INTERDEPENDENCE AMONG ASSOCIATIONS, UNDERWRITERS, AND AGENTS
by Robert Larsen
Symbiosis: any interdependent or mutually beneficial relationship between two or more persons or groups.
Most associations' member insurance services are defined primarily from the association officers and directors' perspective. Their primary objective is an insurance plan that the majority of members will perceive as having better rates or coverage than that of comparable programs that can be purchased individually. They want a relatively problem-free program that appeals to a typical member-a program with a trend line indicating broad acceptance by a growing number of members. Individual members expect to get a better deal because of the association's endorsement.
With the growing extremes in current underwriting cycles, association members purchasing Commercial insurance are more confused than ever. Pricing is seen as anything but consistent. When this perception is true, insurance buyers usually hold the advantage-but the average Commercial account holder doesn't see it this way.
Insurance agents and brokers understand that. Generally, they have grown accustomed to clients who are highly critical when prices rise sharply but unimpressed by reductions, even when those reductions get them more value for their insurance dollars in the long run.
Agents and underwriters get paid to cope with market uncertainty. In contrast, association managers get little applause when members save significant premium dollars, but price increases, claim problems, and agent miscues are announced at the next national convention-from the floor! In other words, association officers and directors catch the flak but aren't compensated for it. Maybe this is why many association executives' eyes glaze over when someone brings up the subject of sponsored insurance plans.
What can agents and brokers do about this situation? Not much, in terms of fundamentally changing insurance marketplace realities-but a great deal in terms of member expectations. Some obvious examples:
1. When an association develops a program and contracts with an underwriter, it is lending its name, logo, and commitment. In return, both the underwriter and agent should offer reasonable assurance that prospects referred to an agent network will be contacted promptly, and that the program developed by the underwriter and association will be presented.
It's hard to overstate the bad will created when members are encouraged to evaluate an association program and the agent designated to represent the program either fails to make an appointment or, worse, criticizes the sponsored program and tells the member, 'The association-sponsored program isn't worth reviewing.'
2. Some agents use association programs as business-development devices for new, inexperienced agents. In mass-merchandised association programs, however, strength in numbers has a drawback: Problems are multiplied along with the advantages.
For example, an agent who mishandles a certain account runs the risk of losing it. With association programs, the potential loss of several accounts might impel the association to withdraw its endorsement.
For many years, direct writers have been expanding their share of the Personal Lines market. They are now grabbing a significant share of Commercial accounts; companies such as Nationwide and Sentry are moving forcefully into the market for targeted industry groups. This makes it even sadder when an agency company loses an association account simply because one agent or one underwriter failed to respond after a problem was identified.
Marketing Network Agents should make certain that individuals handling association prospects are thoroughly familiar with the nature of the risk, the design of the program, and the designated carrier's underwriting appetite for the association's risk classification.
When calling a member firm, sales personnel represent not just your agency but the sponsoring association. They never know when they might be dealing with the president-elect of a national association. The impact a first impression has on your agency's ability to penetrate an association market is inestimable. The chain of distribution is only as strong as its weakest link.
3. Another important strength that agents bring to the table is market intelligence and feedback for the recommended underwriter and the sponsoring association.
Some associations are casual in their ongoing analysis and management of member insurance programs; however, an increasing number are recognizing the significance of non-dues revenue and are beginning to attend to the operating details and participation statistics of their sponsored insurance plans. Intensive management of member services is unusual, but the trend is clearly toward developing closer working relationships-association to underwriter, underwriter to agent, and agent to association.
The timely, accurate, and complete reporting of sales contacts is a crucial dimension of this expanding symbiosis. Association boards of directors and insurance committees are asking-demanding! -- reliable statistical data against which to assess a sponsored member insurance program.
Murphy's Law states, 'If anything can go wrong, it will.' When it comes to association plans, Murphy is an optimist. If you are pressed for a report and, for the sake of expediency, invent the data, Murphy's Law guarantees that the report will go to the chairman of the insurance committee, who will review the data and quite properly declare it to be fiction.
Some association members tend to be forgetful. Often a receptionist, a key aide, or even a chief financial officer fails to report a contact, leaving the company's CEO with the impression that the agent never responded to his firm's inquiry.
