INSURANCE COMPANIES AND AGENCIES: THE PARTNERSHIP DREAM
by Carol Hammes
A proven way to develop a mutually beneficial relationship with your carriers.
Most insurance companies have been analyzing their marketing strategies very carefully for the past several years. The result is that many of them are “retrenching,” pulling out of those lines and those geographic areas that historically have been unprofitable for them. Some are abandoning Personal Lines completely or, at the very least, Personal Auto. Others are getting out of the Workers Comp market or are limiting themselves only to certain types or sizes of commercial accounts. Almost all companies, national and regional alike, are seeking to reduce the number of agency plants. To obtain preferred treatment or even to maintain contracts, agencies are being forced to limit the number of contract carriers in the office and to change the nature of the relationships with the companies that remain.
Historically, the agency-company relationship has been driven by the company side. It used to be that companies were the aggressive party in courting agents, but this is no longer the case. If you doubt this, just take a look at how the number of hospitality rooms has decreased at state conventions! In the past few years the emphasis has shifted, and agents must now take the more active role in developing and maintaining insurance company relations.
Communication is the key to any good relationship. Some insurance companies communicate pretty well, but most do not. The burden is on the agency side to open up the dialogue and keep it open if the partnership is to have a chance of succeeding. Agents can’t let good relationships stagnate and need to rejuvenate shaky ones before they deteriorate further. They must make a total agency commitment to managing carrier relations on a proactive basis.
The first step is to develop a written action plan assigning the responsibility for carrier relations. If the agency is large enough it will need two or three levels of contact. A typical strategy will have an agency principal maintaining the home office and regional relations, a marketing manager, and the producers/CSRs/placers keeping in touch with the underwriter/supervisor level.
The action plan should detail a budget allocation for each level of contact, timing for planned events, and recommended frequency of spontaneous calls/visits. Agencies generally try to have one large program or outing a year to which they invite all agency personnel and key company mangers, reps, and underwriters. They also plan trips to sporting events, lunches, or other opportunities for people to get to know each other.
Familiarity will help keep communication channels open when each side has a different perspective on an account or other issue.
It takes time and money to nurture a company relationship. This is one of the major reasons (in addition to the ever-increasing volume commitments) why most agencies find that they must limit the number of contract carriers that they represent. Once you have an idea of how many companies you want to spend time developing, you can then set up a separate action plan for each existing company. Which relationships are worth building on? Which should be terminated before you waste any more time?
At the end of every year, the designated agency principal should meet face to face with the regional vice president or branch manager. The purpose of the meeting is twofold: (1) To let the company know where they stand with your agency (and why); and (2) to find out what they think about your agency (and why). Before going into this meeting you’ll need to develop comparative data so that you can back up your discussion with hard facts. How much volume do you have with each company? What was the growth rate last year? What about hit ratios and loss ratios? Did you receive the anticipated profit-sharing bonus? If not, was it due to loss experience or lack of volume or both? Would you have received a contingency check from another company if you had experienced the same volume and loss ratio? Did you meet the commitments made last year? What do you think the growth plan should be for the next year?
As part of the evaluative process, many agencies have started to give their insurance companies grades. Have the Company Evaluation Form at the end of this article (altered if needed to fit your situation) completed individually by all agency personnel who deal with the companies. A total agency report card should then be compiled. You might not want to share all of the individual company results, but you do need to tell the branch manager where their company ended up: “You were the second best out of eight, and here are the three areas where your scores were low. What can we do about this?”
The meeting should be one-on-one with the decision-making company official. This is the time to find out if one of your producers is causing problems with the company or to tell the branch manager that an underwriter is so difficult that your people can’t deal with them. Both participants should leave the meeting with a clear idea of the type of business (and how much of it) the agency has agreed to pursue for the carrier and what the company will do to facilitate the sales and service effort.
