Agents - Your Clients Don’t Trust You

[scott]

Agents, your clients know you make a commission on every policy you sell. They wonder if you're really looking out for their needs. Every time you recommend an increase in coverage they know the purchase increases your income. Your clients know that your commission goes up when premium goes up.

Trust comes from the realization by your client that you are committed to their best interest. Commissioned insurance sales do not build trusting relationships. You're on one side of the table and the insurance buyer is on the other. You may not think so. Your clients do.

I can hear the screams, "I work for the client's interest! I'm dedicated to my policyholders."

[Joe Agent]

Thanks but no. We will take the commission. We do a lot more than sell a policy. That is just the start.

[TCB61]

Scott,

There is a bit of problem with your logic. Why does the insured lose when, for example, an agent suggests and then sells them higher limits? Yes, the agent will make a little more money as a result, but the insured also benefits from the increase in coverage. That sure sounds like a win/win to me.

Beyond that, recent industry surveys of customers have indicated that there is a very high level of trust by customers in their agents.

By the way, do you work for free?

[tflood]

Scott- With all due respect take the commissions out of the equation and charge a flat fee is an unjustified and frankly not a well thought out comment. Nor would I say that the rest of your comments are even deserving of a reply. But I feel compelled to state my opinion to such naive statements.
#1- "Commissioned Salesmen do not build trusting relationships". Scott- this is simply a naive statement. I firmly belive that true insurance professionals do build trusting relationships by providing value added services and solutions and long term risk reduction.
#2- "What kind of partnership is set up in a way that you win when your partner looses? How does the partner loose? If the agent is uncovering problems, providing solutions to those problems, and transferring the risk away from the client, how does the client loose. If the client elects to spend more in premiums to transfer the risk to an insurance company- where is the problem with that? Of couse we will be paid more, but the client will also see our value for solving those problems.
#3- "If you want to truly build trust, remove commissions from the sales equation and charge a fee. Charge a fee? And what would be the usual and customary fee charged? Who would regulate those fees? If anything, this could cause more distrust as there would be no standardization and unjust fees could be imposed by those agents who are just out for the fee.
I respect your opinion, but it appears that perhaps 1 bad experience you may have had has slanted and distorted the way you may see agents in general. Most of my fellow associates are professionals, whose clients truly value them and see them as trusted advisors. A trusted advisor such as their accountant, their attorney, or their banker. How many times have you seen trusted advisors fired? If you really want trust- come over to the trusted advisor side of the equation and make deposits to build that trust. When you get to this level of trust- the commissions or fees become non-events. Just my opinion.

[pita3333]

I understand Scott's point of view, especially after remembering his other posts.

I think fee's can be good in place of commission...but I also think that fees can be very bad. Take for example a recent conversation I had with our agency accountant that resulted in $650.00 worth of fees being billed....or my computer consultant who billed me $100.00 for a long conversation. When my clients call me to discuss their coverage I do not start a billing clock, but I give them the best answer that I can and if let them know the cost for coverage and then let them make a business decision. If they make the purchase then I get something financial in return for my time...if they do not make the purchase then I get nothing financially in return (tho I do get protection from E&O claims).

If our industry switches to pure fees...there is much more room for abuse then with commissions!

[scott]

My point (poorly made or overstated as it may be) is that there are some insurance buyers that see a conflict in the advice given by agents who are paid on commission.

Obviously, all salespeople have a similar conflict. When I call Dell computer I understand that they are trying to sell me the biggest, fastest, most expensive computer. If I want an unbiased opinion I call an advisor / technician / consultant whose income is not dependant on my purchasing a particular system.

I'm proposing that agents consider changing their compensation. By doing so, they remove the perception, by many of their clients, of conflict. Agents also have the opportunity of receiving greater income from the client if they can prove greater value.

I'm not trying to offend anyone here. I was an agent for 20 years. I now work for insurance buyers as a consultant. I also work with consultants around the country who are providing similar services.

I see an opportunity for agents to build greater relationships, provide greater value, and make more money by working on a fee basis.

I have helped producers leave the agency world for consulting. I now see that there is a middle way "" where agents consult and are paid a fee that removes a concern many insurance buyers have with a perceived conflict. The relationship is therefore more valuable to your client "" value to the client means they pay you more.

As to the customer satisfaction surveys"¦ How many insurance buyers have been offered insurance from someone who is not paid a commission?

How do you think a prospect would respond to the following:

"Mr. Smith, I'm glad you called us. It's great you are starting a new business. Here is how I work. I charge you a fee of $3,500. For that I scour the insurance marketplace looking for the best insurance program for you "" best coverage and price. My fee covers all my expenses. The premiums I quote you at the end of my search will not include a commission for me or my agency. I'm working for you on a fee basis. I have nothing to gain by doing anything but getting you the best price on your insurance.

"My fee also includes exceptional claim service. In addition, during the policy year, you are entitled to unlimited calls to our service center for help and advice. Shall we go ahead?"

[scott]

I was composing my reply to TCB61 when two other posts hit. Let me try to catch up.

I don't propose every agency go to fees "" each according to his temperament. I'm offering an alternative that may prove profitable for some agents and valuable to their clients.

I don't encourage hourly fees. There are ethical issues as well as the practicalities that Pita mentioned. Fixed fees, agreed upon at the beginning of a relationship is what I do now and what I advocate.

Regulation? Why do fees need to be regulated? If I offer you a service and tell you upfront that my service will cost $35,000 you are free to accept it or reject it based on your perception of my value. I decide what I am willing to sell my services for. You decide if you want to pay that fee.

Are fees easy? No. Can you make more money charging a fee? Sure, if you show and quantify your value.

