Specialty Insurance Blog

The Economy Impacts Broker Relationships

The economic crisis is changing how medium sized commercial insureds view the purchase of insurance, and this change is having an impact on their broker relationships.  Not surprisingly, value, a euphemism for price, is becoming more important and broker relationships less important, or so says a recent study.

Greenwich Associates has released the 2008 Middle Market Insurance Research Study.  The press release for this survey is hard to find on their web site - try here or here - but summaries are available from Insurance Journal (here) and National Underwriter (here).  Key points:

• The results … reveal that as the economic downturn set in over the past 12 months, companies began de-emphasizing broker customer service in favor of a much stricter focus on obtaining the best value and price in their insurance purchases.
• In past years, customer service ranked as by far the most important factor in middle-market companies' assessments of their insurance brokers. The results of this year's analysis reveal that companies are now giving equal weight to three factors: price, value and customer service quality.
• Executives of these companies must feel that they are getting high quality coverage and service for the best possible price, and they must feel that their brokers are working as their true partners. Any broker that fails to deliver on these counts is at risk.

One of our clients is living this every day, and we hear from them how important saving money has become.  This client excels at smaller commercial and personal lines insurance business generated with a unique marketing approach.  This client combines a message of quality coverage with the lowest price, and they deliver (and measure) this.  They have built an internal system which strives to provide the best value for their customers, and it is showing in their new business metrics.

Couple this trend with, maybe, some early signs of a tightening market and there is added turmoil coming.  This is a risky time for insurance agents and brokers satisfied with the status quo, and a time of significant opportunity for innovative and aggressive organizations.

Brought to you by Tennant Risk Services.

Value Added Services for Insurance Agents

What product and services do insurance agents and brokers, whether retail or wholesale, provide to their clients?  Many practitioners define this narrowly – the product is insurance, the service is advice, and sell accordingly.  However, some organizations have taken a wider perspective, and try to add additional value.  The classic example in the specialty lines business, for an insurer, has been Hartford Steam Boiler Insurance Company, a company which provides both insurance and the expertise to significantly reduce catastrophic losses.

A recent article in Business Insurance provides a retail agents perspective on providing added value through the provision of risk management services (see here).  Anderson Baker, of Gillis, Ellis & Baker Inc., advocates providing loss prevention and risk management services in order to differentiate your agency and to assist clients in preventing losses and reducing loss severity.  Their experience would indicate that this can be a successful strategy in differentiating an agency.

Our own experience indicates that differentiation is an important component of a distribution strategy.  We have seen a number of retail agencies execute this extremely well.  Three examples (to remain nameless) come to mind, each of which rely on a specialization strategy to build the value component:

• An agency specializing in one segment of inland marine
• An agency providing highly technical risk management services in a segment of the recreation insurance business
• An agency underwriting a highly specialized class of real estate professional liability insurance

Each of these examples have succeeded in building significant market shares in the chosen specialty areas through specialization and the provision of value added service.  You will be able to name many others.

Brought to you by Tennant Risk Services.

 

Customer Surveys

Customer surveys are very popular in the insurance business, particularly online surveys.  Our friend, Guy Kawasaki (see blog home here), has a very helpful post on The Art of Customer Surveys.  Guy is the author of one of our favorite posts, The Art of Schmoozing.  One of his key points is especially important in the insurance business – customers do not want to complete surveys. 

We selectively survey our customers using a few guidelines:

• Provide an opportunity to respond in an unobtrusive way
• Keep it short
• Get to the key point – will you use us again?

While it is not foolproof, we have had success with this approach.

Brought to you by Tennant Risk Services.

 

Specialization vs Diversification in Insurance

Both specialization and diversification can be successful strategies in the insurance business.  In fact, diversification is one of the fundamentals of our business because it helps spread risk, which allows for the shifting of risk for reasonable pricing.  Diversification can be accomplished through a variety of approaches, including line of business, product line, geographic concentration and distribution diversification strategies.  Certainly no one would argue that diversification is not imperative in writing catastrophe exposed property insurance.

However, specialization is also a strategy that provides some unique benefits, primarily the accumulation of a high degree of expertise in a particular specialty area (see our prior posts here & here).  This expertise can be utilized in underwriting, risk management and claims to produce improved risk selection and reduced loss costs.

A recent study provides empirical evidence that a specialization strategy can produce better results than diversification.  Published in The Journal of Risk and Insurance, the study, by Andre P. Liebenberg and David W. Sommer is entitled: Effects of Corporate Diversification:  Evidence from the Property-Liability Insurance Industry.  The study looks at line of business diversification within the property/liability insurance industry, concluding:

Undiversified insurers outperform diversified insurers…Results indicate that diversification is associated with a penalty of at least 1% of ROA or 2% of ROE.

It would be interesting to review the companies included in each grouping to see if there are any concentrations of types of business.  Examples might include reinsurers and medical malpractice insurers.

Brought to you by Tennant Risk Services.