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The Problem with Hiring a Consultant OR an Insurance Broker

"When hiring a management consultant firm, ...clients do not know what they are getting in advance, because they are looking for knowledge that they themselves lack. They cannot measure the results, either, because outside factors, such as quality of execution, influence the outcome of the consultant's recommendations." Clayton Christensen of Harvard Business School as quoted in The Economist.

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As a consultant, I completely agree with Mr. Christensen's assessment. As a consultant to agencies and brokerages, the exact same description applies to selling insurance. Clients want the right coverage and are astute enough to know coverage matters. However, there is no way to know if the coverages offered are adequate given how insurance is usually sold. There is a great way that exists to know if the coverages are adequate if a different approach is taken, but otherwise a claim is required to test the adequacy of coverage.


A saying used to exist relative to buying computers. The person charged with buying a company's computers did not really know for sure what they were buying or how to tell the difference between different computers, but even if the decision was 50/50, they would buy IBM computers because, "No one ever got fired for buying IBM."


People hire, especially in larger firms, big name consulting firms for that exact same reason. Over and over again I have seen insurance companies and some big brokers spend more money hiring big name consulting firms to learn the industry rather than pay them for advice. No one gets fired for hiring those firms even if the spend is three times what is necessary and the results are marginal. That is the value of a premium brand.


For lesser consultants like me, and the 99% of insurance distributors for whom I consult and do not possess such a premium brand, the question is how to prove your worth pre-purchase or pre-claim when the buyer is not exactly sure what they are asking, much less buying?


The default, which helps sales but not the client, is to have a personality which causes the client to feel safe. It is funny to me how people will say, or at least think, "I trust that person so I'll buy from them." When asked if they trust the person's technical ability to provide the right solution, the response is often negatory, "...but I trust them anyway."


Politicians are often elected on the basis of, "They'll try hard even if they're incompetent." In fact, their incompetence can be endearing and create trust because incompetent people do not threaten a person's insecurities about not knowing the answer. Two incompetent or at least inadequately educated minds rarely combine to arrive at a good solution. Two half minds don't equal one average mind.


The question then for truly competent brokers who, simply by being competent can cause some buyers to back off, is to work on being an emotionally safe solution while simultaneously proving one's competency past premier brands. An example involves a couple of agents I know who are quite technically competent. They have prospective clients who are currently with large brokers bearing big brands. The clients understand their current insurance programs with these major brokers, are a disaster waiting for a catastrophe. The insureds are missing 75% of the coverages they need, but these two agents cannot get the clients to move.


Technically competent people sometimes lack as many warm fuzzies (an important technical term), because, well, they don't depend on being warm and fuzzy for their success. Incompetent people pretty much have nothing but warm fuzzies upon which to depend.


An agent must prove technical competence and prove to the decision maker that the decision maker will not be fired if something still goes wrong, but this is insurance and things do go wrong. One interesting story is about an insured with one of the large brokers who was solicited by a far smaller broker. The insured acknowledged that the big broker had completely mismanaged their insurance program and that the smaller broker's solutions were far better. However, they refused to change brokers. When asked why they would not move from the incompetent to the competent, the insured said, "Because we don’t have to pay for coverage with the big broker. We get coverage through their E&O policy." True Story!


In the book, Extreme Ownership (which I highly recommend -- but only if you are truly committed to doing what is right for your company and customers -- otherwise ignore this advice), the authors note how decisions are easier to make if one is truly committed to the organization they are running versus selfishly choosing IBM so that they are not fired. A massive difference exists between doing what is right, with personal risk, and neutral or wrong, with minimal risk.


Another management consultant, Dr. Weinberg, wrote years ago that consultants can only help achieve real results if the client is truly committed to achieving real results or is being forced to achieve real results. When consulting with insureds, you will not achieve success with those who truly do not care. Separate and cut those from the herd.


A high quality broker, judged by both technical competence and sales results (versus the producer who told me a few months back that while they clearly did not know their coverages, the fact that they make adequate sales proves they are technically competent), will likely make few sales to self-centered people under no pressure to address issues unless they can make the pain intensely personal and scary or remove some non-insurance issue with which the insured thoroughly dislikes handling. Those folks not only do not know what they are buying, they are too self-centered to possess any desire to learn what their company or family needs to buy relative to insurance.


If you still want to sell to these people, insurance competency will not get you the account. Pivot away toward consulting on something else other than straight insurance. The advantage of doing so also changes the rules of the game if a broker with a bigger name is involved. The bigger broker will be setting the rules. It is like responding to an RFP. Some other broker or agent likely wrote the RFP and if they are halfway competent, wrote it in a biased manner to give them significant competitive advantages. If someone else is setting the rules, you must change the game so that the buyer does not revert to the safe bet, like IBM in days gone by. Change the game to require the sale be tangibly more than an insurance policy so you are clearly selling something other than insurance.


When a technically competent producer learns to change the game, in my experience, they have also learned to improve their warm fuzzies. A technically competent person has an extreme advantage because with effort they can warm their personality to make people trust them more on a personality level. Many incompetent producers cannot ever become competent producers. When buyers do not know what they are buying, the combination of competency and warmness is awfully difficult to beat.

 

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.


None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.

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