Share the commitments and promises with the agency personnel who are on the front lines, since they’ll be the first to know if all isn’t going as planned. Have a procedure for them to alert the agency marketing manager or principal when something is questionable. Keep a log of all submissions, and review it quarterly. Did the branch manager say that they wanted contractors, but the underwriters are turning them down? What is it about our contractors that makes them unacceptable? Is it because the agency appointments aren’t as complete as they could be? Should we be physically presenting the risks to the underwriters? Should we call or fax some basics on accounts before we submit them? Why does it seem as though we’re always asking for an exception or accommodation?
In short, try to catch the problem before it gets to the finger-pointing stage. A working partnership involves some give and take on both sides, and compromise is a lot easier if neither of the participants is backed against the wall. As part of the annual review of company relations, you might determine that the agency could use another carrier or two. Before signing a contract with the next marketing representative who crosses the threshold, do an in-depth analysis of all available markets. Make an initial list of those that seem to be targeting the same type of accounts that your agency is writing and screen those companies for financial stability, overall marketing strategy, reputation among other agents, rates, and commission levels. If they still seem to be attractive after this first cut, contact them and begin serious discussions.
Find out everything you can about what they want to write and how they write it. Meet with the underwriters to find out what they’re looking for — marketing representatives might tell you that the company loves widget manufacturers, but it’s how the underwriters feel about them that really matters. List all the things that your current carriers are doing or not doing that make it easier for you to do business with them and question the potential new carrier on those items. This includes the level of automation available and interface possibilities with the agency, as well as items such as the preparation of auto ID cards, acceptance of ACORD change request forms, requirement to write Life insurance, etc.
Prepare a company submission packet to provide the branch manager with detailed information on the agency. The presentation should be free of errors and formal enough to reflect the fact that you have a professional organization. Here is a list of major items that should be included:
- Cover letter with brief overview of agency’s philosophy and orientation.
- Agency history — no more than one page.
- Organizational chart and resumes of principals and key (or all) employees.
- Policy on employee licensing and education.
- Copies of articles about the agency or written by principals/employees.
- Copies of agency brochures, including those for special programs or lines.
- Agency business and perpetuation plan.
- Financial information, including most recent P&L and balance sheet.
- Summary of company experience with premiums and loss ratios for each carrier for the past five years.
- Copies of company-generated production reports for each major carrier.
- Details about agency automation.
- Details on marketing methods and systems, such as designated marketing person or department, sales center, sales contest, or other producer incentive.
- Agency production records for the previous year, including the number of quotes/proposals presented, new policies written, new commissions written (by producer and/or by line of business if possible).
If both the agency and the company are still interested in proceeding after the exchange of information, discuss goals for the first and second years of the relationship. What will they expect? What can you deliver? Tell them that you want to have quarterly meetings with the branch manager during the first year to review the submissions that have been made and the disposition of them. As with existing carriers, if the new company isn’t accepting your risks, you need to know why. It’s not cost effective for the agency and the company to reach the end of the year and then wonder why the relationship didn’t work out.
After the details of the arrangement have been worked out, it will be time to sign the legal agreements. Before signing anything, review both the agency contract and profit-sharing agreement carefully to make sure that they coincide with the verbal representations that have been made. These agreements used to be standard, but not any more. You could literally be signing away the value of your agency if you aren’t careful!
INSURANCE COMPANY EVALUATION FORM
COMPANY
| RATING CHARACTERISTIC (Rate each Company from 0-Poor to 5-Excellent) |
| MANAGEMENT | | | | | |
| Flexibility | | | | | |
| Cares About Agency | | | | | |
| Communication | | | | | |
| Market Stability | | | | | |
| UNDERWRITING | | | | | |
| Ability to Write | | | | | |
| Flexibility | | | | | |
| Cooperative Attitude | | | | | |
| Consistency | | | | | |
| FIELD | | | | | |
| Authority/Quoting | | | | | |
| Willingness to Help | | | | | |
| CLAIMS | | | | | |
| Responsiveness | | | | | |
| Fairness | | | | | |
| TURNAROUND | | | | | |
| Personal Lines-New | | | | | |
| Personal Lines-Other | | | | | |
| Commercial Lines-New | | | | | |
| Commercial Lines-Other | | | | | |
| POLICY ACCURACY | | | | | |
| Personal Lines | | | | |
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