Agents: Insurance Company Markets Aren’t Always Going to Come to You!

One of the most important things agents can do for themselves and their agency is to maintain positive, healthy working relationships with the carriers with which they place business. Unfortunately, despite their best intentions, maintaining these relationships is often overlooked in lieu of the other activities agents are faced with daily.

We’ve all seen this scenario: A carrier suddenly “goes under” after years of being in business. As an agent, maybe you had quite a few accounts with them. Maybe the carrier’s insolvency seriously affected your business. How did you handle this? What would you do differently if faced with the same situation today?

What about rating downgrades? Do you constantly monitor the ratings of the carriers you place your business with? Do you know how to identify the tell-tale signs of a carrier in financial trouble? Where are you going to place all of those accounts if a carrier goes insolvent?

I previously discussed the importance of assembling a Strategic Advisory Board, composed of several members who have expertise in a particular area. (IJ Texas-South Central, June 21, 2004,) One such member should have expertise in agency/carrier relations. This individual will be responsible for maintaining the agency’s relationship with insurance carriers on a full-time basis.

The insurance company strategic advisor’s responsibilities will be to not only maintain carrier relations, but also serve as your eyes and ears to the marketplace. With careful oversight, your advisor will not only be able to identify the signs of a carrier in financial trouble, but also to identify a viable market should you need to replace any accounts.

Importance of agent-carrier relationships
When the market is soft, the carriers are likely pounding on your door for business, right? But when the market hardens and availability shrinks, carriers sing a different tune. All of a sudden the phone stops ringing and the agency seems to be all but forgotten by the carrier.

As a producer, you know that the market runs in cycles, and you need to be prepared when the phone stops ringing. How are you going to maintain those relationships you have with carriers when the market goes hard?

The answer is simple: get on a plane with a business plan and proposal and fly around the country to meet with the CEOs of the carriers you represent. You have time, don’t you?

Probably not. So you need to consider bringing in a person to maintain those relationships for you. That person is the perfect addition to your Strategic Advisory Board. Working together with your mergers and acquisitions expert, your agency growth expert, and your legal/tax advice expert, your carrier relations expert will enhance your agency’s overall performance and growth.

Building your agency-carrier relationship
Your first step to building your agency-carrier relationships is to review your agency’s operating budget. This may seem obvious, but so many agencies neglect to carve out a piece of their budget to maintain carrier relationships! It’s important that you allocate a certain amount of commissions in your operating budget to maintain relationships with carriers.

Next, carefully select a member of your Strategic Advisory Board to represent the agency in fostering agency-carrier relationships. As discussed in the previous article, there are several qualities you will want to look for when selecting your carrier relations expert. The ideal candidate has access to senior executives of both insurers and reinsurers and is savvy when it comes to dealing with executives at major industry events and company seminars such as the AAMGA, NAPLSO and the NAII.

Your expert will also need to have a clear and solid understanding of the reinsurance marketplace. Oftentimes the carrier tells agents that their agency contract is cancelled because the carrier has lost its reinsurance, and therefore has to stop writing business. Your insurance company strategic advisor will need to have an in depth understanding of how carriers structure their reinsurance and how reinsurance drives the underwriting cycle.

Finally, you will want to find someone who has an understanding of yellow financial statements and insurer insolvency, as well as insurance company product development.

Now that you’ve got your expert in place, the real work can begin. Your insurance company strategic advisor will be expected to spend a significant time on the road making contact and networking with the heads of the carriers you represent. By doing this, he or she will solidify your agency’s presence to the carrier, as well as your relationship with them.

The first step an advisor will take is to examine the existing relationship the agency has with a particular carrier. The expert should ask the carriers a lot of questions—simple questions that are important when taken into context. For example, what have the loss runs been for the past two years? How much money is the agency making for the carrier?

Also take a look internally at your relationships with carriers. How many carriers are in your agency? Which carrier do you feel you have the most significant relationship with? How much commission are you bringing in as a result of that relationship? What works best about that relationship, and what can be improved? Has the carrier asked to change the contracts at all? Have they asked to extend the cancellation terms in the contracts? Have they asked for a bigger contingent commission?

Maintaining your relationship
When your insurance company strategic advisor is not on the road to amplify your agency’s presence to the carriers, he or she should be maintaining relationships through good old-fashioned telephone communication. He or she should also be spending their time reading rating agency assessments of carriers, monitoring insurance company turnover and following when insurers are up for sale.

In addition, your advisor can assist in other agency matters as well, such as reading and litigating agency/carrier agreements. He or she should be expected to keep up with what is going on not only in the marketplace as a whole, but with individual carriers. For example, does your carrier place a lot of business with your competitors? Who’s retiring in the field? What’s going on with carriers that they are NOT telling you? Your advisor is responsible to gauge the marketplace and help you make decisions that will best benefit the agency.

Finally, your advisor will be responsible for finding new markets when old ones leave the business. He or she should always have “feelers” out in the marketplace to be able to easily identify a source for a new program when needed.

Andrew J. Barile, abarile@abarileconsult.com, is the owner and founder of Rancho Santa Fe, Calif.-based Andrew Barile Consulting Corporation Inc.