As an observer of the marketplace I hear agents and carrier personnel talking among themselves with unrestrained glee about the coming hard market. Many of these are the same individuals that brag about how they have worked diligently to reduce premiums and expand coverages. Is this ignorance or arrogance or both?
As independent agents we promote ourselves as a trusted choice and effectively brand ourselves as working first for the good of the client. Here's an observation from the clients' perspective -- "a soft market is good, a hard market is bad." We have a conflict of interest with our clients. Conflicts of interest are problematic at best and damaging to relationships at worst.
Recently a producer friend of mine renewed a workers' compensation policy for a premium of nearly $200,000. The commission to his agency was 10 percent. After the direct bill renewal was delivered an account executive issued an agency invoice for a $500 policy fee. This may be legal but it's not smart. The risk manager on this account had worked for years with a workers' compensation trust fund.
This was a simple account and the renewal process and all support services for the coming year will probably take less than 25 hours of agency personnel's time and very little overhead. If my math is right, the agency is being paid approximately $800 an hour on this case. The risk manager understands the game and how it's played. Is this ignorance or arrogance or both?
In October 2011, Bank of America imposed debit card fees. Their customer outrage was immediate and global. Weeks later the bank backed off of this charge. Similarly Verizon announced in late December 2011 a $2 fee to pay bills by credit card. In a few hours they had rescinded this decision. Simply stated, the marketplace with the new power of social media said "hell no!"
I've heard insurance described as a "necessary evil." Occasionally coverage needed is mandated because insurance consumers don't want what they need. I've never seen insurance consumers camp out over night to buy what we sell. We don't enjoy the addicted followers that bless the world of Apple.
What if we get the "hard market" that is so appealing to agents and carriers and the clients say no? What if their outrage goes viral? What if clients start demanding full disclosure of costs including commissions and profits? What if the only "negotiable" becomes the compensation to the agent? Could a new soft market initiative begin?
Years ago one of the smartest agents I've ever known solicited a client written through one of the best technicians in the business. Her "pitch" was simple. "Your agent is as good as they get. You're with the right company, you have the right coverage and your prices are as low as can be negotiated. If you'll sign this broker of record letter, I'll deliver what you have for 5 percent less than your now paying." The deal was done in less than 10 minutes.
I believe in the Independent Agency System. I understand the value provided traditionally and the need for great professionals in the future. I also know the mood of the marketplace is changing.
In the 1970s, coverage for medical malpractice and products exposures was rarely available or affordable. The industry innovated -- moving from the traditional occurrence form to a new claims' made model and a crisis was averted.
For the past decade or two the health care and health care financing industries ignored the "pain" of those paying for health care and chose not to innovate. Government seized this opportunity to create the Patient Protection and Affordable Care Act. The reality is that this new act will do neither but none the less it's the law of the land.
Are we ignorant or arrogant or both? We must innovate or we will evaporate!
February 6, 2012
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