There’s no better way than offering risk management services for your agency to survive and grow.
THE PROBLEM:
The Independent Agency System today faces a variety of challenges: Skyrocketing expenses, ongoing commission cuts, and the explosive growth of alternative distribution systems (financial institutions and the Internet come to mind). To survive in this environment, agents must compete in ways that they never foresaw 10 short years ago by providing unique value-added services, such as risk management. In marketing terms, this is called “product differentiation.”
THE SOLUTION: RISK MANAGEMENT
Offering risk-management services to your clients and prospects is a great way of adding value to the insurance commodity. Such services differentiate you from all the other alternatives for consumers buying insurance: Over the Internet, from a bank, from a computer, at a kiosk in a mall, from the used car dealer, or from the agency down the street.
Last year Americans bought more than 10 million drill bits. Not a single one wanted a drill bit; what they needed was a cost-effective way to make holes. By the same token, not one of your clients wants an insurance policy. Not one! What they want is cost-effective protection from financial ruin.
Risk management is a systematic process for identifying, analyzing, and measuring clients’ exposures to risk, financing these risks, controlling their losses, and developing a procedure to administer the program. In practical terms, this means educating clients to understand the risks they face as individuals, families, and businesses; having them acknowledge that they’re insuring only a portion of this risk; and assisting them in controlling and financing the remainder.
When I recommend that agencies add risk management services, I usually get one or more of these objections:
- “I’m not getting paid enough as it is without adding this extra work!”
- “I don’t have the time to handle renewals and do all of these other things as well!”
- “It’s just too complicated with statistics and probabilities. I don’t have time to learn all that!”
These are the same agents that resisted automation.
Offering risk management services will accomplish the following:
- Reduce your E&O loss potential. Anyone can sue anybody at any time for anything! However, if you’ve educated your clients to recognize as many potential exposures as possible and accept accountability for their decisions about handling these exposures (be sure to document this accountability), and have a clear risk-management policy statement, you’ve essentially eliminated the threat of E&O claims based on uninsured and underinsured losses. What’s left is clerical and marketing errors, which your agency-management procedures can address. It’s well worth the extra effort to prevent your clients from suing you because of their unwillingness to insure themselves properly!
- Enhance your agency’s income potential. I often hear, “Clients want low premiums. They won’t pay for any extra services!” Bunk! We’re never paid for what we know; we’re paid for how valuable that knowledge is to someone else and how well we convey their need for our knowledge. If your clients understand that you’re more than a seller of products, and you show them how your risk-management knowledge can benefit them, they will buy your service. Period. Many state laws hinder the inclusion of fees for additional services, stating that those services are covered by the commission paid the agency by the company. To avoid this hurdle, you might want to set up a separate service corporation (of course. with full disclosure to the client). You might also consider lobbying to change the existing laws to express a more realistic understanding.
- Improve account development (and retention rates). The more exposures that you help uncover, the more opportunities you’ll enjoy to sell insurance products to your clients — and the more policies you sell your clients, the more likely they are to remain your clients. But it isn’t that easy. You’ll have to work hard to implement a risk management plan for your clients, and even harder to help them realize that your agency is providing services that they might lose by switching to a competitor.
CONCLUSION
To achieve maximum potential for survival, continued growth, and increased profitability, your agency would do well to offer risk management services. When “value-added” holds true for your clients, it’s just as true for you.