Rob Ekern, president of C.R. Ekern & Co., developer of the Consultative Brokerage concept for high-level producers.
By Elisabeth Boone, CPCU
Rob Ekern, president of C.R. Ekern & Co., developer of the Consultative Brokerage concept for high-level producers.
If all you have in your briefcase is a stack of apps, a calendar, and a calculator, watch out--if you're not already extinct, you're about to vanish from the earth like a pterodactyl. These days, the name of the game isn't X-dating or taking orders. It's using a sophisticated set of tools to elicit a prospect's needs--sometimes before he/she is even aware of them--and crafting solutions the prospect won't be able to find anywhere else. In short, it's about becoming an indispensable member of each client's network of professional advisers, along with the attorney, the CPA, the bank, the investment consultant, and the risk manager.
Attendees at a recent series of Consultative Brokerage Summits conducted by veteran consultative broker Rob Ekern of C.R. Ekern Company in Phoenix were introduced to an impressive set of "power tools" designed to help them become that indispensable adviser to their middle and upper middle market commercial clients.
Kicking off the proceedings, Ekern delivered some hard-hitting truths to the participating brokers. "Independent agents are losing accounts to bigger brokers--but they're not replacing them," he observed. "X-dating is for fools. Competing on price is the short route to oblivion. When a prospect invites you to quote and says, 'We're not married to anyone,' head for the door. You've just become the broker du jour."
In the market of the new millennium, Ekern said, "Clients' expectations of value have escalated, and the role of the broker is changing dramatically. Your role is to be the gatekeeper of services"--that is, to control the client's access to an array of specialized services that will address all aspects of the client's risk management and insurance needs.
Access to and deployment of technical resources (safety consultants, loss control engineers, actuaries, and other independent specialists), Ekern said, is the most critical step in the Consultative Brokerage® process. Resources must be mobilized early in the prospecting cycle, must be treated as valued team members, and must be presented as such to prospects.
Roy Fellowes, managing director of HSBC Gibbs, Harnett & Richardson, Ltd., Bermuda, a member of the HSBC Group.
Introducing a concept called Total Cost of Risk--TCOR--Ekern identified each of its components: insurance premiums/risk transfer costs; loss costs; administrative costs; and taxes and fees. "You can't control the price of insurance," he observed, "but you can help your client control loss costs and other costs." Showing the client how to manage total cost of risk is "your most powerful tool," Ekern said, "because it takes you out of price competition. If you can reduce the client's TCOR by $400,000, your price can be $50,000 higher and your client won't bat an eye."
Captive options for agents
Since the last hard market, in the mid-1980s, the captive insurer concept has experienced significant growth. Roy Fellowes of the Bermuda office of leading broker HSBC Group described the various captive structures and explained the advantages of agency captives and rent-a-captives, which allow less-than-giant brokers and their clients to participate in underwriting and investment income in exchange for assuming a share of the risk. These arrangements, Fellowes pointed out, also offer both broker and client flexibility, control, protection from market cycles, and access to reinsurance. Smaller commercial risks, he noted, are expensive for a broker to handle and difficult to make money on, even though they are profitable to the underwriter. An agency captive or rent-a-captive is ideally suited for homogeneous groups of well-performing commercial business.
Risks typically insured through captives are professional/products liability; workers compensation/
employers liability; property damage/business interruption/general liability; auto physical damage/
liability; and employee benefits.
(From left) Carol Darden, casualty department manager for wholesale brokerage Cooney, Rikard & Curtin, Inc.; Jim Christopherson, property broker in the Houston office of Cooney, Rikard & Curtin; and Rob Ekern, C.R. Ekern & Co.
Presenting an overview of the Bermuda insurance market, Fellowes noted that thus far in 2001, the market has generated some
$30 billion in gross written premium vs. $10 billion in Lloyd's. Bermuda is "good at introducing new products and solutions for risk challenges," he declared. Among the risks for which the market has capacity and expertise are umbrella liability; directors and officers liability; professional liability; finite risk (risk transfer and funding for difficult or uninsurable risks); punitive damages wraparound; employment practices liability; and political risk. Also available are products and facilities for residual value insurance; adverse weather insurance; loss portfolio transfers; credit enhancement programs; project finance guarantees; and integrated programs.
Fellowes ended his presentation by displaying a graphic that depicted the Union Jack and the island of Bermuda, captioned: "Bermuda Insurance Market: The Insurance Laboratory of the World."
Wholesalers: hard market resource
When the going gets tough, the tough risks get going--often straight into the wholesale market. Offering a roadmap of the excess-surplus market for casualty coverages was Carol Darden, casualty department manager for Cooney, Rikard & Curtin, Inc., a large independent wholesale brokerage with offices throughout the country.