A member might also misrepresent the reason the association rejected a program. The best way to perform your job and protect the integrity of the data is to make timely contact, and document who was contacted when. A letter to the member firm confirming the call and referring to the individual contacted, the time of the contact, and so forth can usually blunt any 'I was never contacted' criticism.
Unfortunately, for every association member who misstates the sales process and its results, there is an agent who misrepresents the timing or nature of a personal visit-or worse (much worse), fails to disclose that the account was written by someone other than the recommended carrier(s).
I can't emphasize this point enough. Imagine this scenario: The association releases its membership list; it endorses the program of insurance developed through bilateral negotiation; and the association's president or chairman writes a letter to the member saying, 'We have an insurance program you should evaluate. It offers superior coverage at competitive rates and holds out the possibility of further savings in the form of dividends. A network of agents supports distribution. We have asked one of them to contact you. We know that you may have an agent you feel close to, but we think it's to your advantage to use our designated representative, who will know the program, know XYZ Insurance Company's procedures for developing a quote, and thus can probably serve you better than your current agent can.' The designated network agent makes contact, lands a prospect that might otherwise be inaccessible, develops underwriting data, and then comes back with a quote from a carrier other than XYZ!
Many association members see nothing wrong with that scenario. Many association officers and directors seek to withdraw the endorsement. They contend (rightly, I believe) that they didn't endorse any one agency, nor did they endorse insurance companies ABC or DEF-they endorsed XYZ.
The ultimate objective of both agents and associations that sponsor programs is service to members-but this should not allow for opportunism or misrepresentation. When the designated carrier is unwilling or unable to provide the requested coverage at reasonably competitive rates, and network agents place coverage with another carrier, the two quotes should be compared and the file documented; this facilitates explaining to the association why the sponsored program was not recommended. Informed association executives know that association programs can't be all things to all members. By breaking down the who, what, when, and why of the sales process, the association can better analyze the program.
In my 30-plus years in the association/mass-merchandised insurance business, I have seen insurance companies jump in and out of so-called mass merchandising, and I have witnessed many examples of irresponsible underwriting and pricing. Sometimes, this lack of professionalism works magnificently to the benefit of insurance buyers-in the short run. We have all seen insurance companies (and agents) adopt the strategy, 'Let's get the endorsement, obtain the industry membership roster, and then do it our way --- the association be damned! It's our mailing list now, these are our expirations-don't tell us what to do with them.' Maybe this has worked for some; but a lack of agent network discipline compounded by inconsistent underwriting and pricing has killed off the vast majority of association programs.
Implicit in the word 'symbiosis' is interdependence. If underwriters don't understand the risk and end up pricing it too high (or too low); if agents don't grasp the link between associations and their members; or if the sponsoring association is passive in its endorsement and unwilling to recommend the sponsored program strongly, then it's only a matter of time before the program loses momentum and goes into a death spiral.
Conclusion
Endorsement by a trade or professional association or by an affinity group almost always enhances market penetration by creating sales opportunities that might not otherwise materialize, but certain situations can render an association endorsement unworkable. They include:
1. Excessive micro-management by association executives of the program, its administration, and the marketing and sales process
2. Unreasonable demands by the sponsoring association for revenue sharing
3. An association decision-making timetable so protracted as to frustrate the originating agent and/or prospective underwriter
4. A decision-making process by the underwriters that becomes a turnoff to the association prospect or originating agent
5. Lack of commitment by the underwriter to consistent and competitive underwriting and pricing (This is frequently the case with national associations working through decentralized branch marketing/underwriting offices.)
6. Lack of homogeneity of risk within the association membership, generating a need for alternate underwriters as opposed to a single designated carrier.
Special note: Establishing the need for and efficacy of multiple underwriters when association programs are originated can, if managed properly, be the salvation of an otherwise disappointing association program.
It is becoming increasingly difficult to design, market, and administer association programs. Associations are being told that they must control all member insurance offerings. Many insurance companies have concluded that they have the strongest bargaining position among the parties to an association offering, and thus they will control all elements of a sponsored insurance program.
In my view, control should be multilateral, fair and balanced, and constantly analyzed and refined. If it is not these things, the target-marketed program will be most effectively controlled by the distribution mechanism.