For nearly 30 years, I’ve been writing and consulting with insurance agencies, brokers and networks on the benefits of choosing the most stable carriers — stable from an operational perspective, which enables agencies to achieve greater success, rather than stable from a claims paying perspective, which is what the rating companies focus on. I’ve done a lot of coaching regarding carrier relationship management and my clients’ success has been impressive.
A large proportion of agencies and producers could not care less about operational stability. They want to write with every carrier available, which is why some networks that provide upwards of 500 available carriers are so popular. However, 500 quality insurance companies do not exist when all the factors are considered.
I have successfully proven on a financial basis that certain carriers enhance an agency’s value, growth and profit margins. I have also shown how carriers lacking adequate certain resources cause agencies to do more work, roll business more often, cause claims problems, and might even be less than transparent with their agents about what commissions they are going to cut. Along that line, I’ve been fairly accurate in predicting which carriers would cut compensation and restrict their writings years ahead of their actions.
Yet agents and producers who do not pay attention to carrier operational stability continue to survive. Agents can write with any and every company in their search for the lowest rates because if they must move the business, there is always a choice (well, unless you are in a coastal state, or maybe the Intermountain West, or parts of the Great Plains, and so forth) of some other company willing to write the account.
One reason is that the producer does not pay an obvious price. They make the same commission rate, sometimes more because agencies’ systems don’t recognize rewrites as renewals so the producer gets paid new business commission on a rewrite, whether the business is moved or not.
The smarter producers understand that moving business takes time away from writing new business, but most producers’ books don’t grow much so they don’t lose anything. They’ve plateaued and all they care about is making the same amount, not more and not less. The only ones to suffer are the account managers who must do the work and the agency owner who must hire additional people to do the extra work involved with moving business.
Two carriers come to mind who have especially poor results, year after year. These are large carriers that have made no material profits nor materially grown organically in 10 years. Remove a few interesting one-time gains, and they are in worse shape than 10 years ago. By and large, their products are poor, and I often see their claims scores as subpar.
Almost uniformly, agency staff say they must put in hours of extra work on those books because the carriers cannot keep their underwriters and marketing people. With good agency management and leadership, those books would be moved, productivity improved, profits improved, and more time for new sales created.
I know many agencies representing these two companies. Most agencies have taken no direct action to quell their business.
Why? Because on any given account, the rate was good even if the product was subpar and the producers are selling price. Imagine an attorney selling subpar legal advice for 10% lower cost (unfortunately this is easy to imagine). When you lose, you lose much more than the 10% savings. What is insurance but a legal contract?
But these agencies keep moving along and provided the carriers don’t go insolvent, they keep writing with these carriers and the same carriers see an equal amount of business leaving (maybe better agents are taking those accounts?). No one is going hungry. No one is suffering the loss of their job. Sometimes they even negotiate extra compensation on their books and why not, these carriers have nothing to offer except extra money.
Operational Stability Is Critical
Carrier operational stability is critical though to the smartest and most strategic distributors and competitors. The smartest and most strategic distributors are those who understand that better suppliers enhance their business value. They are willing to eschew immediate gratification of selling a subpar product in order to sell better products often to better clients understanding that the long play has a huge payoff.
Many years ago, the big auto companies reviewed their suppliers.
Toyota reviewed their vendors by doing a complete financial analysis of the vendor’s profitability relative to the parts they were purchasing. Toyota recognized the value of having quality vendors who would be partners for a long time, who made enough money to invest in the future, and who made enough money to build quality parts. They even advised some vendors to raise their prices to guarantee these qualities.
Another domestic company felt they were winning by negotiating the lowest possible price. Their vendors did not always survive and indeed, one might argue the auto manufacturer did not survive either, but they negotiated the lowest price so they could sell low prices.
Toyota is the world leader. And yet, a car is just a car. Failure of an insurance product is devastating to a family. Many businesses go bankrupt when they discover their insurance policy is materially deficient. When selling price, something gets lost whether it is coverage, claims service, underwriting or something else.
The most strategic and smartest agencies know that by selling the coverages of the most stable carriers (again, from an operating perspective), they gain long-term success that will slowly put their competitors out of business. For strategic and smart agencies, sales will accelerate due to some combination of the weaker carriers faltering and they are not burdened by them, reputation gains, additional compensation on better quality, and likely a combination of all these factors. I see this already happening and the weaker competitors do not realize it.
Yet, those weaker producers will be the tail that keeps wagging the dog. It’s easier for management to acquiesce to producers’ demands for enough companies to fit any possible client they come across than to build strategically. Fear rather than strategy is the more powerful driver. And there are enough insureds, enough money, enough carriers willing to appoint anyone and everyone, and all topped with significant ignorance relative to what is being bought and sold, that market knowledge does not really matter.
Ignorance is bliss and I wish everyone blissfulness. But for anyone concerned about providing their customers with the correct coverages: Partner with the most stable carriers for long-term success.
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