Study: Recession Pressuring Middle Market to Value Price Over Service

January 26, 2009

As the U.S. economic slowdown deepens, middle-market companies are reassessing their relationships with insurance brokers and adopting a more bottom-line approach to securing insurance coverage.

Historically, middle-market companies have selected their insurance brokers largely based on the quality of customer service provided by competing firms. Middle-market companies, which generally lack the specialized risk management professionals employed by many larger corporations, tend to reward brokers that provide high levels of day-to-day support. However, the results of Greenwich Associates’ 2008 Middle Market Insurance Research Study reveal that as the economic downturn set in over the past 12 months, companies began de-emphasizing broker customer service in favor of a much stricter focus on obtaining the best value and price in their insurance purchases.

Greenwich Associates conducted more than 18,000 interviews with U.S. middle-market companies as part of its 2008 study. (Greenwich Associates defines “middle market” as companies with $10 million to $500 million in annual sales.) The firm also recently interviewed more than 1,500 large companies around the world a part of its 2008 Global Large Corporate Insurance Study, the results of which will be released later this month.

As part of this research, Greenwich Associates asks companies to name their insurance brokers and carriers, and to rate both their satisfaction with these providers and their willingness to recommend these providers to other companies. Companies are asked to evaluate brokers and carriers in over 25 performance areas.

Greenwich Associates then runs a statistical analysis that reveals the qualities and capabilities of brokers and carriers that are most highly correlated with companies “willingness to recommend.”

“This analysis reveals the factors that are driving corporate perceptions and decisions about insurance carriers and brokers,” says Greenwich Associates consultant David Fox.

Coverage Cost vs. Service Quality
In past years, customer service ranked as by far the most important factor in middle-market companies’ assessments of their insurance brokers. The results of this year’s analysis reveal that companies are now giving equal weight to three factors: price, value and customer service quality.

“This finding clearly reflects the deterioration of the economy and the revenue and cost pressures faced by U.S. companies,” says Greenwich Associates consultant Bill Bruno. “Simply put, in this environment, companies cannot afford to overpay for insurance coverage.”

The study results indicate that companies are becoming less willing to rely entirely on carrier recommendations from their brokers and more inclined to research the capabilities of individual carriers on their own. Likewise, companies increasingly are holding brokers accountable for the carrier recommendations they do make.

Companies are giving less consideration to brokers’ ability to provide general risk management advice and their overall problem solving ability. Meanwhile, “harder” factors like the brokers’ knowledge of property/casualty products and prompt follow-up and closure are taking on added importance.

“Based on these findings, we can make at least one strong conclusion: The recession is forcing middle-market companies to be much more diligent and discriminating,” says Fox. “Executives of these companies must feel that they are getting high quality coverage and service for the best possible price, and they must feel that their brokers are working as their true partners. Any broker that fails to deliver on these counts is at risk.”

Source: Greenwich Associates,

Topics Carriers USA Agencies Commercial Lines Business Insurance Customer Experience

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