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Never Say Never

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Read the cover story of Insurance Market Source Spring/Summer 2015 Magazine before it arrives in mailboxes.

How a willingness to venture out of your comfort zone wins loyal, bankable clients

They are called moments of truth, like when a client calls to tell you she just bought a wakeboard boat to pull a water skier near her lakeside summer home in another state. “Can you get me insurance for the boat?” she asks. Or when a favorite business client says he is unhappy with the insurance on his unique, historic home and wants to give you a crack at placing it.

If the insurance the person is seeking in situations such as these is not in your sweet spot, you could easily say, “I’ll pass.”

But why miss out on a golden opportunity to help someone — and your own business in the process?

It can be easy to justify bowing out. Trying to handle business in a segment where you do not fully understand the exposure and the marketplace can lead to trouble for broker, agent and client alike. It is important to avoid errors and omissions claims against your agency. What’s more, you don’t write this business so you lack a ready market. And who has time or energy to waste on an account you probably cannot place anyway.

“Passing on opportunities that are outside your sweet spot may seem safe, prudent and easy. But it also can be expensive, risky and unnecessary,” says Bill Gatewood, Corporate Vice President and Director, Personal Insurance, Burns & Wilcox.

Sometimes an insured’s needs aren’t terribly exotic, such as a homeowner with multiple losses and a poor credit history, or a client who is renovating his home and needs a course-of-construction policy until the work is completed. “A client may need to go into the surplus lines market for a period of time, before returning to a standard carrier,” Gatewood says. “If you turn them away, you are unlikely to get them back when they fit your markets.”

“When you know where to take difficult or exotic business without losing control of it, you can place virtually anything for anyone,” adds Marla Donovan in the Office of the Chairman at the Kaufman Financial Group. “You are limited only by your imagination.”

Brokers and agents lose affluent clients all the time because they lack the market or the expertise to meet a unique set of needs. “If you present a less-than-perfect solution and your client finds the perfect solution, he is gone. And any other business relationship you’ve had with the client may soon vanish as well,” says Gatewood.

The High Cost of Acquisition

Acquiring business is extremely costly for agencies, observes Al Diamond, president of Agency Consulting Group in Cherry Hill, N.J. Producer commissions account for 40 to 50 percent of revenue, while marketing and business placement add an additional 20 to 25 percent. Figure in the agency operational expenses of 50 to 60 percent and it is clear that agencies lose money the first year of an account. Money starts flowing in the second year, but an agency really needs to keep customers for three to four years to balance out the acquisition costs on the front end.

Business retention rates, which have held steady for 50 years, are now on the decline, according to Diamond. Personal insurance retention dropped from 90 percent to 88 percent and commercial from 92 percent to 90 percent. Much of this is due to the push to have new brokers and agents bring in quick revenue instead of developing strong, multifaceted client relationships, as more senior staff has traditionally done.

The Equalizer

Midsized agencies often feel squeezed. On the one hand, they must compete with very large, national brokers and agencies that have a huge number of markets and resources available to meet different clients’ needs. On the other, they must face off with direct writers, captives and low-overhead Internet agencies with tough-to-match rates.

Brokers and agents can overcome the size factor. “Reaching out to a wholesale broker evens the playing field by providing additional markets and other resources than the large brokerages and agencies,” says Gatewood. “Whether it’s environmental, municipalities or habitational risk, a good broker can present a proposal that will compete with anyone.”

Even when an agency wants to write more of a particular line in-house and has resources for a specialist, it sometimes has difficulty hiring an experienced producer for it. “Brokers and agents with expertise in terrorism and cyber attacks are in short supply,” observes Mark Shlien, principal at iPeople, a nationwide insurance-recruitment firm. “In such cases, a wholesale broker can fill in seamlessly and help the agency retain its accounts.”

Price is another matter. Brokers and agents who try to sell discount policies tend to be chasing their tails because someone else will always undercut their efforts with a cheaper product. Or their efforts will be used as leverage when a potential client takes their proposal to his incumbent broker or agent to match. “Gaining a client’s trust and understanding his protection needs totally changes the relationship and brings value that the client understands,” says Diamond. “And that requires a trust relationship with a prospect or client and filling all his insurance needs.”

