Cutting Ties

Broker Al hoisted a massive log in his arms and wedged it solidly on top of the roaring blaze in the fireplace. Already we could feel waves of heat radiating out into the room. Seated in a semi-circle of chairs, the rest of us were his guests for our annual working weekend at his cabin.

During the weekend, the five of us cut up all of the fallen trees and deadwood on Al’s property. In return, we got all of the fireplace logs we could handle for next winter. I never declined the annual invitation from Al, who ran a very efficient and fully automated brokerage in the nearby town.

As the company’s senior marketing representative, I kept in close touch with all our independent brokers, but this was a chance for me to keep in touch with my friends in the senior echelons of the profession. Beside me sat my boss, Fred Wilson, who ran our insurance company’s downtown branch office. Next to him was Stan, who ran his brokerage in a small town of 30,000 people located an hour’s drive away. Bob Davies, co-partner in a very successful midtown brokerage in the city, rounded out the group.

We had worked all day cutting and stacking wood, and had just finished off an impressive steak dinner with all the trimmings. Now it was time to relax for the evening.

Earlier this morning, over mugs of coffee, the five of us had discussed the many problems of industry downturns, company marketing programs that fizzled, and broker cancellations that often followed in the wake of these multiple challenges. Al told us about his experience being cancelled by one of his lead insurers many years back. Now, as he passed drinks around to all of us, it wasn’t long before Fred raised the topic again.

“Well, my friend,” Fred said, hoisting his glass. “Here’s a toast to the delights of simple manual labor, and to long and prosperous broker-company relationships. Tell me, Al, when that company’s axe fell on you all those years ago, I guess you had to be pretty nimble in re-marketing the book of business you’d given them.”

Al slid down into a chair and nodded. “I sure did. It’s a case of the old double-whammy. On the one hand, you have clients who’ve put their trust in you to place them with good companies at competitive prices. They depend on you to keep them fully covered. On the other hand, when a lead company cancels you, you suddenly have this giant hole in your volume of business – a hole that bleeds commission income and the ability to pay yourself and your staff. It’s hard not to get a little panicky.

“Fortunately, I’ve always been active in our local and provincial brokers’ associations. They were able to give me some useful advice on which companies might be looking for the kind of business I had to place. Also, I keep in close touch with a lot of fellow brokers who share my views on client service, billing practices, automation and so on. They were able to give me some good leads.

“It took a lot of hard work, and it was a worrying time, but in less than three months I had re-marketed all that business.”

“So what’s your advice for brokers who might face this situation?” Stan queried.

Al stared into the fire before answering. “First,” he said at last, “never take your position for granted or assume that what you have today will stay neatly in place.

“Second, try to avoid the trap of becoming a one- or two-company office. Now, I know that’s easier said than done when so many insurers today insist on minimum premium levels for the brokers they appoint. But getting maneuvered into having only a pair of major companies is asking for trouble when there’s a market downturn.

“Third, keep tuned into company news and developments. That means really questioning your marketing reps all the time. They should know what’s going on in the company’s marketing mind. A good rep can be a very valuable conduit of information. Once you win their confidence, they’ll usually keep you posted on the mood within the company and what that mood might mean.

“Four, belong to a local and provincial association, so you know what’s going on. The association keeps tabs on developments within the industry. That’s one of its main jobs, and this sort of information can serve as an early warning system for you.

“And five: Keep up contacts with good, solid brokers you trust and who share your views. It’s amazing what you can learn over a coffee meeting, a quick lunch, or even a game of golf in the summer.”

My boss, Fred, pushed our discussion on to new ground. “Well, we’ve talked about the shock a broker must feel when he or she is cancelled by a lead insurer. But what about the other side of the coin? What if you suddenly lose the major account in your office? You know what I mean: the biggest client you have, the big jumbo account you worked hard to get – the one that produces a huge chunk of your commission income.”

That elicited a soft chuckle from Bob Davies. “I could tell you a few things about that problem,” Bob said. “Years ago, I really did a lot of networking, made myself known, belonged to a business club – you know the ropes.

“Well, at one of those meetings I met some senior executives of a manufacturing company. He worked at quite a big outfit with a large work force. We enjoyed each other’s company and I got to know a lot about their business. After a few months, they quietly suggested I should bid on their insurance. It was certainly a big-ticket item.

“Well, I was intrigued with the idea of winning this huge account for our office. And I worked like a dog to put together the package. To be honest, I was totally amazed when I won it. It represented a full third of my commission income. For awhile, I was in seventh heaven.”

Bob smiled wryly at us. “But of course, one major problem was that this account took on a life of its own. The president of the company was a hard-driving, Type-A personality. He was a very demanding guy. Since I was the only insurance person they knew well, they wanted to see only me when problems arose – and there was a constant stream of small and medium-sized losses.

“I began to realize that all this client service work was keeping me away from doing much new marketing myself. I had to pass the marketing off to my partner because I always seemed to be on call for this major client. It took me a while, but slowly the message began to filter into my brain: This account was running me and my office!

“Once that penny dropped in my brain, I began to keep close track of the time I was spending on this client. I was shocked to discover that while it provided our office with 30% of our commission income, it was taking about 50% of my time and a huge chunk of the office resources- “

“–Your office really wasn’t geared to handle an account of that size or complexity?” I asked.

