The Consultative Broker™ Briefing
Volume X, Number 1
A Free Publication of C.R. Ekern & Company
888.670.1177
www.crekern.com
Copyright, C. R. Ekern & Company, 2008

Avoid the Double Whammy!

The orders are pouring into National Underwriter from brokers and agents who want to secure advance copies of our new book Consultative Brokerage: A Value Strategy.  This book is 225 pages of groundbreaking concepts around Consultative Brokerage®, Total Cost of Risk, Conceptual Presentations and Stewardship Reports. 

If you have enjoyed reading our Consultative Broker Briefing, make certain you order your copy today.  It will take you much deeper into the world of creating and retaining revenue without falling victim to the softening marketplace.  It will give you an entirely new perspective for 2008 and beyond.

And now here is this edition of the Consultative Broker Briefing:

As a professional consultant, one of the things we never say to a client is …We told you so!  Why?  Because we are paid to tell people things and being right just goes with the territory.  At least we hope so!

Well, in the fall of 2003 we told our clients and producers that unless they used the revenue windfall of the hard market to redouble their prospect development, they would be in for a difficult 2007.  In fact, we spoke with great conviction as we extolled producers “not to take a 30% pay cut” over the following three years.

I am sorry to report that we were wrong.  We predicted a 30% pay cut, because of softening prices.  The actual number appears to be 29% from Q4 2003 through Q4 2007.  Here are the actual numbers as compiled by the Insurance Information Institute.  Let’s pretend you had one dollar of rate in Q4 2003, here is how it disappeared.

Reduction by 4th Quarter	One Dollar Becomes
Q4, 2004  (.93)	93¢
Q4, 2005  (.954)	89¢
Q4, 2006  (.914)	81¢
Q4, 2007  (.88) Estimated	71¢

Now the “pundits” are telling us that the worst is over.  They say that the rate declines of the past several years will flatten out.  Don’t you believe it for a minute!  There is just too much capital, carrier profitability and competition for the coming year not to be a repeat (or worse) of 2007.

This brings to mind my years as one of the top working brokers in North America.  The senior management of our firm continued to tell us, “The market is the market, so make the best of it.”  In other words, “stop complaining and make your revenue grow.”

Over the course of the past 10 years, one of the tenants of the Consultative Broker Briefing has been to give it to you straight.  From the perspective of a broker, who has been in the trenches with clients and seen marketplace conditions come and go; here is what I believe you should concentrate on.  AVOID THE DOUBLE WHAMMY!

Here is what the double whammy looks like.  You get hit from both sides of the commission equation.  Your rates decrease due to competitive pressure and your client’s rating base erodes due to a slowing economy.  Therefore; under the current commission system you get to charge less rate on less exposure.  A Double Whammy to your revenue stream.

So, how does a Consultative Broker make certain that they are fairly compensated for their efforts during the Double Whammy cycle.

1.  They make certain that their clients and prospects understand that the marketplace is the same for everyone.  If the competition is offering a sizeable decrease in premium, that is simply a function of the marketplace. 
2. They focus their clients and prospects on the “Symmetry of Risk.”  In a falling economy, they show the client how their actions have/will reduce costs significantly outside of the premium.
3. They create a “fee based” compensation system.  The fee is based upon the services provided and the impact to a client’s Total Cost of Risk.  Therefore, they do not tie their income directly to the cost of the commodity, but the outcome for the client.

Before, we close, I would like to remind you of the length of the last “down” cycle.  It was approximately 14 years.  (depending on how you keep score)  So, if history should repeat itself, we are still in the beginning stages of its development.  One other reminder  . . . Consultative Brokerage was born in the soft marketplace as a way to bring value to a client.  By following the Consultative Brokerage tenants, you and your firm will continue to prosper, no matter what the marketplace conditions.  You will avoid the Double Whammy!

Best Regards to Consultative Brokers,

Rob Ekern
President
C.R. Ekern & Company

 

 

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Consultative Brokerage® Techniques are utilized by agents and brokers across North America in the development and retention of upper middle market revenues.  The Consultative Broker Briefing is delivered electronically free of charge to selected agents, brokers, and other insurance professionals across North America.  To subscribe to The Consultative Broker Briefing, please click here.

Copyright 2008 C.R. Ekern & Company