I read an interesting article by a leading purveyor of Insurtech advising carriers how to increase premiums without increasing rates. The three top recommendations were:
Verify auto usage
Verify garage address
Verify unlisted drivers
In 1987, when I began my career learning auto and homeowners underwriting, and did my first agency audit 30 days later, I verified:
And other variables, but these three were priorities.
Carriers are currently paying three entities to do one job and it makes no sense. They are paying underwriters to underwrite. They are paying agencies to upfront underwrite. And they are paying technology companies to create software to underwrite. When you build a rocket, you need triple redundancy. When you are insuring automobiles, you don't need and really cannot afford triple redundancy. I wish carriers would pay big time consulting money for such straightforward advice rather than paying big time fees for Insurtech, labor, and bonuses.
A good local agent can address auto usage, address, and drivers, wait -- get this -- for FREE! Imagine that!
The carrier gets this great service for FREE. Why is it free? Because the carrier is already paying commissions and contingencies. And if your agents are not doing this correctly and honestly, fire them or reduce their commissions. Life in this sense has zero need for complications or software.
Results are pretty amazing when you employ humans to do a job, set the expectations, and hold them accountable, especially when you’re already paying them to do a job. If a carrier has decided its agents are so incompetent, unreliable, or are too busy to underwrite accounts upfront, quit paying them as if they were competent, reliable, and had the time to do their jobs well.
The argument I hear from carriers is they need the volume and holding agencies accountable might injure the carrier's volume. That just means you're desperate so quit pretending you have quality standards. Pretending you have quality standards when you really don't just creates friction and friction costs money. The stereotypical scenario is when the honest agent submits an application and it gets rejected while the not so honest agent submits an application for the same insured but omits some data, and voila', the account is written. And both agents have the same commission schedule. Transparency is cheaper.
Carriers are wasting so much money studying how to save a dime here and a dime there that they are probably wasting more money studying the issue than they'll ever save.
Insurance agency commissions/contingencies represent around 35%-50% of all underwriting expenses. The next largest item is usually in the single digits. In other words, carriers are not going to save enough money on postage to become adequately competitive. The solution is in aligning underwriting expenses so that agents are paid per their performance and triple underwriting redundancy is eliminated.
Most carrier executives are scared to death to acknowledge publicly (though not always privately) that distributor compensation models are broken. Who wins in this relationship? The lousiest, laziest, more aggressive (not always in a good way) distributors. Why are carrier executives so nervous about instituting an aligned distributor compensation system? They know they don't have a competitive advantage in their products, services, underwriting, pricing, or claims. They need distributors who will put business with them regardless of the quality of the business and the quality of the distributor, and they will continue to overpay those distributors, underpay the better agents, and pay three entities to do one job.
And meanwhile, the one carrier that has undeniably addressed this issue is growing three times faster, year after year with some of the highest profit margins in the industry. They accepted and then embraced reality early.
If you are a professional with a desire to work with a consultant who knows this industry inside and out, you want to create alignment while materially decreasing your underwriting expenses, and you are ready to make the hard decision to execute a simple strategy, then let's have a conversation. Contact me today at firstname.lastname@example.org to schedule a call.
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