Little Things Mean a Lot
May 2004
The insurance market has experienced many
ups and downs in the past few years. Stabilization seems around the corner,
but nothing is certain. What can agents and brokers do to hang on to clients
and generate new ones? Staying informed of industry happenings, really knowing
the risk, being involved in the claims management process, and maintaining professionalism
will help them win out over market cycles.
by Peter
M. Polstein
Perhaps it is time to consider the current marketplace and its impact on
broking for now and the immediate future. It seems that just about anyone you
speak to has their own theory of the market, and the impact for the near- and
long-term. From my own perspective, I look back at some 49 years in this business,
and try to evaluate the various conditions which propel the market from hard
to soft, soft to hard, or something in between.
The past 3 years since September 11, 2001, have provided the marketplace
with what might be categorized as a convenient reason to increase pricing. But
this does beg the question as to whether September 11 was the actual cause,
or simply a scapegoat in the overall need for the industry to find a readily
available cause to cover its protracted decade of losses from market share pricing.
Has the current marketplace found a pricing scale that will continue to provide
"profitable underwriting" or has the marketplace begun to slip back into that
craving for market share, at whatever cost?
Late last year the Fitch report suggested that the marketplaces reserves
were something in the area of $77 billion underfunded. Apparently, this number
has magically decreased to something less than $35 billion which, nevertheless,
is a formidable number to make up. Insurers continue to offer up somewhat glowing
quarterly and annual reports replete with loss ratios which have drastically
been reduced during the past 24 months. Yet, surplus has not grown at the same
rate as their reported profits, and the marketplace continues to indicate concerns
over "losses" which have occurred years back.
The marketplace continues to see unprecedented amounts of investor confidence
into insurers in offshore venues, who espouse their willingness to underwrite
more and more business, with substantially more limits of liability, but at
levels which appear to cater toward the risk whose willingness to accept large
retentions is the norm.
Where does that leave the so called mid-market? I think it leaves them scratching
their heads, wondering what's next, trying to calculate what effect the marketplace
will have on their livelihood, near term and in the foreseeable future.
In addition to the "normal" marketplace quandary, brokers and agents are
now faced with the specter of both state or governmental questioning of contingent
income versus client value. I have the feeling that the next few years are going
to prove difficult to project with any certainty where the marketplace and,
perhaps more importantly, where the client base is heading.
Stay Informed
Clients are being literally bombarded with a broad based topical plethora
of articles, books, and advertising from the insurance industry, tax experts,
and market analysts—all of whom have something to contribute to the marketplace
position, whether on a direct or indirect basis. For the most part, does this
provide your current and potential client base with information? You bet it
does. What is your countermove? Be smarter than they are on the marketplace
and conditions, and have more than a working knowledge of alternative methods
to attract and professionally broker business.
Is it back to basics, sort of, because this marketplace is restrictive, whether
anyone wants to concur? Underwriters, unless at the most senior of levels, have
a fairly narrow margin in which to work with guidelines covering most of their
ability to accept risk. The "big boys" such as Marsh, Aon, and Willis are showing
serious signs of "coming down" into the mid-market arena. Are they a threat?
I suppose so. Are they defeatable? Absolutely—they're playing in the mid-market,
which is the majority of broker/agent playground, and that marketplace has the
capacity to place business on the same terms and conditions as the "big boys."
Understand the Risk
I've had a number of e-mails and direct conversations with IRMI readers over
the past months on this subject. Maybe I'm old-fashioned, but I really don't
change my stripes. It all gets back to understanding the risk, not just from
the perspective of what they do, but having a full understanding from a risk
management standpoint, with an expertise that can match that of the risk. It's
not impossible. It's an imperative, because dealing in the marketplace you must
know more than the underwriter about the risk. You must be more than conversant
about the potential of the risk, and you must have sufficient knowledge to defuse
either objections to class or underwriting guidelines. Markets will consider,
and in many instances favorably, professional submissions where defensible underwriting
criteria has been provided. You should not care what the risk might be. If chemical,
know what goes "boom in the night," what doesn't, what is reactive, and what's
not reactive. Learn the language.
As an aside, I would rather work on the best risk in a so-called tough class
than the average risk in an "acceptable class." Maybe there's a marketing guideline
to follow: tread where others really don't want to follow. A complete understanding
of the risk will promote thinking outside of the box, which in many instances
will be critical in winning a new account or continuing to be the broker/agent
on current accounts in the placement of the business. Just because a broking
method seems to be "off the wall" doesn't mean that it will not work!
Claims Management
Don't let claims management, be the sole remedy by the insurer. It is another
imperative to fully understand what claims, or potential, a risk has. Why have
the claims occurred, and what has been done to alleviate future claims? If the
risk has had an exemplary safety record, have a full understanding of the reasons
for this. Get involved in the engineering of the risk; it is an important necessity
for current and future client relationships. Your client needs to feel secure
that broking is not just the only value you bring to the table. Maintain a professional
eye on claims reserves, and keep involved in their adequacy.
Have a full understanding of the client's philosophy toward claims management.
All too often, irrespective of risk size, we forget that the client is the one
who is physically paying the claim! Don't believe for one moment that the insurer
"has the sole right" to defend. The policy may say so, but it is the right of
the insured to provide insight, and in some cases, an agreed say in how claims
are handled. If you are really familiar with the overall risk management of
the client, then you will undoubtedly be aware of expert witnesses or counsel
with whom the insured has had prior dealings.
The client does not have to be a Fortune 1000 company. The client may well
be a mid-sized risk, with potential for loss, perhaps with a deductible or self-insured
retention, who may have the right to either determine by contractual obligation
or assist in the determination of claims handling. How claims are handled can
be the ultimate factor between a profitable or losing loss ratio.
Where Are We Going with All of This?
Professionalism will win out over the marketplace, irrespective of soft,
hard, intermediate, or whatever adjective you use to describe it. Your client
base demands it, the broker/agent community requires it, and you are in an industry
whose needs are growing at an alarming pace and expects it.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author’s employer or IRMI. This article does not purport
to provide legal, accounting, or other professional advice or opinion. If such advice
is needed, consult with your attorney, accountant, or other qualified adviser.