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Consulting with Transparency, Knowhow, and Integrity

I had been underwriting for maybe 8 or 9 years, when my presence was requested at a pre-renewal meeting for a large general contracting account located in Columbus, Ohio. I was filling in for another underwriter because the assigned underwriter was on maternity leave. Our branch manager was there as well as representatives from claims, loss control and a couple of folks from the insurance broker’s office. We sat around a large table in the insured’s conference room, with each person giving their ‘elevator speech” about their role and what they did.

They had polished pitches but were not necessarily inspiring. I can recall the insured’s CFO would look toward who was speaking and follow along in the handout, but it did not seem like he was particularly captivated by what he was hearing. It seemed his mind was on something else.


It was soon my turn to talk. I was not particularly prepared as I was just given handout at the beginning of the meeting, but it seemed the primary point was about consistency. I looked up from the papers in front of me one last time, then started talking.


“You know we’re not the highest priced insurance company in town. Nor are we the cheapest insurance company in town. You could probably go out and get a lower quote today.” I could swear I could hear a few gasps in the room. “But we try to be consistent in the prices we charge from one year to the next. I find many clients need to have a degree of predictability in their costs from one year to the next. After all you bid multi-year projects and there probably isn’t any room for rate increases.”


I could see the CFO react positively to what I had just said. He agreed, then went on to start talking about what was bothering him that day. He was upset that his sales staff had had a rash of minor fender benders with their company cars. He did not think they were trying to be careful. So, he asked what he could do about it.


Before anyone else had an opportunity to answered I replied. “Why don’t you make them responsible for the deductibles?” The CFO’s eye lit up. He exclaimed, “that is the best idea he ever heard from an insurance company.” By the time I got back to the office, I found the CFO had personally requested I be assigned as his underwriter.


This moment in my career was one of those “ah ha” moments. At that point, I began to understand that we as underwriters are not just risk selectors and premium calculators. Rather, we are an integral part of our client’s management team. We do what we do to help our clients become more successful. In turn, we earn a fair profit for our employers. Since that day in Columbus, Ohio, I have tried to keep the concept of being part of my client’s management team front and center every day as I performed the functions of being an underwriter.


Yes, protecting your employer’s assets, making an underwriting profit, and growing your employer’s premium writings are first and foremost. However, they do not have to be at the exclusion of doing the right thing by our clients or making sure they have comprehensive and cost-effective risk management programs.


Consider this. If we are a force to making our clients be more successful by reducing their insurance and other risk management expenses, they are more likely to grow and prosper. That growth translates directly into buying and insuring more property and equipment. It means they hire additional employees and increase their payrolls. It translates into higher sales and perhaps additional company vehicles. It means premium growth without additional work! It means a better loss ratio through reduced loss activity.


Furthermore, if you work to enable your clients’ success, you are less likely to be seen as a simple vendor or a commodity. As a valued team member, you become less vulnerable to competition. There will always be another carrier who drop their price to acquire a new client. As in the story I told you earlier suggests, my personal experience tells me good clients do place a value on the services you provide for them.


It is also important to remember the only person capable of determining the value of those services is the client. There is always some value. Perhaps it means they will give you last look on the renewal. Perhaps it is worth $10 or maybe it is $63,000 in additional premium. The client will determine the value but there is a perceived value in the relationship if you choose to act as part of your client’s management team.


So, what goes into the consultative approach. What does an underwriter or insurance agent have to do to have an effective consultative approach? The first is to understand and accept your client is the expert in their field and you are the expert in your field. As an underwriter or insurance agent, you are not qualified in their field. You are not skilled in managing their business. For example, unless you successfully managed a restaurant sometime in your past, you are not qualified to tell your client who has been running a restaurant for the last 5 years how to run their business.


But we are experts too, just not in their field. We are experts at managing risk by using insurance and other risk management techniques. Since your client is the expert in what they do, they are the source of data we use as a basis to design their risk management program. By getting to know about them and listening to our clients, we use that information to determine which techniques will work best to minimize the impact of risk and protecting against risk on their operations. Then we help them apply customize those techniques for their business.


As the source of data, we need to delve into their operation. We need to ask questions. Lots of questions and sometimes very prying questions. It means getting a good picture on how their operation operates and understanding the inputs and outputs of their business. For example, if you do not have a clue on how or where a manufacturer gets their raw materials, you will never discover if they are exposed to potential disruptions from critical suppliers. Likewise, if you do not understand their customer base, you may never discover they are overly exposed to the loss of one of a few key clients. Similar examples exist in understanding their hiring and marketing processes.


It means it is essential to review their financial performance. Think about it. If you do not know how liquid your clients are, how can you recommend a deductible of any size or that they look at loss sensitive options. If you do not know about their profit margins or how leveraged they are, how can you even suggest an appropriate business income limit. What we end up doing is designing an expensive risk management program overly dependent upon insurance that cuts into the welfare of our client and in essence making what we sell a commodity. Too many times, underwriters and insurance agents are shy about asking for details they need to truly provide a consultative experience for our clients.


Knowing what to ask for is a major part of being an expert in what we do. But there is more to it than that. As a consultant, we need to be able to look at the pieces of the puzzle, then fit them together to form a cohesive picture before we can start designing a risk management strategy.


You have become the expert you need to be, what else? The next thing is to adopt a mindset of being about the client. Throw away the concept of not leaving money on the table. The concept denotes there is a winner and loser in the quote process. Writing a risk does not have to be a zero-sum prospect. Rather, seek win-win scenarios.

I was a presenter for a webinar on the topic of Evaluating for Risk Quality. Part of my presentation discussed the impact of relative risk quality on rates, premiums and terms offered to commercial clients. Part of the reason underwriters need to address the issue of risk quality is to develop a premium commensurate with the risk’s relative risk of claims. The discussion quickly evolved into the issue of my opinion on risks shopping their insurance.

