Consultative Broker Briefing

Well, here we go again into another year. The insurance marketplace pundits are calling 2007 a year of major transition. Some are comparing it to 1998 (can you say prices falling off a cliff?). Here are the reasons why many expect the coming year to be extremely challenging:

The insurance premiums as a whole are expected to grow by only 1.5%. This does not even cover the inflation rate.
In an effort to sustain their growth goals, the insurance carriers will compete on price and ultimately terms.
The combined loss ratios are expected to deteriorate by 50% over last year’s record results.
The insurance marketplace is awash with capacity from the glory years. This capacity will be competing for growth.

When I was a working broker, the senior executives of our firm had a mantra they repeated to assuage the complaints by producers about the pricing erosion of the 90’s. “It’s the marketplace we are in people,” they would coo, “so make the best of it.”

Here is what they really meant. “Our business is to create and retain revenue. We have no control over what the insurance carriers chose to do. It is up to each of you to figure out how to make your books of business grow, no matter what.” They forgot to add: “Or else.”

So, here are the Seven Commandments for Success in 2007 as the marketplace continues to change rapidly.

Thou shalt convert all larger accounts to fees. You need to get off the commission compensation system if you intend to prosper over the next several years. The commission a carrier pays you has nothing to do with your value proposition to a client.
Thou shalt do stewardship reports on all your important accounts. This is the only way to avoid falling into a pricing competition. Also, it allows you to demonstrate your impact while maintaining your fees.
Thou shalt protect your good cash flow programs. During the hard market some of you placed business in the alternative marketplace (i.e. captives or large deductibles). The good ones are still good. They are not dependant on the price of insurance but include the tax consequences and investment returns as part of their programs. Some brokers, however, will attempt to snipe at these because they can provide a cheaper insurance program. (without the rest of the benefits)
Thou shalt attack the bad cash flow programs. During the hard market, some underwriters used high deductibles and penalty retros as a technique for accepting risk. These programs were not in the client’s best interests. There are a number of these that will now become attractive to underwriters as they look for growth.
Thou shalt scour your excess placements. Now that the crush of the hard market is over, a number of traditional carriers will again have an appetite for accounts they forced into the excess and surplus marketplace. You need to make certain that some of these accounts are presented to these carriers. (or someone else will)
Thou shalt learn how to broke. The art of broking includes the right way to present an account into the marketplace. It is not simply sending out accord applications. The firms and brokers who have this skill will always be able to negotiate the most favorable terms possible.
THOU SHALT CALL ON LARGER ACCOUNTS! There is no other way around it ladies and gentlemen. As the marketplace erodes, those accounts that seemed to be large will go back to the commodity side of the aisle. For you to prosper you must learn how to work with larger accounts and tougher deals.

So, as we used to say in the mega brokerage world: “It is what it is, now make the best of it.” Those of you who practice Consultative Brokerage and adhere to the Seven Commandments of Success, will prosper no matter the conditions.