BREAKING FREE FROM UNNECESSARY
REMARKETING—CHAPTER TWO: COMMERCIAL LINES
Anticipate and educate
[Renewal] isn’t a time to react;
it’s a time to get ahead of the situation by
communicating with clients constantly, especially
as market conditions continue to change.
By Cheryl Koch, CPCU, ARM, AAI, ACSR, AFIS, and Mary Belka, CPCU, ARM, ARe, RPLU, CIC
In our most recent column, we discussed the issue of remarketing personal lines accounts, which has become commonplace in many agencies and likely isn’t being handled in the most efficient and profitable manner.
We’ll now turn our attention to the remarketing of commercial lines accounts, which is happening more and more due to the continued hard market for various lines of business and the double- and sometimes triple-digit premium increases being doled out to agency clients. All of this is also at a time when many are experiencing high inflation, increased labor costs and seemingly endless supply chain issues.
But make no mistake, a lot of effort was being poured into remarketing commercial accounts long before the current marketplace volatility took hold. We’ll take a look at some of the reasons—good and bad—that cause an agency to remarket a commercial account.
When remarketing is a necessity. Perhaps the agency has lost a market, the carrier’s “appetite” has changed, or the account is being non-renewed by the current insurer. Sometimes the current carrier doesn’t officially non-renew, but they price themselves out of competition with a premium increase that eliminates them from serious contention.
These are certainly valid reasons for an agency to engage in an all-out renewal remarketing effort, because staying with the incumbent carrier is not an option. In some cases, this will require approaching not just the agency’s standard carriers, but perhaps the excess and surplus lines market as well, especially if non-renewal was the result of losses or increased hazards to be insured.
In terms of the process, remarketing is essentially as time-consuming as placing a piece of new business. New applications have to be completed and submitted, loss runs must be secured, and there needs to be an extensive analysis of the expiring policies versus those being proposed to replace them. It could as much as double the amount of time required to get the account over the renewal “finish line.”
Yet, account managers, many of whom are already overburdened and often behind, don’t magically get double the time in their day, week or month in order to accommodate the remarketing effort. Therefore, we must be judicious in our use of remarketing commercial accounts.
When remarketing may not be required. What we hear from producers most often is that an account must be remarketed whenever there’s competition on the account. But is that really the answer? Perhaps we haven’t even asked the right question before we spend the considerable amount of time and money that will be required to remarket the account. Why is there competition in the first place?
Something most of us would agree on is that no one likes to shop for insurance, least of all a large, complex commercial account. It’s the same issue the account manager has when forced to remarket an account—it’s like starting the process from scratch. That can’t be pleasant for anyone, so let’s take a look at the possible reasons for agency competition.
- The buyer wants to keep the current agent “honest.” Wow, that speaks volumes. If you feel you have to keep someone honest, you must not trust them in the first place. If the agency has lost the trust of its client, no amount of remarketing will restore it.
- The producer promised the client they would remarket their account annually. Well, tell them to stop it! Is that really in the best interest of the client and the insurance carrier? Persistence is a virtue and an important metric for both agencies and companies.
By annually “shopping” the account, the client is earning a negative reputation with underwriters, especially when the account always renews with the current carrier. Better to have a conversation with the client and mutually agree on a renewal strategy that involves getting the best proposal from the current carrier.
- The premium increase from the current carrier exceeds some arbitrary threshold. Pump the brakes! It’s likely, especially in the current market, that all carriers are taking approximately the same rate increase, especially in troubled lines such as commercial auto, property or cyber. A large premium increase at renewal should never come as a surprise to the agency.
Were there losses that caused the premium to spike? Are the renewal exposures greatly increased over the prior period? Is the carrier right in line with its competitors as far as rate increases? These are all factors the agency should know well in advance of renewal and should be part of the pre-renewal meeting and discussion with the client.
- “I don’t want to get blindsided.” Ah, the producer’s lament. In other words, I don’t want to go out and make a renewal presentation with the current carrier only to find out the client has a proposal from another agency with a carrier to which we have access.
