Strengthening Agency/Company Relationships

Problem:The insurance industry is under attack from consumer groups, is the subject of political debate and radical legislative proceedings, and is suffering under its worst public image in years. Independent agents are cloaked in this overcast, causing turmoil in today's market and damaging agent/company relations.

The development and nurturing of strong agency/carrier relationships can greatly contribute to helping move your agency out from under this cloak of doom and gloom into the light where prospective clients can focus more clearly on the quality services and products you provide.

In our work with carriers and agents alike, we are finding top performer agencies base their marketing achievements on strong agency/carrier relationships. Successful marketing requires agents and carriers to share 15 primary characteristics:

1. Compatibility of Business - Your agency should begin identifying the types of risks it writes and matching its book of business to its carriers. Action: Meet at least quarterly with each of your lead carriers' marketing and underwriting teams to explore the types of risks they want to write, their pricing philosophy, and volume requirements.
2. Agency Commitment to Sell on Behalf of Carrier - No longer can agencies go into their marketing area, sell potential clients on their merits, then attempt to find a home for the client with one or more of their carriers. Action: Your agency needs to profile the business its carriers want to write, then actively seek out those risks. Begin selling on behalf of your companies, rather than always selling a risk to your companies. The positive impacts for you agency and carrier include improved hit ratios, higher retention and greater profitability, reduced friction and enhanced ease of doing business.
3. Agency Responsibility for Street Underwriting - Top agencies feel very strongly about protecting their top five carriers and will not knowingly write a marginal or poor account. Action: Begin regularly turning away new accounts that do not fit carrier underwriting standards, directing them elsewhere or placing them in those markets which specialize in those types of risks. Instill the belief in your producers and staff that if they give up writing poor accounts today, growth and profitability in the long run will be higher due to continued availability of favorable pricing, capacity, and solid relationships with the agency's key carriers.
4. Defined Agency System/Procedure for Marketing Placement - High performance agencies typically designate an individual as head of marketing. Rarely a full-time separate position, this role is often filled by an owner who has taken responsibility for overseeing company relations and establishing agency procedures for effective marketing and placement performance. The head of marketing also leads marketing meetings, oversees dissemination of company information to staff, and ensures staff training in marketing/placement and coverage issues occurs on an ongoing basis. More and more, larger agencies (those over $5 million to $10 million in premium) are establishing a central marketing person or unit to handle all new commercial lines placement and renewal remarketing. Action: Appoint an individual who will lead the marketing/placement function in your agency.
5. Heavy Volume Concentration with Few Carriers - The lead carrier will typically receive 30% to 35% of volume, the second carrier 20% to 30%, the third 15% to 20% -- and a total of 80% of the agency's volume will be written with no more than five companies. The goal for your agency is to become individually important to two carriers, while being collectively important with three others. Avoid becoming collectively unimportant to any of your carriers, which results from spreading volume too thinly over 7 to 10 carriers. Action: Review your top carriers' results - premiums, commissions, loss ration history, etc. - for the last three years. Consider consolidation opportunities, needs for additional markets, and be prepared to address threats of cancellation, loss of markets or capacity.
6. Agency Generation of Growth Each Year - Growth is not measured in premium or commission volume, but in client count. Top performers increase client count 5% to 7% per year every year regardless of marketplace conditions. As a result, the agency's volume can be counted on to double within 6 to 8 years in most cases, allowing the carriers to continue to grow significantly over the long run as well. Action: Each year's sales activates goals with the intent of increasing client count 5% to 7% minimum each year.
7. Agency Assumes Responsibility for Loss Ratio Correction -Whenever your agency's loss ratio with a carrier is 10 points worse than the carrier's branch average loss ratio, the loss problem is most likely a reflection of your firm's book of business and not the result of the carrier's underwriting. Action: Take the time to isolate loss ratio problems and correct them.
8. Agency Handles Carrier Tasks Whenever Possible - In addition to simply sending an application to the carrier, more and more agencies are taking additional responsibility for rating and underwriting risks. The underwriter is left with more time to make the proper accept/reject decision. Agencies are also assuming policy issuance, data base maintenance and claims draft authority. The result is less duplication, faster response and lower costs for the carrier. Action: Analyze the activities your CSRs and producers perform relative to rating and underwriting. Look for opportunities to increase the ease of doing business. Review your agency's automation system rating and policy issuance capabilities and update where necessary.
9. Effective Use of Telephone Screens with Underwriters -To reduce paperwork, heighten the ease of doing the business and increase hit ratios, your CSRs, producers and marketing personnel should no longer send an application in blind to their carriers. Action: Run new accounts and large complex renewals by the underwriters via phone, then follow up with the applications (or proposal) once the account passes the telephone screen.
10. New Business and Expiration Reviews -Action: Agency representatives and owners should begin meeting face to face with their lead underwriters on a regular basis to review new business, upcoming renewals and accounts with other carriers the agency is considering moving.
11. Establish Personal Relationships at All Employee Levels - Begin to develop opportunities for personal lines CSR's, commercial lines CSR's and producers to meet socially or informally with their carrier counterparts in order to help build closer ties. Action: Use joint picnics, breakfast meetings, underwriter-of-the-year dinners, open houses, etc., to open communications and strengthen positive agent/carrier relations.
12. Assist Carrier in Avoiding Excessively Low Pricing - When a risk has been quoted by two other carriers or competitors at $14,000 and $12,300, do not let your key company quote and write the account for $6,500. Instead, tell the carrier an $11,500 price will be fair and sufficient to win the account. Your agency can do its part to smooth the cycle slightly and improve agency and carrier profitability in the long run. Your agency will develop leverage opportunities so when an additional price break is needed on another account, the carrier may respond favorably.
13. Target Market Penetration - Top agencies are developing one or two target markets (classes of business) making up 20% or more of their total volume. Action: Form an agency task force to identify a potential target market, develop a differentiated product, work with a carrier to provide the product, pricing and marketing support, then actively market the product over a wide geographical territory.
14. Track the Results of Carrier Submissions - Action: Begin today to maintain a log of submissions (by carrier), noting the type of business, the pricing, whether the risk was accepted or rejected and why. Refer to the logs during your agency reviews to ensure that you and your companies can work together successfully.
15. Maximize the Use of Automation, Interface and Direct Bill - Automate rating, policy issuance, policy database, interface, direct billing and continuous policy maintenance to the maximum degree. Action: Refine and update your systems continually updated and refined with carriers, programs, products, and procedures in mind.

