation where if Maple, through another agent, brings a 20% improvement, my client may pass up on the savings to stay with their agent.

I think that there is a better than good chance that Maple will win the bid on coverage and price - based on what they did last year and what I'm hearing about this year.

If I do the logical thing (give Maple to Fred), my client could ultimately end up spending more and getting less coverage.

My recommendation to my client is to give their current agent access to Pine, Maple, and Oak. Agent Sarah will be allowed to access Elm and the two association plans will make their proposals.

I have long said that broker selection and market assignment are the toughest part of the bid process. I know that Agent Fred will not be pleased with my recommendation and will probably not understand my reasoning. However, I must do what is in the best interest of my client.

A successful end result of this bid process will come from stiff competition. The current agent will have to make his insurers perform to compete with the association programs and each other. Agent Sarah gets to play her wildcard.

Comments welcome.
Scott Simmonds, CPCU, ARM
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larsimo
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Re: Agent Selection in the Bid Process - Case Study

Post by larsimo »

Scott I think your bidding process has some major flaws and you may be alienating some of the "better agents". Let me explain.

If I am an agent that has everything going my way meaning my service is impeccable, I promptly return all calls, I am there at claim time when clients need me the most, etc., my retention rate is sky high, referrals just pour in w/o me even soliciting, so in other words business is good which means I MUST be good right?

Moreover, If I am good, most likely it means I must also be a very busy agent, agree?

So in comes a call from John Doe looking a for quote. Nothing wrong with that. But during our "getting-to-know-each-other-initial-conversation" I find out that John already has four or five other agents working on the same quote!

My question is - do you really believe that I would waste one more second of my busy schedule dealing with this prospect? Not a chance! I would end the phone call right then and there with something like this:

"Mr John Doe, my agency has been in business for over 40 years, we have multiple offices and the structure to service all of your insurance needs, and it appears to me you already have a sufficient number of agents working on your behalf so not to waste your time or mine, I won't be offering a quotation for you this year. But should things change and you need someone with proven experience, stability, and reliability, myself or my team can be reached directly at xxx-xxx-xxxx.

Have a great day".
policyman
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Re: Agent Selection in the Bid Process - Case Study

Post by policyman »

I think we as an industry have done this to ourselves with the constant "begging" to bid someone's insurance with a glimmer of hope that we get the account. Scott, in your example any of the other agents trying to bid this account should walk away. Afterall, it is an uphill battle - good relationship with the incumbent carrier and agency. No real problems to speak of. The only reason they are shopping the insurance is they are required to, but have no real intention of moving.

Any decent sales training will tell you to "walk away" from this as quickly as you can. If the only arrow in your quiver is the price arrow and it has to be 20% or greater to get the business then your chances are slim to none of getting this account. Any broker willing to get involved in a situation like this would not be one I would trust my insurance program with.
tflood
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Re: Agent Selection in the Bid Process - Case Study

Post by tflood »

Sounds like you have nothing more then a beauty contest go'n on. Frankly, I'd walk away before I get dumped on unless you as the consultant "really get it" and understand how we differeniate.
I walked away from a large construction account because the consultant didn't 'get it.' All he wanted to know was like you, who am I quoted, when can I get a quote. Not one question about our firm's or our own intellectual capital or Enterprise Risk Management Process. He didn't even want to know about it...

Besides getting a cheaper quote, what's your game plan Mr. Consultant? What are you doing to help your client pro-actively manage their risk? As a consultant, you tell me, what components and how many components to Total Cost of Risk have you identified? And I don't want to know about premiums or deductibles... Enlighten me... What issues are most impactful to your client if resolved?

As for the agents, "I have great customer service, we get certificates out on time, great relationships with my carriers, great staff, been in business 20 + years" is nothing more than bla bla bla.... You and the client heard it all before.... You sound like everyone else.... Those my friend and the minimum requirements to be in the game, and if you don't do it as an agent, expect to be fired.

You're right on the differentiation point. We as brokers must look at our business and we must differentiate in what is quickly becoming a commoditized business. If you walk like a duck, quack like a duck, look like a duck, have feathers like a duck, you're a duck... And this is the game you can expect to play when you're a duck in a commoditized business....

