Tips for Becoming the Best Risk Manager for Your Clients and Your Agency
An article written by Michael G. Manes.
If you want to become an above average risk manager/agent, you must make your client aware of their most important exposures. If you call yourself a risk management professional, not just an insurance guy (gal), it is what you claim to do.
Lenders require mortgaged homes, offices and other property to be insured. Most states dictate workers’ compensation and auto coverage. The NFIP advertises Flood coverage. Watching plaintiffs’ attorneys on TV creates an understanding of the need for liability insurance. Most of the rest is left to the knowledge of the clients or the engagement of their agent, aka risk manager.
I’m guessing, hoping really, that most of you also suggest property coverage, cyber liability, fidelity bonds, loss of income, life insurance, disability income, business interruption, extra expense coverage. The last several items on this list acknowledge that the real asset of most individuals and businesses is the income stream that they or their business produces.
The St Mary’s University risk management classes teach that the steps in the risk management process are – avoid, reduce, assume and transfer. Transfer is what we sell in an insurance product. The true risk management professional helps his/her client understand how to avoid, assume and reduce his/her risk.
Whether you are an agency owner, a producer, or professional staff, what happens in your job, your agency and your book dictates much of your value today (your income, your salary) as well as the asset value in your future.
We can start with the obvious. Do you have contracts with your production and professional staff? Will these contracts do what you think they will do? How much will it cost you to enforce (defend) these agreements? Can you win or will you just use these to negotiate damages after the producer/professional and book have moved to a new home? Have you planned for all the peril of divorce?
Would all interests be better served to have agreements that anticipate changes and allow all to settle up on a mutually beneficial basis? (Before you say no. I’ve seen this done) Have you considered life and disability income buy-sell policies? Should you?
Do you have contingency plans in place in case of a catastrophic loss in your market service area? For example how about oil prices dropping from $100 to $20 a barrel in a one-year period and your book being all energy related.
Do you have a plan for additional locations for insurance agent access if you town’s biggest employer closes or your town is shut down for a significant period of time by a weather catastrophe? Have you thought of the consequences to your agency if you or a partner or key staff person is caught in a major scandal (a business partner is arrested for distribution of drugs, child molestation, etc.)? Don’t laugh. It happens!
Niche (affinity group) marketing can be great as long as the niches you focus on are growing and prospering. Unfortunately in this world of structural transformation, markets can change drastically and quickly. One example is a fitness club opening a huge facility in a small town. The market seems to be overserved by fitness clubs already. You need to be able to anticipate that there will be significant shrinkage in this niche in the next year or two.
Commission is the addiction of choice in our industry. We negotiate, cluster, consolidate books, etc. to drive our percentages higher and higher. Have you ever thought about what happens when it goes down? In 1975, some carriers paid 25% commission on homeowners insurance. As commissions trended downward, some said they would not sell homeowners policies for less than 20% commission. This is the wrong attitude. If you are in the homeowner’s insurance business today, you are doing what your predecessors said they wouldn’t do.
What if a carrier tomorrow went to a system of quoting net of commission or requiring full disclosure of commission? Could you still compete? Do you fear some of the lesser quality agents would steal your business with their lower fee? The better you are, the more vulnerable you are. If you do everything right, your competitors can steal your account by sacrificing commissions since they know they’ll work for less and will be okay at the reduced commission. If an agent is doing it wrong, he’ll have to work harder for less commission in order to make it right.
Years ago one of the best producers ever lost an account to one of the smartest producers ever-she told the client, Bill is a great producer, and I assure you he has you with the best carrier, at the best price with all the right coverages. If you’ll sign this letter of record, I’ll do what he did at five percent less cost to you. The AoR was signed and the account moved!
Many other risks exist- consider additional government intervention, robots instead of laborers, driverless cars, artificial intelligence, direct writers, Zenefits engaging in the world of small HR online accounts, etc.
If you’re not changing as rapidly as the marketplace, you, your agency and your future are at great risk.