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  • Chris Burand

Carrier Strategies

Recently, a carrier announced it was selling one division of its company because the stock market was not giving the company full credit for that division. That is a standard line that is sometimes true and sometimes wishful thinking. This particular division of this specific company achieved pretty much nothing in the last ten years relative to growth. Their average growth rate was about 2.5% which is less than the average annual rate increase meaning they were actually going backwards (and one wonders why the stock market was not giving them full credit).

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Why should an agency do business with a carrier that can't grow itself, and therefore provides no observable competitive advantages related to growth, other than on some random account where it has the lowest price? I've pointed this out many times (not specific to this carrier) to my clients with whom I do carrier relationship management consulting.


The key question, "Does my assessment matter?" Clients ask me, "What harm does it do to do business with a carrier that is otherwise financially sound, does all right with claims, has a decent form, does not really cause any issues (unlike some other carriers) and the people are nice?" On the other hand, quite often, no one even knows who the marketing reps are because no one has contacted the agency in the last year.


These are great points for an agency that is willing to waste resources and representing carriers that cannot grow wastes resources. Agency management would be far more successful if managers viewed their carriers the same way manufacturers view their vendors. A manufacturing vendor that brings no competitive advantage to the table but is still used causes the manufacturer to fall behind their competitors who use better vendors.


Another angle in illustrating my point is to think of such carriers as excess inventory. Agencies historically have represented excess carriers because, "You just never know when you might need that one." That's an inventory issue. Excess inventory is expensive and wasteful. Additionally, with the right analysis, especially my analysis I'd argue, no one needs to carry 80% of the excess carrier inventory they carry. Agencies will make more money, improve their relationships, decrease E&O exposures, increase productivity, and enjoy more success if they eliminate carriers that bring no material or competitive advantages with them. Keeping these extra carriers on is usually a crutch required by producers who can only sell price.


Agencies waste so much valuable time with carriers who bring no material added value to the table. I’m not suggesting the carriers always do not have value. Some have value to other agencies, but just not to yours. In other cases, the carrier’s book is just dead weight floating around and going nowhere for anyone.


Another argument against my recommendations is this, "What difference does it make if none of my carriers really bring competitive advantages to the table?" That question exposes two serious weaknesses. The first weakness is that a critical management problem exists in your agency because some carriers do bring significant advantages with them. Either those carriers have not been identified specific to your needs because you only sell price so identifying competitive advantages is beyond your needs and abilities, or you have not had the opportunity to see what advantages a really good carrier brings so you don't know what to seek.


The other weakness may be that your clients and your situation have been so commoditized that your market is virtually a 100% price driven market segment. In that case, you have two choices and two choices only if you want to increase your success significantly (vs. marginally). The first is to decrease your expenses enough to work with carriers paying lower commissions so that you can be more assured your price will more often be the lowest. The second is to change your market.


We will see more carrier sales like this because the market has far too many P&C insurance companies each possessing way too little market share. The industry has too many P&C carriers that are Zombies. They are prettier than Hollywood Zombies, but they are walking dead carriers going nowhere just the same. Some are large, some are medium sized, some are small. Their futures are capped. Agencies have no real future with companies whose futures are capped. Clients are placed with these companies because some do a fine job insuring people and businesses. Their forms are good and their claims services are good. But, relative to growing an agency that needs carriers to bring extra value to the table, they don't have enough to offer. The inventory of customers is parked there until forced to move (i.e., a sale or insolvency) or until a better carrier is available (at which point a material argument exists that for E&O purposes the agency owes the clients parked with the mediocre carrier the opportunity to move to the better carrier, which requires the agency to make contact and provide an offer).


Rumors are that a particular carrier's book will be sold to one of two carriers. One such carrier brings material strengths. The other carrier has arguably made a hash out of most acquisitions and has a revolving roster of marketing people and underwriters because they can't afford to pay enough to keep the good ones. Companies in all industries that run out of ideas of how to grow organically do acquisitions because acquisition accounting allows for many sins to be hidden. As the old saying goes, "When all else fails, do an acquisition." If that carrier is the buyer, how does sticking with them make your situation any better?


The strong proactive solution is to reduce the number of your carrier appointments and focus on maintaining appointments with stronger carriers. By stronger carriers I mean stronger financially and stronger with the value they bring to you. This may mean better forms, better claims service, other value-added services, or in some cases, consistently better pricing for a long time, not just some temporary hot market.


Years ago when I first began analyzing insurance carriers I identified a particular carrier that obviously was going to leave the market and/or severely reduce their writings. This was an "A" rated carrier and likely deserved that rating because carrier behaviors as applicable for this article's purpose are usually separate from their insolvency ratings. I advised my clients to move their books. I told them I did not know if the carrier would leave the market tomorrow, next year, or three years from now but leaving was inevitable. Some took my advice and others did not. The clients that did were able to negotiate deals with other carriers and when that carrier did leave the market, they were in a good position and had time to go after other agencies' best accounts. Those agencies were struggling to move large books quickly. I have seen this over and over ever since.


The time saved can be better used providing better service to your clients and even selling more insurance! Or more golf, it is your choice. Additionally, in a proactive world, negotiating better deals with carriers is far, far easier. Proactive carrier relationship management is by far the better solution for those owners and executives who are willing to put the work into achieving outsized success. My solutions and services far exceed the software solutions you are being asked to purchase. Work is involved because skill sets need to be developed. I have been consulting and teaching this subject for 25 years and I've found extremely few agency owners and executives who have the required skill sets at an intuitive level.


Work is required along with leadership to change cultures internally. If you want to achieve these levels of success, and if you have the leadership and willingness to work hard preparing (as Bobby Knight was quoted, "Everyone has the will to succeed. Few have the will to prepare to succeed."), look at your carrier relationships as if you were a manufacturer. Are they helping you succeed and do you have excess inventory?

NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.

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