Consultative Broker Briefing

The Consultative Broker™ Briefing
Volume VIII, Number 5
A Free Publication of C.R. Ekern & Company
888.670.1177
www.crekern.com
Copyright, C. R. Ekern & Company, 2007

It is our strong belief that the marketplace will continue to remain competitive and deteriorate throughout the year. The reason will be the small amount of National Carriers that will all be focusing on generating market share. This is a mature industry and the only way they grow is by attracting new accounts, mostly on price. That will eventually create a crisis for the brokers that focus on price, because they will continue to squeeze their margins into the ground. What they see as growth, will really be less revenues to the industry. It is an unhealthy business environment when firms continue to trade the same accounts with less revenue in them each year. Eventually we will eat ourselves alive.

It is time for those of you that practice Consultative Brokerage to develop your own business model and compensation system that is not based upon commissions. It is time you build your income as a function of client value. The two are not the same. The commission structure was developed in the 30’s as a function of sales and service of insurance company policies.

What you do today is entirely different. You help your clients reduce their costs, of which the insurance is only one small part. If your tie your compensation to commission and the carriers have decided to compete on price, you are in for a world of hurt. Why? Because it doesn’t answer the important question… How have we brought value to our clients? What is our true value proposition on a client’s balance sheet? When you can answer those questions, you are not tied to a compensation formula that is cannibalistic.

Here is a case in point. One of our California based clients had a huge issue. The prices of California workers compensation are falling through the floor, with more to come. In one case they had a relatively small account of $112,000 in premium. This included their compensation of approximately $11,000. The renewal was priced at $47,000 and their income was to drop from $11,000 to under $5,000!

The producer went to the client and requested they continue to pay $11,000 as a fee. The initial client reaction was quite cold! That is until this firm demonstrated to the client how they had helped them reduce their total costs by six figures through claims reduction, loss control, e-mod, and account underwriter improvement. Upon learning the true value of the broker, the client agreed to pay them their requested amount. (That would convert to a 25% commission!)

Ask yourself this question… Why the heck should we make less money for providing our clients better return on investment? If we have improved their position, why take a haircut? Why? Why? Why? Because unfortunately, many of us don’t know our own value proposition so we can’t even have that discussion. Therefore, we are willing to twist in the wind hovering over the boiling cannibal’s pot of price. Each year being paid less and less, until we are skin and bones.

So, here are a few thoughts that might help you climb out of the pot with steaming onions, garlic and few savory spices:

Stop thinking you are in the insurance sales business. Those of you that intend to continue in this industry must learn that you are in the business of helping clients reduce their costs of which insurance is the smallest part.
Take the time to understand your resource capabilities. The resources that each of you possess go well beyond simply the sale and service of insurance policies. Invest the time to learn these and show clients how they are utilized to reduce costs.
Just say NO to the price buyers. There will always be a number of buyers that only look at one thing… price. Stop pandering to these people. You must have the confidence to select prospects and clients that will allow you to become a Consultant rather than simply an insurance sales person.
Stop chasing the latest hot market. At times like these, the marketplace changes almost daily. One carrier becomes hot and the next one follows to protect its’ renewal. It becomes a feeding frenzy with you as the main course!
Don’t focus on commissions. In every one of your key accounts establish what your value proposition has been. Don’t tie this to the price of insurance. In some cases, you will receive increased fees even when the insurance price decreases.

Of course all this presupposes that we don’t like the feeling of the water getting hotter in the pot. Unfortunately, it has been my experience to know some producers that actually enjoy it. They live from deal to deal getting high on the fact that they dodged another one and will fight another day. It is less painful for them to remain in the boiling pot of price than to implement change. I sincerely hope that you are not one of these, but if so… UNGA BUNGA to you!