Frankly, you can’t be blindsided if your eyes are open and you’re constantly scanning the environment. This type of defensive posture usually results in a producer’s wishing to play the “block the market” game. Although an all-too-common practice, this one just won’t stand up to scrutiny.
What all of these “reasons” have in common is a lack of clear communication and/or a troubled relationship between the agency and the client. If the client is talking to other agents, there’s a reason, so before you spin your wheels, eat up a lot of your account managers’ and underwriters’ time, find out what is the real issue and see if it can be resolved. If the relationship is damaged, it has to first be repaired, and no amount of remarketing is going to fix it.
We often have agency owners and staff think about the characteristics of their “ideal” client. One of the first things they cite is a client who does not “shop” the agency at every renewal. We’d be willing to bet when underwriters think of their ideal agency relationship, they say the same thing. In fact, this practice may generate a negative expense factor consequence in carrier contingency contracts.
So what can be done to maintain and keep those ideal clients?
Get proactive. Independent agents have traditionally delivered excellent, reactive service to their clients. But this isn’t a time to react; it’s a time to get ahead of the situation by communicating with clients constantly, especially as market conditions continue to change. Remember that some clients have never seen a hard market—we’ve been in a stable one for decades in most lines of business.
Sudden and large premium increases just haven’t been the norm, but most insurance professionals knew this was coming. Between inflation, both economic and social, a larger number of billion-dollar disasters, eroding loss ratios and a global pandemic, it was just a matter of time until these premium increases got passed along to the policyholders. One need only look to the reinsurance renewal marketplace to see that primary carriers were paying huge increases in their own premiums and being given less generous coverage. There was only one direction prices could go.
Be an educator. Part of the job of every insurance professional is to educate the public, starting with their own clients, about the insurance industry. When people don’t understand something, they make the only decision that makes sense to them and that is usually to look for a lower price.
Unfortunately, insurance consumers perceive that the policies they purchase are a commodity, but we know nothing could be further from the truth, especially in commercial lines. We can’t expect our clients to ever understand our industry as well as we do, so we’ve got to be actively engaged with them and always explain what influences the price they pay. Use your social media platforms, invite your customers to a webinar or in-person event to explain where the commercial market is headed, teach them what they can do to keep themselves and their organizations insurable in the future.
Start the process early. We have long advocated for a 120-day renewal timeline for commercial lines. Depending on your agency’s book of business, that may not suffice at this point. Certainly, if there is going to be extensive remarketing of an account, you want to get started as early as possible. Keep in mind, however, that carriers may not be able to release quotes months in advance due to the volatility of the market they themselves are facing with their reinsurers. That’s all the more reason to meet with the client well in advance and plan the renewal strategy.
The hard market tests our mettle. This is truly our time to shine as independent agents. Being independent never meant that we would guarantee to shop someone’s policies at each and every renewal. It means that we will always match the buyer’s objectives with an appropriate insurance carrier and be mindful that new markets may have emerged that are worthy of consideration.
Above all, it means we are committed to using the risk management process when working with our clients and helping them better manage the various risks they face in any market, hard or soft. Hard markets are not for the faint of heart, so step up and take advantage of this one—it may never come again.
Cheryl Koch is the owner of Agency Management Resource Group, a California firm providing training, education and consulting to producers, account managers and owners of independent agencies. She has a BA in Economics from UCLA and an MBA from Sacramento State University. She has also earned several insurance professional designations: CPCU, CIC, ARM, AAI, AAI-M, API, AIS, AAM, AIM, ARP, AINS, ACSR, AFIS, MLIS.
Mary M. Belka is owner and CEO of Eisenhart Consulting Group, Inc., providing management and operations consulting to the insurance industry. She also is an endorsed agency E&O auditor for Swiss Re/Westport. A graduate of the University of Nebraska, Mary holds the CPCU, ARM, ARe, RPLU, CIC, and CPIW designations.