Just my own opinion...
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Re: Agent Selection in the Bid Process - Case Study

Post by IJFan »

I agree with the comments about the constant rush to the bottom. What is saving 20% if the carrier goes insolvent this year? What about client frustration because the carrier can’t handle the servicing or claims? Was the 20+% worth it?
The only variable that seems of concern is price. Read the book "Cheap". Although it deals with the retail sector, the same principles apply here.
The client clearly likes the incumbent agent. They've done a good job. The agent doesn't need to be unseated as a result of this "beauty contest". Taking an account to market doesn’t mean you need to engage a bunch of agent bidders. You’re concerned about the carrier pricing. If there is an agent issue, then engage other agents. It looks like you’ve vetted the agency. End of story. No need for a dog and pony show. Have you factored the cost of making the client sit through the proposals into the equation? The opportunity cost they’ve lost by having to sit through mindless drivel?
Let the incumbent go to market with whatever carriers they would like. Open it up for bid to anyone who wants to chase a loosing proposition with whatever markets are left.
As the consultant you should be working with the client on the carriers. Which carriers are capable? Which carriers have issues that aren't readily identifiable?
Scott, you have some good ideas. This isn't one of them. The constant fixation on price is a bit too pervasive. You trumpet expertise, value, etc but suspiciously always end up back in a race to the bottom on pricing.
scott
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Re: Agent Selection in the Bid Process - Case Study

Post by scott »

Thanks for the interesting comments.

My work for this client has not gotten to the point of a bid. We were trying to figure out which agents we would be working with. Nobody has quoted anything yet.

What I left out of the description of events was the questionnaire each agent was provided. It invited each to describe their abilities, experience, expertise, processes, etc. While agents were given a list of questions we wanted answered, they were invited to present their case in any form they desired - use the form or your own summary. We did not want to, at this point meet with agents yet. Perhaps someday a creative agent will send us a video presentation when we are doing an agent selection. I hope so.

The comment that this is a beauty pageant is of course correct. I use an agent selection process to decide how we are going to move forward into the renewal. Should I just call two of the agents I know who can do this? I think I need to be on the lookout for new talent and ideas.

Next week I am meeting with 4 agents who are interested in showing us their stuff for a community bank. The bank has been with the same agent for some time. They want to investigate other opportunities.

The bank may stay with the current agent, bid with others, or select another agent to take the account over.

We started with a questionnaire similar to what was described above. The decision was then made to interview all four agents. After the interviews The CFO and I will discuss what we saw and what we are trying to accomplish. We may select one agent of the 4 or we may pick 2 to go into a bid process.

My intent with this is to provide some insight into what goes on. The feedback is interesting.
Scott Simmonds, CPCU, ARM
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tflood
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Re: Agent Selection in the Bid Process - Case Study

Post by tflood »

I'll be curious if you will comment back telling us that you met with 4 more ducks next week...
And their unique 4 step sales process, copy, quote, pray, and beg
And yes i am an agent w/ over 27 years in the business... and figured out how to differentiate and get out of the commodity business. I was tired of being a duck
scott
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Re: Agent Selection in the Bid Process - Case Study

Post by scott »

The agents I am meeting with next week are not ducks.

Each has more than 20 years of experience. The three competitors with the current agent were selected by me because of their exceptional abilities. One I have known for 10 years and the other two I have known for twenty.

All three of the agents I am bringing in generate more than $100,000 in new business revenues to their agencies in an average year. They manage million dollar (revenue) books of business.

Frankly, they are among the best agents I work with. Why else would I invite them to participate?

These are all people who can stand toe-to-toe with me discussing coverage issues and risk management strategies and none of them are afraid to do so. They each bring great value. Any of them could do a great job for my client.

However, in the end, they can only be one agent. My job is to help my client find the right one.

More comments welcome.
Scott Simmonds, CPCU, ARM
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larsimo
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Re: Agent Selection in the Bid Process - Case Study

Post by larsimo »

scott wrote:Thanks for the interesting comments.

What I left out of the description of events was the questionnaire each agent was provided. It invited each to describe their abilities, experience, expertise, processes, etc. While agents were given a list of questions we wanted answered, they were invited to present their case in any form they desired - use the form or your own summary.
Scott:

1. If you're letting the agents know ahead of time the gameplan and how the "hiring" process is going to go down, then you've done your part and it is up to the agent to take it or leave it.

2. I still can't figure out though how you are able to keep so many agents happy! Put it this way: if I quoted 10 of your clients and only closed 2 and I knew that my presentation/pricing and appeal was top-notch, why would I continue the practice quoting pattern?

Of course you could probably find enough agents to bite at this first but eventually I am assuming you would run out of agents, no?

3. Have you considered how the carriers/underwriters look at this? I can't tell you how many times I've heard underwriters say, "Oh, no thanks, I quoted this account in the past so I'll pass this time".
scott
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Re: Agent Selection in the Bid Process - Case Study

Post by scott »

In neither the public entity nor the bank is anyone bidding yet. (Im sure I already said this.) Nobody is practice bidding.

I have asked agents if the would like to be considered. They are free to say no.

If they say yes they fill out a questionnaire and, perhaps, come to an interview.

The public entity has made the selection of agents to participate in the actual bid. With that account the bid now begins - one independent agent against two association plans. All three will present proposals (the IA will probably present multiple quotes from different insurers). From those proposals we will decide based on coverage, service, and price who will provide us with insurance.