This is true even for captive brokers and agents, whether employees or franchise holders, who traditionally have access only to the products of one carrier. They have been accustomed to writing what they could and turning away the rest, but this has started to change. “Burns & Wilcox partners with these brokers and agents as well, offering products they cannot place such as watercraft, earthquake, windstorm and short-term property rentals, enabling these brokers and agents to retain clients and increase the revenue from those clients,” says Ian Hanson, personal insurance manager, Burns & Wilcox, San Francisco.

Sometimes a brokerage or agency recognizes it has a concentration of clients in a particular industry and wants to develop its own niche by offering an exclusive program. A broker can help here as well. Burns & Wilcox, for example, has access to Atain Insurance Company, a member of the Kaufman Financial Group, which will underwrite commercial niche programs.

Insulate Your Business

For 20 years, Kristin Hayrinen, a private client advisor at Hub International Southeast in Hilton Head Island, South Carolina, has been relying on her wholesale partner, Burns & Wilcox, for help with the difficult coastal business that makes up much of her territory. “A client will have a winter home in one state, a city apartment in another and a summer home and boat here. Probably 50 percent of homes on Hilton Head are rented out for at least a few weeks in the summer, and that’s something most standard markets won’t insure,” she says.

Hilton Head is also home to gated community “plantations,” where the bylaws expressly forbid homeowners from fencing their swimming pools. Since standard underwriters require pools be fenced, these homes can only be written in the E&S marketplace.

Hayrinen is keenly aware that insureds have a tendency to shop coverage every year, especially if they have had a claim and rates go up, or if they are unhappy with their brokers and agents. That’s an opportunity. “They may be shopping just for their home down here, but when we do a good job and place all their coverage, the client will most likely let us quote on the rest,” she says.

“Reaching out to a wholesale broker evens the playing field by providing additional markets and other resources than the large brokerages and agencies,” says Bill Gatewood, Corporate Vice President, Director, Personal Insurance, Burns & Wilcox.

One client owned two rental homes on a beach worth more than $1 million, but he came to Hayrinen only for the excess flood policy the existing broker could not place. She decided to press for more. “Our strategy is built around understanding the specific personal and business needs of the customer before we explore an insurance solution,” she explains.

So Hayrinen asked him for more information, called her Burns & Wilcox contact and obtained a quote on both the homes and the primary and excess flood. Her work saved him “a huge amount of money.”

“I saw what he needed and realized he had the wrong flood zone on the policy and that he was paying far too much money,” she explains. Naturally, she got the entire account, but she also got to write his two New York residences, auto, umbrella, jewelry, and all of his commercial accounts — placed through Burns & Wilcox.

“I go (to Burns & Wilcox) because I trust them,” says Hayrinen. “They listen. They create the market. If there is something we need, I call and they figure it out.” She never walks away from an opportunity.

Avoiding Malpractice

If the opportunities are so abundant, why do some brokers and agents avoid the E&S market?

“Brokers and agents have sometimes wrongly assumed the surplus market is less stable than the state-regulated admitted market, but that is not the case,” says Donovan. In fact, in recent legislative testimony, the National Association of Professional Surplus Lines Offices (NAPSLO) cited a 2014 A.M. Best report that showed for the 10th year in a row, there were no reports of a financially impaired surplus lines company. But there were 14 disclosed impairments by the admitted market. And through midyear 2014, every surplus lines company maintained a secure A.M. Best rating.

She attributes this to factors like the E&S market’s freedom of rate and form, its emphasis on underwriting and the fact that many of the companies were founded after the asbestos and environmental exposure crisis and have none of the legacy obligations eating away at profits — as many admitted companies do. (Asbestos is excluded and pollution is now well-managed in E&S.) Nor does the E&S market handle auto and workers’ compensation, two lines that have sometimes been problematic for carriers.

The state guaranty funds on which the admitted market relies protect against insurer insolvency on only a portion of losses and only certain lines. When an insurer fails, a client sometimes will file an E&O lawsuit against the agent who placed the policy.

Trust Trumps All

Ultimately, trust is the glue that binds a client to a broker or agent. A big part of that trust is the expectation that the client will have no unexpected gaps.

Therein lies the advantage of a fully rounded account, especially one with a single carrier, a single point of contact and an umbrella that follows the form, and it is especially true when different markets are involved and they must fit snugly together. “If you don’t have the full account,” says Hanson, “you can’t really know if there is a gap and where it is.”

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