The Five Ways Agents Get Fired!

Independent agencies and brokerages are facing a growing threat to their middle market Commercial clients. These firms are being squeezed from below by the commodity sellers and from above by the resource providers. Previously, the competition for these larger accounts has been based mainly on price, coverage, and a single relationship. But now, the determining factors in the selection process have shifted with the awareness that price does not differentiate brokerage firms except in the commodity environment -- and this shift is having some dire consequences.

Changing distribution systems have caused our clients to be more selective in the brokerage firms with whom they chose to do business. The expectations of these sophisticated clients have increased, as their perception of a firm's expertise has become the standard on which they base their decision of who to use. They have realized that in today's marketplace, price is readily available, and the insurance policy is a commodity. More and more, they're selecting brokerage firms based primarily on their ability to solve problems and provide resources.

As competition for these middle-market accounts increases, the incumbent broker/agent is extremely vulnerable in several situations. However, this vulnerably doesn't generally center on their ability to provide the desired insurance policies or price. Instead, the competition is based on relationships and the perception that other venues might offer superior resources.

Here are five classic examples of why agents can wind up getting fired in these situations. The purpose of this article is not to upset or depress you, but rather to help you know what to look out for and how to best protect yourself.

Why Agents Get Fired! #1 - The New CFO

Has it happened to you yet? You've just been introduced to the newly hired Chief Financial Officer of your largest account. In a flash, your previous relationship and all the personal loyalty it engendered are gone. There's no warmth, just the coldness of a new agenda -- an agenda that probably doesn't include you or your firm.

Why should you be concerned when you've done a good job providing for the account and have the service record to demonstrate it? Here's why!

The new CFO has a financial background. He or she judges the value of the service you've provided based on resource capabilities and quality information. This person has a higher level of expectations. In the event the new CFO came from one of the Big Five, he or she is accustomed to global capabilities and team service. The person might well have relationships with one of the major international brokers. Your record of competitive pricing and personal service won't mean much to him or her.

Take these steps to protect yourself:

1. Find out why the new CFO is there. In most cases, either the firm is in difficult financial straits or it's positioning itself to go public. If you know the reason for the new CFO, you can determine the agenda.
2. Get the background of his/her prior job. In many cases, a new CFO brings in the same brokerage firm who assisted them in their prior position. You need this information to protect yourself from being blind-sided.
3. Provide a Stewardship Report ASAP! You must demonstrate to the new CFO how important your role has been to the development of your client. Remember that this person has no history with you and might not be aware of all the things your organization has done for the client. 
4. Test the Relationship. You have a problem if your calls go unreturned, your lunch meetings are unaccepted, or your recommendations are ignored. The client is getting advice from somewhere. Don't be afraid to be fired! Sometimes you need to have a serious discussion with the new CFO regarding your position. If need be, look this person in the eyes and say, 'My sense is that you might be happier to be represented by another brokerage firm.' This might well begin a dialogue that will lead to a understanding.

Why Agents Get Fired! #2 - The Initial Public Offering

I recently spoke with an agent who told me that his firm 'just didn't get involved' with lPOs. 'They're just too messy,' he said. 'We let the other guys do those.'

This kind of thinking is completely counter-productive and shortsighted. How can you be in the Commercial insurance business and not work on lPOs? Although public offerings used to be reserved for large organizations or high tech start-ups, today they're prevalent in all industries from construction to transportation. They're the new brass ring for owners of smaller businesses.

Yet, many agents still don't see the bullet coming because they don't realize that the rules have changed. The initial public offering injects two new entities into the relationship, and agents who aren't prepared to accommodate these new entities will almost certainly lose the account.

The two entities are investment bankers and the Securities and Exchange Commission.

Investment bankers might either provide private placement capital or underwrite a public offering. In either event, they bring their own professional advisors into the transaction. One of these advisors is usually an insurance brokerage firm.

Once the Securities and Exchange Commission is in the game, your client is playing by a new set of rules. The SEC mandates confidentiality requirements, statutory filing requirements, and accounting rules. Your client will need advisors who can provide counsel in these transactions.

If you're not prepared to address these changing circumstances and needs and able to answer the concerns of the investment bankers and SEC, you will almost surely lose the account. So, when an IPO is in the wind, take these steps to protect yourself and preserve your account:

1. Understand the Deal. With the signature of confidentiality agreements, professional advisors can obtain access to the private placement documents or preliminary information. This is critical, as they will outline the strategy and issues going forward. In some cases, you can obtain public information on the Web. However, it's usually too late if the information is public, since someone else acted as an advisor to reach that point.
2. Know the Steps and Timeframes. There's usually some lead time between the decision to bring in the investment bankers and the action. This is the period for you to position yourself as the advisor. Then, when the investment banker is chosen, you will already be in place as the professional advisor and your position will be secure.
3. Know the Investment Banker and the Board. The investment banker and the board members might have favored professional relationships. It's important that you know who they are. Otherwise you might be surprised and excluded. The more you know about a person's background, preferences, style, etc., the better your ability to fit yourself into their existing dynamic.
4. Know the Other Current Professional Advisors. You're not the only professional advisor who's vulnerable. Other advisors such as the local banker, accountant, and attorney firm are also at risk. An alliance with these individuals can be to your benefit. Together you can present a united front with a comprehensive action plan that coordinates all the various needs and services.
5. Get Help! Recognize the fact that you're no longer in an insurance transaction. Your long-term value lies in the ability to bring information and solve problems. Align yourself with industry experts who have worked in this arena before. Your major competition has these experts. You need them, too.

