Chris Burand tells why companies need to know their competition inside and outside their agency plant, and then implement their pricing, product, and compensation strategies accordingly.
Imagine the U.S. Olympic team arriving in Athens without any idea who their competition was! Sure, they would have probably won a few medals anyway, but not the 103 that they did win.
Insurance companies don’t appear quite as well prepared as our Olympic athletes. My experience in consulting with companies suggests that many of them don’t know who their competition really is, and, as might be expected, they’re not nearly as successful as they could be. Because insurance companies often have different competitors in different strategic categories, knowing their competitors can be a tricky issue. Companies’ competitors fall into two broad categories: Competitors for business outside the company’s agency plant and competitors within the company’s agency plant. This is an important, and frequently overlooked, distinction that requires quite different strategies.
Outside the agency plant, product and price are most important because the company must find a way to help their agents get business from other companies and other agencies. As every producer will attest, it’s harder to get a customer to leave an agency and a company than it is to move an existing customer between companies.
Within the agency plant, a company needs to know with whom their agents believe they are the most interchangeable. If a company isn’t competitive, they need to know with which other company(ies) their agencies will place the business. It’s critical to note that a number of factors other than price influence an agent’s decision. Among these are product, claims, company rating, service, possible loss control, ease of doing business (which should never be underestimated) and, often last, compensation. To grow within their agency plant, companies must convince their agents to place more of the agencies’ existing business with them. Because the agency already has the account, the key is with which of the agency’s companies the agency places the account.
If a company wants to become a top competitor within its agency plant, they have to find a way to be their agents’ top, or second-leading, carrier, period. They need to become a key partner with their agents and develop a good working relationship. A handful of successful companies have done this; by doing so, they get first shot at the good accounts. To get to the top, a company must push out other companies within their agency plant. It doesn’t matter what prices direct writers are using or how they compensate their agents — they aren’t the competition. The company’s only concern should be how it stacks up against their agencies’ top companies and what it will take to get books or accounts from other companies within the same agency.
If the company is already one of an agency’s two top carriers and/or wants to increase the sale of new accounts, it must provide its agents with competitive advantages or appoint new agencies in which it will be a top company. This inevitably means pushing other companies out of the way. Most new business written by the company’s agencies will then flow to the company.
If a company implements a strategy that makes it competitive with carriers that are not true competitors, the carrier will often cut its own throat. For example, a common error is to decrease price for no reason or create an agency compensation plan based on what companies other than direct competitors are paying. I’ve often seen this happen when a carrier bases their compensation plan on the plan of other carriers that don’t even write in the same state, write the same line(s) of business, or don’t compete with them in any way. In other cases, they compare themselves with weaker carriers instead of the top two carriers. A company can’t expect to make it to the top within their agency plant if their competitive strategy doesn’t compete with their leading competitors.
Another example is product. I’ve seen a number of companies build a product/price strategy around the wrong competition. For example, they build their Auto pricing around that of other major national carriers, even though their average agency represents only one national carrier (so there are few books to roll), and have limited proactive Personal Lines sales (so that better pricing won’t take sales from other agencies). All this strategy does is reduce profits; it doesn’t increase growth.
CONCLUSION
Companies need to know their competition inside and outside their agency plant, and then implement their pricing, product, and compensation strategies accordingly. Otherwise, a company might find itself with a perfect agency compensation plan — if only their agents were direct writers!