Those of us who entered the business more than 20 years ago have seen two or three market cycles. We had to weather at least one and probably two of them before earning our spurs. It taught us a lot about buyers, carriers, and how to negotiate terms that were acceptable to both parties. In short, our long-term success was based on how we handled the full market cycle.
The market appears to be changing again in a variety of ways. Some experts believe that reinsurance limitations are the cause of a shrinking Property capacity. As the market shrinks, more alternative carriers disappear. If you don't believe it, look at your wall for carrier plaques. How many were there 10 years ago compared with what's there today?
Here are some ways to protect yourself and prosper in a changing market:
- It'll be more important than ever to demonstrate your impact on costs vs. price. Firms that sell on price will lose a lot of their clients. Immediately identify the clients who are the most important to your revenue stream, and let them know how your firm has helped them reduce their costs. Don't wait until renewal time, when you deliver a 15% price increase! Also, don't expect to have effortless renewals based on carrier pricing.
- Establish relationships at all levels of the client's organization. As many people as possible need to know the value of your firm. Any relationships controlled by other brokers will become your Achilles heel.
- Begin the renewal process early and involve your client. Make sure they understand changes in the market, and show them what you're doing to protect their interests. Don't hold back information - your clients might drop you if they get an unpleasant surprise later on.
- Treat your carrier like a partner. What goes around comes around. Some carriers and underwriters use pricing and capacity selectively, giving better treatment to firms and individuals who treat them as partners. Set up a client meeting with an incumbent carrier.
Since there are fewer insurance carriers available today, it'll be harder to play one against another.
Use the market sparingly. Don't throw your entire book into the market for competitive quotes at the first sign of change. You don't want to give underwriters the impression that you've beaten up the market!
- Learn about the Alternative market. At some point, your clients will want to know about alternatives to traditional insurance products, such as captive and risk retention groups, offshore capabilities, and nontraditional risk transfer mechanisms. Learn the basics on tax deductibility and off-balance-sheet transactions. If you don't offer this information, someone else will!
- Develop a fee-based clientele. Just as brokers become victims of the soft market, buyers become victims of the hard market. It's hard to create a partnership when one party loses while another prospers. Introduce fee-based representation to flatten out your compensation in both market cycles. That way, no matter what the market does, your income won't be affected.
- Don't be afraid of your renewals. A successful broker is distinguished by the ability to deliver bad news. Your clients will remain loyal if you're a good consultant in good times and bad. During a changing market, clients and carriers highly value your position as a consultative broker.
Start making changes. You'll lose a lot of revenue if you don't act now.