Why Agents Get Fired! #3 - The Request for Proposal (RFP)

Visualize for a moment the construction of an atom. There's the impenetrable material of the nucleus with a variety of particles circling around it, trying to get in. That's basically the picture of an RFP. The client and his/her advisors sit in the center, while brokers and agents all spin in orbit trying to figure out the key to success.

This is a critical time in your relationship with your client. In most cases, the RFP process is a smokescreen from behind which your client intends to change brokers.

What many agent/brokers don't realize is that the Request for Proposal is not really intended as an insurance transaction. Buyers know that anyone can obtain the insurance at the same competitive rates. What they're really judging is the expertise and resource capabilities of your firm. Often they've already been shown a standard of capabilities they desire elsewhere and are simply going through the motions of the RFP to justify moving their account.

Here's my advice to anyone invited to compete in the RFP: Unless you created the opportunity, or are intimately familiar with the issues, walk away! You'll be part of the window dressing while the incumbent gets fired, and the firm who created the RFP gets hired. You'll expend time and energy pursuing a goal that's almost assuredly already out of your reach.

So how does a firm successfully compete in an RFP?

1. If you're the incumbent, don't let it begin. Stay on top of the issues and resource requirements of your client. This process takes place throughout the year, not just at renewal. Use stewardship reports as a way to demonstrate ongoing value.
2. If you're not the incumbent, create the opportunity. By developing issues and demonstrating superior resource capabilities, firms put themselves in a dominant position. Creation of an RFP is merely the method in which the client anoints them.
3. Understand the issues. Most RFPs occur because the incumbent agent has lost touch with the issues. These issues can be technical, resource, or relationship based. The successful participant must be fully versed on these issues and prepared to resolve them.
4. Develop Spheres of Resource. Be prepared to reach outside your immediate organization for resources to assist your client/prospect. These resources will allow you to create the perception of adding value. In many cases, the perception of superior resources is what attracted the client in the first place.
5. Learn Conceptual Presentation Techniques. In most cases RFPs require team presentations with visual and written materials. The ability to produce and deliver these effectively is critical to your success. These presentations are based on the creation and demonstration of ideas, not price. It will be too late to develop the needed skills once the RFP has been issued. Prepare now by learning presentation and material development skills.

Why Agents Get Fired! #4 - The Acquisition or Merger

An agent friend of mine received a call at 11:30 p.m. one Friday from his largest client telling him that he had just returned from signing the deal that sold his company. The client just couldn't sleep until he told his agent/friend about the sale. Guess who didn't sleep the remainder of that night!

Although you might be happy for the success of your associate in a situation like this you'd be naïve not to worry. Usually these deals involve other multi-state or multinational firms and the acquiring firm has an established relationship with another broker. Someone must go, and the other broker is going to do everything possible to make certain it's you. So you have to do everything you can to make sure it's he:

1. Become an advisor in the deal. Someone needs to perform due diligence on the risk-financing program. There are usually two appetites for risk, and the one program might not fit the other. What happens if one of the programs contains massive unfunded reserves in a cash flow program? What will the newly combined program look like on a pro-forma basis?
2. Get the horsepower. Reach outside your immediate organization for the resources you need. In the case of a multi-state or multi-national merger you might need to form strategic alliances with other brokers in those locations.
3. Be ethical. If you're the advisor in the deal, providing the due diligence, you'll need to place the client's interests above your own. It's quite possible that you might discover flaws in the program that could create problems inside the deal. You must disclose these at any cost, including your risk of being fired. Failure to do so will have significant consequences, as these flaws will eventually be discovered. Furthermore, though it might not always seem the case, ethics are valued and your willingness to do the right thing even at the risk of losing the account will make a highly positive statement about you.

Why Agents Get Fired #5 - Depend on the Carrier or Product for Differentiation.

Independent agents and brokers have traditionally relied on the product as a basis of differentiation. 'We represent XYZ Company', they say. 'XYZ has an excellent program for people in your industry.' Yet in most cases they're not the only firm who has access to XYZ. They haven't distinguished themselves, they've merely tied their fate to the commodity/product.

Sophisticated buyers recognize that the product is readily available at virtually any price from numerous sources. They want and expect more from their agent/broker than simply the ability to place insurance. The insurance program is usually the last criterion of which agency/brokerage will represent them.

Successful agents/brokers of the future will learn how to differentiate themselves -- first by demonstrating that the placement of insurance is just one of the tools they can provide to clients. They will learn how to be compensated on a fee basis, and provide value outside the insurance policy.

It will be critical to be able to prosper without being tied to the commodity. Ways to do this include:

1. Learn 'Consultative Brokerage' Techniques. The ability to develop issue-based prospects, build relationships, introduce resources, institutionalize clients/prospects, and exercise broker control will differentiate successful agent/brokers from the competition. These consultative brokerage techniques allow an agent/broker of any size to create perceived value.

2. Learn How to Compete Conceptually. Conceptual competitions aren't based on the product, but how a firm intends to provide value to the client. This value is based on many things besides the insurance carrier or policy.

3. Institutionalize Your Franchise Accounts. Make certain your current major accounts are bulletproof before looking elsewhere for new business. Your largest accounts are probably targets for other brokers. They're an excellent way to practice and implement consultative brokerage techniques.

4. Master the Five Pathways to New Business. There are only five ways to create new revenue: Seminar selling, active prospecting, request for proposal, networking, and cross-selling. The firm that learns and masters these will control its marketplace.

5. Lead Change. Our industry is changing more rapidly than ever. New distribution systems are developing that are not dependent on traditional agents and brokers. For your organization to provide value in the future, you must establish a culture change that matches client expectations.

CONCLUSION

As competition intensifies for larger accounts, the successful agent/broker will learn how to match capabilities to buyers' expectations. Hopefully they will not experience the bitter lessons of Why Agents Get Fired!