Conclusion

Independent insurance agencies and their companies must coordinate their planning, share and utilize their strengths, and work to overcome each other's weaknesses to accomplish their own individual objectives. Strong agency/carrier relationships serve as the foundation for coping with the market and price changes, meeting consumer demands, and growth and profit in the face of reduced commissions and rising expenses. Solid agency/carrier relationships ensure the availability of quality products, competitive prices and responsive service to satisfied customers.

ACTION PLAN

15 Characteristics of Strong Agency/Carrier Relationships

Two programs you can implement to improve your agency's carrier relationships:

1. Integrate carriers into your marketing plan.

2. Step 1. Based upon your current book, identify which classes and lines of business each of your top five carriers are best in providing price and capacity.

   Step 2. Visit with the local underwriters, commercial lines underwriting manager, and marketing representative/manager to determine classes, lines, and account characteristics the carrier is looking for.

   Step 3. In the coming year settle on at least two specific target classes for each carrier. Target classes should be non-vanilla and the agency should be willing to pursue new business actively. Track submissions and carrier performance on agreed classes.

3. Conduct regular face-to-face meetings with your carriers. The agenda should include:

1. New business opportunities you will work together on during the next 45-60 days.
2. Review 60-90 day expirations to ensure competitive quotes are developed and renewals issued in a timely manner.
3. Discuss remarketing activities taking place in your agency: Movement of key accounts, rollovers of books of business, etc.
4. Review loss ratio results:

• If your agency's loss of ratio is greater than the carrier branch office's ratio, rollovers of books of business, etc., the agency must take corrective action.
• If your agency's loss ratio is less than the branch office ratio, but still unprofitable to the carrier, the branch must take corrective action.

1. Share competitive information - How are other carriers pricing capacity, and risk selection impacting the marketplace?
2. Track and review the results of agency submissions to discuss why the accounts were or were not written. Make this activity a positive learning experience.