Will some insurance buyers hate fees? Sure. So what? Based on my experience many will love it and pay for the value of an unbiased advisor.

Ok, now my statement about partners"¦ I got a call yesterday from a contractor. His premium last year was $150,000. His renewal premium is $240,000. He lost "" his premium went up. His agent won "" his commission went up. His comment to me was that he was not convinced his agent worked very hard for him "" "Why should he,"

[tflood]

The point is mute- it will never fly Scott.
Your comments in your opening statement may have caused you more damage then benefit.
WIth regards to the contractor, did you look at his loss runs. Perhaps the company increased a reserve, or perhaps he underestimated his payroll/sales, or they picked up a higher class code. If the company paid out a 1mm loss, or any of the above, he should pay more.
Again, your taking one situation and painting with a broad brush.

[scott]

Let's say that you're correct and that the contractor had a huge loss. From the client's perspective, why should the agent's income increase? Did the value she provide increase?

Let's change the situation... Assume the premium went down by $50,000. Why should the agent's income decrease?

I propose that some agents may want to set up relationships that are based on value provided / received. I propose that some insurance buyers are interested in advice and help from agents without the perceived conflict of commissions.

Here is another part of the equation. Why should an insurance buyer do business with you?

If 1000 agents respond to this question, they will all have the same answer:

I provide great service
I have great references
I understand insurance
My agency has been in business for xx years
We are active in your community
I work hard for my clients
We have great calendars and pens
I understand your business
I represent great companies
We have nice offices
I'm a great guy

A fee compensation plan changes the competitive game. You start the conversation with, "I'm unbiased. I don't get paid a commission based on the size of your premium. My only interest is getting you the best insurance for the best price."

[Joe Agent]

Don't talk to this guy. He works for an insurance company. Who benefits? The insurance company by not paying commissions. Who gets screwed? The brokerage and staff. Dude go away.

[scott]

Sorry, you seem to misunderstand.

My websites make it clear who I work for. My clients are insurance buyers for my consulting business and consultants for my mentor program. The links are below. I'm hiding nothing.

Insurers won't necessarily benefit from a fee system. They reduce premiums charged to clients when they quote net of commissions.

I'm merely looking for a reasoned discussion of a portion of our business. If you wish to continue to sell policies and service your clients for a commission, go in peace. I dare say that most agents like the current system. That doesn't mean there isn't room for another approach.

In spite of Joe Agent's plea I hope others will want to debate and discuss here or by private message to me.

[MUD]

Scott,
So when clients premium goes up $90,000 on you, as a fee based service. Did you work hard, your client still 'lost' didn't he. He still has to pay the $240,000 and you make same fee. Client does not win and neither do you. Everyone in your example is a loser. But with commissioned agent, this is what happens: Premium increase almost 100%, need to shop quote and find better rate. Because 15% commission on a lost client =$0.00. We went to work for client. You would sit back and collect your $35,000 fee and client would be stuck with big increase. FEE BASED I THINK NOT.

MUD

[MUD]

Scott
I do not think you understand what a trusted relationship is based on. It has nothing to do with how old agency is, or how polite I am, or how good my service might be, or how many companies I represent.
There is an inherent cost of doing any type of business, period. Some charge fees, others earn commissions, but EVERYONE knows that I am in business for a profit-whatever service or product we purchase. So trust is earned by being trustworthy first. It is based on a mutual partnership between at least two parties that bring value to each other party. Trust has nothing to with how much income I might derive from doing business or how much income the other party generates from doing business with me. You see the best agents are always bringing value to the table for their partners(clients to you). I will go up against a fee based person any day of the week, because fee based insurance agents do not know how to develop TRUST- and as a result they only think that business can be conducted by eliminating commissions. The problem Scott is that you should have invested in learning how to become a Trusted Advisor.
When one charges a fee is he really earning it? All people in sales are biased and bias is a good thing. One needs to know what is good and bad, it is hardly ever price alone. $$$ is all you are interested in, that is why you changed to fee based. You can say otherwise, but look at what you have said and done. You do not think that you can earn trust by earning commissions, that is sad indeed!
If you charge same fee every year you will go out of business because your costs will continue to rise. So you have to increase fee, but did you provide more value to your client? NO! Why should you get a raise just because it is 2007 and not 2006!!!!

[92builder]

Actually, this is how all my conversations start anyway:

You start the conversation with, "I'm unbiased. My only interest is getting you the best insurance for the best price."

[alfaron]

Scott: I read the Journal regularly, and never get involved, or rarely get involved, with forums or commentary. In this case, I just felt compelled to add my two cents. It is seemingly very "in" to denigrate the earned commission of a salesperson. Take a look at Charles Scwaab who bad-mouthed the commissioned Wall Street Broker as he was setting up his "discount" firm. The results have come full circle wherein he now has commissioned brokers, because clerks didn't do the job that the public demanded. Whether you call compensation for services rendered a FEE, a Commission, an Override, a Kickback, or a Pay-for-Play, or Performance-Linked compensation, it all boils down to doing the job for the client, the employer, or the public. People who profess "purity of motive" because they do not charge a "Commission", but instead, charge by the hour, charge by the plan, or charge for the project, are being rather hypocritical. Now, if you look at the "Captive" Agent, who has the product of the day, week, month, or year, and is paid commissions to push THAT PRODUCT LINE, I can concur with your logic. While, on the other hand, where the agent is independent and can offer the client whatever best suits his or her needs, no matter who's product it is, my 30+ years in the financial services industry leads me to believe that the agent will offer that which best meets the needs and goals of the client, irrespective of the commission he/she receives. In summation, Scott, I think that you are slightly off base with your argument.