The bank is still gathering information. The next step is interviews with the agents, then the bank will decide how to move forward - 2 agents competing or a single agent bringing proposals from multiple insurers.

If I have the process wrong someone let me know what I should be doing? I'm glad to debate the merits of my system and will certainly listen to other ideas. My objective is the best insurance program for my clients - coverage, service, and price.

I've been doing this for 10 years and the insurance buyers keep coming back to me for more - half my work each year is repeat business.

I have many agents who have worked on 5 and 6 projects with me. Nobody refuses to participate in the agent selection process or a bid process. They win some and they lose some.
Scott Simmonds, CPCU, ARM
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policyman
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Re: Agent Selection in the Bid Process - Case Study

Post by policyman »

Here is actual scenrio I had that finished playing out. In my inital meeting with a propect I uncovered they had a 10 year relationship with their broker and no real problems to speak of, etc. Why was I there? We are have an excusive program for their association that their current broker does not have access to and they agreed to a meeting.

Usually at that point I would walk away, but I took it a step further and reviewed their current insurance program to see if they had the "good" program they thougth they had. After revewing it, I came to the conclusion that is was a good program, their broker seemed competent the there weren't any major deficiencies. The only area left was the price. I estimated (based on our current similiar clients) that our program could save them about 30% over their current program.

I set a second meeting with the prospect and told them they have a good program, relationship and their agent appears to be doing a good job as to which they agreed. I threw out that our program was about 30% less and would that be enough to break their relationship? They decided not to save the $$ and stay with their current broker. I complimented them on their loyalty and told them I hope my clients feel the same way about me. We left on good terms, will keep in touch from time to time an will the the first call if their account every goes sideways.

All this without "bidding", selecting markets and wasting everyone's time. My previous insurance life I would have been licking my chops to show them the 30% difference (by quoting it) and hoping for a slam dunk and would have been puzzled when they didn't hire me. Now I can check them off my list and move on to the next opportunity. :)
pita3333
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Re: Agent Selection in the Bid Process - Case Study

Post by pita3333 »

Policyman gets the missing link that many others do not....he QUALIFIED the account.

He found out early in the process what it would take to obtain the account and did that without wasting anyones time.

Hopefully the prospect related this to their broker as validation of their relationship.
Michael Trouillon
Greater Los Angeles area

Consultant/Trainer agency automation system

Industry since 82

Past: Compliance Mgr master pol pgm, Ops Mgr, Marketing Mgr, Account Mgr
scott
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Re: Agent Selection in the Bid Process - Case Study

Post by scott »

Followup...

The public entity has moved forward as I described. I notified each unsuccessful agent by email inviting conversations. All called me. There was certainly disappointment. However, all professed to understand (what are the going to say?). I am confident that the right choice was made for the insurance buyer.

Today we fired the bank's incumbent agent after interviews yesterday.

The incumbent agency had worked with the client for more than 20 years. In the last 6 years three different teams within the agency had worked on the account. The current team did not connect as well as prior teams had.

The bank will work with a single new agent who will access the marketplace.

The new agent has made the standard service promises and has access to the same insurers that the incumbent had. The new agent was able to show industry expertise and an understanding of the coverage issues that were concerning to the buyer. The two agents who did not get the business did nothing wrong. The successful agent did the right stuff better.

Sometimes change is good. For this particular buyer it is time for a change in insurance agents. Fresh faces, fresh eyes, a fresh approach. The client is genuinely excited about working with the new team. There are great expectations.

Those expectations and the promise of change are a part of the psychology of buying. There is little logic here. It is emotion.

Logic makes us think. Emotion makes us act.
Scott Simmonds, CPCU, ARM
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new
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Re: Agent Selection in the Bid Process - Case Study

Post by new »

I wonder what is the roll of consultant?

He has to prequalify the agent/broker as ability and specialization
He has to offer the opportunity to no more then two agents/brokers
He has to let them know very well the clients risks and requirements
He has to make his presentation of the two final offers and let the client make decision.
He has to be paid for all this job he is done.

Any comments?
pita3333
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Re: Agent Selection in the Bid Process - Case Study

Post by pita3333 »

New:

Not sure what the "roll" of the consultant is...but the ROLE of the consultant is to help the client determine who can best provide the desired services. The method is...that the consultant can understand the issues and complexities of insurance where the client likely can not. Additionally the consultant can hopefully see past the "fluff" and see the substance that the broker/agent provides.
Michael Trouillon
Greater Los Angeles area

Consultant/Trainer agency automation system

Industry since 82

Past: Compliance Mgr master pol pgm, Ops Mgr, Marketing Mgr, Account Mgr
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