I answered stating that there is value in an extended relationship between the insured, their insurance agent, and the insurance carrier. However, from my perspective as an insider, and knowing what I know, I would have to recommend to any insurance buyer, they shop their insurance frequently.


“I don’t want to leave any money on the table” is simply a euphemism for price gouging and contrary to what insurance is all about. Our role as insurance professionals is to develop a premium rate which offers a fair opportunity for profit and not to maximize the rate you can charge.


Price gouging runs rampant in the commercial insurance industry. Sometimes it runs more rampant than others depending upon market cycle. Over my 4 decades as a commercial underwriter and in underwriting management, I have seen countless abuses and I have even been guilty of it now and then. During soft markets underwriters have less control over pricing than they do in hard insurance markets.


It is not to say price increases or rate corrections are never justified or needed. Sometimes we get it wrong as insurance professionals and charge too little, particularly in a soft market. Still, it does not justify overcharging in a hard market to make up for our mistakes. The past is the past. The fact is you cannot make up for underpricing by gouging in the ensuing year(s). All you are doing is extending the cycle of under and over pricing, leading to inadequate pricing because you cannot ever really charge enough to make up for claim activity. It seems the soft market cycles just keep getting longer and softer while the hard markets get shorter.


Rather, take an approach to arrive at a fair premium. I found it has helped me retain clients with a better premium throughout all market cycles. It helps to get needed rate adjustments in the hard market with less mashing of teeth. It enables the underwriter and agent to build a more stable book of business of quality clients because you are not a commodity. It helps you retain your best accounts during softening markets.


Taking this approach requires greater transparency. You need to engage in open and detailed discussions about pricing about how and why you reached your desired rate level. Some underwriters and agents may find the conversations difficult. An underwriter may have trouble justifying why they held back credits or why they applied debits. To combat this, they take an approach of hiding or limiting the rating information they share insurance agents and clients under the guise “what they don’t know, won’t hurt them,” or that the rating algorithms are proprietary. Both excuses are false at the very core.


On the other hand, insurance agents may find it awkward to question the underwriter’s logic applied to the client. They may lack confidence in how to relate the decision to a client if it involves surcharges related to relative risk factors or why they had not questioned the underwriter in the past. In some ways, it may be easier to play dumb if they are in their targeted premium range.


The payoff of transparency and having these discussions is building up a reputation for integrity. As insurance professionals we are primarily selling a product built upon a promise that if something goes wrong, we will be there for the customer. We are selling a product which is complicated and not easily understood by the consumer. Thus, requiring trust in both our integrity and expertise.


“Integrity is doing the right thing. Even when no one is watching.” C. S. Lewis


It is likely, our clients will never know if we are acting with integrity or even if we truly know what we are doing. By pulling back the curtain and revealing how and why we arrived at our decisions is a technique to help our clients understand how they are being treated. It is a way for them to gain trust and know they are being treated fairly. In doing so, clients are more likely to engage with us. Thus, allowing us to demonstrate we are more than a simple commodity, more than a quote, or to allow us to demonstrate what we bring to help our clients become more successful.


It has been said people do not want to know how the sausage is made. It is true there are customers who do not want to know about how and why we do what we do. They are simply interested in the bottom line. There is absolutely nothing wrong with that. However, as underwriters and agents, we should be more interested in writing and retaining high quality relationships with clients who want more than an insurance program? We should understand those clients who avail themselves of service we provide to reduce the propensity for claims make better clients.


Up to this point, my conversation has centered on the relationship underwriters and agents should maintain with the insurance buyer. In many ways, the relationship between the underwriter and agent, it is the most important relationship in the insurance industry. Just as the with the buyer, a good relationship relies on trust. Let me add empathy to the list of ingredients that makes up a good relationship.


It is a two-way street. Underwriters need to be concerned about the success of their agents and brokers. Without their success it is difficult for underwriter to effectively grow their book of business. Likewise, agents and brokers need to be concerned about their underwriter’s success in building a profitable book of business for their employer to continue to be a viable outlet. As such, we should always think about what we bring to the table to help the other party to succeed.


I realized early in my underwriting career that insurance agents are very vulnerable to competition. They do not have access to information they need to truly know if a risk is priced correctly. The only remedy they have is to shop the account across the market to be sure their clients are getting a fair price. Somehow, we underwriters have taken offense to this.


It is a bad way to look at it. As an underwriter, one of the most valuable services I could provide to my assigned agents was validating the renewal pricing. I wanted my agents to be successful. With their success, I would receive my fair share of good business. When I helped agents validate the pricing of my competitors and provided professional opinions about the fairness of competitors pricing scheme, I put them in a better position to drive pricing for their clients to an equitable level. On my own renewals (and new business), I shared not just the final rates and premiums, but also the pricing logic and how I arrived at the quoted level.


There were situations when carriers were playing hardball and pricing business above fair premium rate levels. My guidance helped the agent to make logical marketing decisions without having to perform a full-blown marketing exercise. Sometimes, I was given another carrier’s renewal without really having to compete for it.


Yeah, it was some extra work, but the payoff of the extra work was substantial. Often, I was given the opportunity to look “behind the curtain,” to assess the competition and given opportunities to adapt my own pricing schemes or given opportunities to replace carriers when they refused to adjust pricing to a more reasonable and fair level. That is a very enviable position for an underwriter to be in! For the agent, they had a place to turn to prevent being blindsided by a lower quote.


The last point I want to touch on is our bias to insurance solutions to solve risk management issues. Insurance is a critical and important to manage risk. But other risk management tools should be considered. It is important to take somewhat of a holistic approach to solving these issues.

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