Bob Davies shook his head. “Absolutely not, Dave! I had really stolen that account away from one of the city’s ABC brokers – you know how satisfying that can be! – and I didn’t really have the staff or the resources to match the service to which the client had become accustomed. I didn’t want to hire extra staff because they’d have to be experienced people. And as we all know, good ones aren’t that easy to find, nor do they come cheaply—“

“–And of course,” Al chimed in, “you’re never sure how long you’re going to hold an account of that size. Lose it on renewal, and you could find yourself with a lot less business but the same complement of staff.”

At this point, Stan brought over bowls overflowing with potato chips. As we helped ourselves, Stan threw out a question. “Speaking of holding on to jumbo accounts, I’d be willing to bet that another problem with that massive one of yours was pricing on renewal, eh?” Stan asked. “I imagine a high-profile manufacturer like that would be on a lot of target lists. And as we all know, there’s always someone willing to buy business with a cut-rate price.”

Bob nodded emphatically. “You’re right about that!” he said. “And of course the ABC broker from which I took the account was at t he front of that line. For them, it was partly a matter of pride. They hated to lose major accounts, so at renewal time they went all-out and lined up a sweetheart deal for the client with a whole raft of extra service bells and whistles. But to be honest, by that time I wasn’t unhappy to see it go.”

“So what’s your advice to brokers who are tempted to pick off one of those jumbo accounts?” I asked.

Bob pursed his lips in thought for a second. He began to stick up his fingers in succession.

“One,” he said, “know what you and your office do best, and stick to making a success of that. Be realistic with yourself in assessing the capabilities of you and your staff.

“Two, if you do decide to go after a jumbo account, make sure in advance that you and your office can handle the extra service load.

“Three, don’t get maneuvered into being the only person with whom this big-ticket client is prepared to deal. Once you establish that pattern, you change it at your peril. When you bring someone else from your office in to service them, they figure that you don’t love them any more and are moving on to bigger things.

“Four, think very hard before you add extra staff to service new business. Keep reminding yourself that target accounts like this may not be around your office all that long.

“Five, keep a close and accurate record of the time spent servicing accounts like that. You could be in for a nasty surprise!

“And six, be prepared to let it go if it looks like it’s interfering with the way you operate your business and run your life.”

We sat quietly in the warm glow from the fire for a minute. Then Stan broke the silence.

“Well, I’ve never had a jumbo account in my little operation – nor could I handle one – and I’m darned sure it would have interfered with the service I like to give all my clients,” Stan said.

I smiled at Stan as he spoke. I knew he was the super-conscientious type and had a well-deserved reputation for meticulous attention to detail.

“All-around professional service – careful, considerate and pro-active service – is one thing we always boast about as setting us apart from the others in our industry,” Stan continued. “Heck, it’s the theme of our broker association’s TV advertising campaign. And if we forget this, or get distracted by other issues-“

He looked over at Bob Davies and smiled at him.

“–we do ourselves a disservice.”

“Well said,” Al added. “Jumbo accounts might look attractive, but our bread-and-butter is Mr. and Mrs. Average Couple who have their home, its contents, and their car insured through our office. They’re the ones we have to keep happy.”

“I agree,” Bob Davies said. “People like that were the target of those recent focus group tests that were carried out by our own provincial association to find out what consumers like – or don’t like – about the service they get from different areas of our industry.”

“Good idea to do this study,” Fred said quietly. “Companies like ours have much more contact with insureds nowadays through our consumer hotlines, our 24-hour claims response service, and of course the emerging Web-enabled links.” He smiled at the others. “We can’t palm the whole messy business off on you chaps any more.”

“What did the focus group study show?” I queried.

Stan swirled the drink in his hand. “The good news is that insurance buyers generally seem to trust independent insurance brokers. The bad news is that they have serious doubts about you companies, largely because of recent auto rate hikes, the unceremonious dumping of many insureds and all the bad press the whole period generated across the country —- “

” —- What did they say about service? Bob Davies asked.

“Well,” Stan replied, “in their responses, the buyers of insurance ranked security first, reliable service second, and – surprisingly – price comes in a distant third.

“The study showed pretty clearly that although the cost of insurance is always an important factor, it’s definitely not the most important factor. Most people want the reassurance that they’ll be properly covered in the event of an accident or a catastrophe – no nasty surprises. In other words, they need to feel secure. They want dependable service from both us and insurance companies, particularly at the time of a loss, but also in answering any questions they might have.”

That brought an affirmative grunt from Stan. “I know it’s easier in a small centre to give personal service, but one of the best things we did at our office in recent years was to stage Saturday morning “Coffee ‘n Questions” sessions.

“We serve coffee and muffins and we’re there to answer any and all questions, from 10 a.m. to noon. Absolutely no sales pitches. You know, it’s amazing how much misinformation is out there. It’s also amazing just how much business we have eventually written from people who just wandered in with a question.”

Stan shook his head. “I think a lot of people are just thankful for the chance to speak in person to someone who knows what they’re talking about,” he said. “I guess you could call it value-added service.”

By now the fire had burned down to a huge glowing heap. Its warmth had spread right through the cabin.

“Well,” Al said, as he rose from his chair and grinned down at us. “Now that we’re back to the question of service, I’d like to suggest that we consider getting our heads down. We still have a pile of logs to chainsaw, and if you guys are to be of any service to me out there tomorrow, you’ll need your beauty sleep.”