By JOHN ELTHAM, head of North American broker business for Miller Insurance
Broker selection for risk-mitigation services and precision-designed insurance programs is a big commercial decision. The importance of that choice and the alternative offered by independents is precisely what will be promoted by "The Independents" at its second annual event during the annual conference of the Risk & Insurance Management Society Inc. (RIMS).
The Independents was launched last year as an informal coalition of independent insurance
brokers from around the world with a single unifying belief in "client-first service."
For example, among the lead sponsors are three of the top independent brokers in the United States: Frank Crystal, Hylant and The Hays Cos. They are competitors, but they see a bigger picture and are actively working to raise the awareness of the strong value proposition offered by independent brokers to the risk management community. This view is shared by the 14 sponsoring broking firms from six continents and representing five networks with a combined annual premium of approximately $40 billion. Existing clients, international underwriters and other service providers will all be there to support the event.
So what is going on out there in the marketplace to prompt this collective initiative?
In this tough economic environment, survival has been the single overriding corporate objective for many companies. Financial pressures can make a business more fragile and susceptible to loss. The choice of the most qualified risk management service providers and their perceived added value are therefore becoming ever more pertinent to the risk management community.
Selecting the right provider of professional, timely and perceptive risk mitigation advice can make or break a company. The identification of residual risk and subsequently making the right decisions about what to self-fund and what to transfer have greater importance now than in more benign economic environments.
Meanwhile, enterprise risk management (ERM) practices and techniques are better equipping risk managers to take broader and more strategic approaches. Business continuity and risks to supply chains are on most boardroom agendas. Reputational risk, intellectual property, cyber and other "new" risks are within scope. Clearly, the risk management community is making big strides in increasing its sophistication, expectations and requirements.
We have entered what is termed the "experience economy." The consumer has much greater influence over the products and services that they want to purchase. Identifying, articulating and then executing to those agreed criteria will require a fairly complex organization that can achieve continued alignment of interest and retain the skills required to perform.
The global brokering houses heavily promote their systems and technology to keep pace with risk management demands. There is real value in the investments that they are making.
Ultimately, though, the most important component of any brokering house is its people and their ability to deliver on a consistent and committed basis. Are they good enough? Do they have the passion to see things through when inevitable challenges arise? Do they really know their clients?
This could be why there are some industry sectors in the Risk & Insurance® 2010 Power BrokerTM awards where independent brokers are not just featuring but dominating. These sectors include construction, hospitality/gaming, pharma/life science, public sector and real estate. And there is a clear trend toward a higher percentage of independent brokers being represented in the award competition overall.
With people still at the core of the risk management business, independent brokers are building a concentration of talent in a number of industry segments. Those people also design supporting systems and technology for risk management purposes.
Clearly, the large corporate brokers have a great deal to offer, and, depending on the criteria of the risk manager, they might be the better choice. They have some very good people and resources to deliver first-class service. But so do the independent brokers.
So there is a high degree of parity between the two groups of suppliers. What are the differences?
Size, or rather lack of comparative size, is actually one of the biggest advantages that the Independent brokers possess. The business will often be in the hands of owner/operator entrepreneurs that retain a very strong vested interest in the business. They will tend to attract a like-minded set of employees who have a heightened sense of their contribution to the greater good.
In this environment service delivery is everything. There are no external shareholders to either serve or tap for additional funds. The client is king, and success comes from retaining business and outperforming the competition in the key areas of service and knowledge. Brokers do not make their margin from new business because the cost of acquisition is very high. This cost is reduced if the business is introduced or secured on a strictly referral basis. To achieve referrals, the broker must clearly be building a reputation for performance. Reputation is won and lost on service levels that can be measured by client-retention levels. The Independents boast retention percentages in the high 90s.
However, promoting this size advantage can be difficult. The biggest challenge for independent brokers can often be overcoming the corporate perception that "biggest is best." Getting the opportunity to demonstrate parity of service--and indeed the advantages from using a smaller but equally sophisticated supplier--can be difficult. It is not a message that works with all potential customers and, realistically, never will. One size does not fit all.
There are different responses to negating the "size" challenge. Some brokers adopt an industry vertical or niche product approach. Others put a great deal of emphasis on their investment in service and claims teams. The broker will include them in prospect meetings and clearly establish that they will be the individuals handling an account on a go-forward basis. This in itself can differentiate as often the first time that the service and claims teams are introduced is after the award of the account. Big corporate brokerages regularly reshuffle personnel, as well, so continuity and intimate account knowledge gets lost as individuals move on.
HUMAN AND CORPORATE CHEMISTRY
Of course, all of this is a matter of preference, and corporate philosophy can play a big part in influencing the decision about which broker to use. If the DNA or chemistry isn't right, then it doesn't matter how hard the individuals involved work at trying to make the mechanics function if it isn't going to be a sustainable relationship. Having choices, and the ability to select from different approaches, can in itself be valuable to risk managers.
These are all everyday considerations, but they are extremely important. Each day, the results of decisions about a supplier have to be lived with, and they can have a far-reaching influence on financial results.
There is also the much underestimated human element. The better aligned a service team, the more responsive it can be within its own operating structure and costs base. Affinity with risk managers as people--meaning simply put that risk managers and their brokers get along--makes a difference when something beyond the usual or normal is required or occurs. Possibly of even greater value is the management and communication time saved during the normal course of a year. It's time that risk managers can devote to larger corporate projects that will help their companies achieve strategic objectives.
People from one brokering company do successfully work in tandem with those from another to achieve a common goal. A good real-world example is that of an independent broker appointed on a global account because of his outstanding industry knowledge. In conjunction with the risk manager, the independent broker went through a selection process to determine which international network to use. The answer was one belonging to one of the Big Three global brokers because it had the most compatible skill set for that particular clients requirements. All parties were aligned. The risk manager continues to receive outstanding service, and the brokers perform their tasks profitably to the benefit of their mutual client.
There are many more such "war stories" and examples of success. "The Independents at RIMS" will be a unique gathering at which risk managers can explore and experience for themselves the parity and points of difference between independent and global brokers.
Having enjoyed a highly successful launch last year, this reception in Boston is already gathering momentum and will experience increased participation. There will be a short address by the St John's University "Insurance Leader of the Year," Lord Levene, chairman of Lloyd's, an organization that is itself placing increased importance on the role of the broker.
Risk managers have expressed a strong interest in using this unique nonsales environment to engage with the hosts and explore for themselves the dynamics of the service ethos that binds the group together. The message to be conveyed and tested is that there is "value in choice."
May 1, 2010
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