"No one wants to buy insurance or likes the people who sell it," she observed. "If there are no losses, there's no return on the investment. In a hard market, we are not the good guys." Darden cited a study by the Council of Insurance Brokers that showed 76% of mid-market risks--$25,000 to $100,000 in premium--are experiencing rate increases between 10% and 30%.
The symptoms of a hard marketplace, Darden explained, are:
* Increased information requirements
* Increased activity
* Rising costs, disappearing markets
* Limited solutions
* Increased opportunities
Al Rhodes, president and senior actuary of SIGMA Actuarial Consulting Group, Inc., Nashville, Tennessee.
In today's constricting market, her advice to retail brokers seeking casualty coverages is: "Be proactive to protect your renewals. Talk to your markets before renewal time." As premiums increase, Darden said, a critical factor is "how you deliver your renewals. Deliver bad news early." Wholesale underwriters are overwhelmed with paper, and retailers' submissions should contain as much detailed information and statistical data as possible. "Cultivate your relationships--new and old--with wholesalers and with the lawyers or CPAs who introduced you to your accounts," she counseled. "Be sure each relationship works at every level." With sound relationships in place, "you can negotiate a win for the underwriter, your client, and yourself."
Offering an analysis of property coverage issues and alternatives from the wholesale perspective was Jim Christopherson, a property broker in the Houston office of Cooney, Rikard & Curtin, Inc. In a hardening market, he said, wholesale property underwriters rely heavily on retailers to provide solid, detailed information on the key risk characteristics known as COPE: construction, occupancy, protection, and exposure. Underwriting analysis also takes into account such factors as size of risk, geographic location, and loss history and expectation of future losses.
Scott Sanderson, senior vice president of Marsh, Inc.
Wholesalers are an indispensable resource for retail brokers, Christopherson noted, because of their knowledge and expertise, as well as their access to excess and surplus markets. Wholesalers specialize in catastrophic exposures such as windstorm, flood, earthquake, and risks with high fire PMLs (probable maximum losses). Typical products offered by wholesale property brokers are:
* Ground up--all risk placements
* Layered placements
--Primary layers
--Buffer layers
--Excess layers
* Quota share placements
* DIC (difference in conditions) placements
Enterprise risk management
In a presentation titled "Enterprise Risk Management: The Difference Between Risk and Return," Scott Sanderson, a senior vice president of Marsh, Inc., defined enterprise risk management (ERM) and explained how brokers can use it to virtually competition-proof their best commercial accounts.
Enterprise risk management, Sanderson said, is "the process of systematically identifying and prioritizing critical risks, quantifying their impact on financial and strategic objectives, and then developing and implementing risk management solutions to enhance enterprise value." Enterprise risk management should be a regular process, not a one-time event, he emphasized.
Ben Polanski, regional manager of the loss control department for Schirmer Engineering Corp.
Citing responses to a Marsh survey of senior managers, Sanderson offered these views of enterprise risk management:
* "The ultimate goal of enterprise risk management is preservation of shareholder value."
* "Managing risk enterprise wide means two things: bringing all the pieces of the enterprise together to add the exposures, and using the whole enterprise to manage risk--making sure at the corporate level that all the different oversight departments are working together."
* "The job of enterprise risk management is figuring out where the edge of the cliff is and making sure the risk takers know where it is."
Not all risks are material, Sanderson pointed out; it depends on their potential impact on the value of the enterprise. Uncertainty exists because actual outcomes may differ from predicted outcomes. Individual risks and their impacts should be evaluated on a portfolio basis to understand and appreciate correlations among risks. "When one risk factor changes, others follow," he said. In the case of a contractor, for example, when interest rates rise, fewer homes are built, and revenue declines.
In the emerging world of enterprise risk management, Sanderson said, the broker's challenge and opportunity is "to serve as an adviser and consultant in managing risk volatility." As the insurance business continues to change, he commented, brokers increasingly will take on the role of financial advisers. Enterprise risk management, he emphasized, "is about thinking creatively, not trying to get a better quote."
Unbundled loss control services
Of the technical resources a consultative broker makes available to clients, one of the most important is professional independent loss control services. Ben Polanski, regional manager of the loss control department for Schirmer Engineering Corporation, an Aon subsidiary, explained how brokers can use loss control services to demonstrate value to larger accounts.
Loss control efforts are of two types, Polanski said:
* "Good ideas"--voluntary efforts to prevent accidents and injuries
* Steps required for compliance with codes and regulations
Likewise, loss control activities have two orientations:
* Physical protection--sprinklers, alarms, etc.
* The human element--employees, visitors, and others
A firm like Schirmer, Polanski said, can provide code consulting and fire protection engineering services to clients. "We can help you get business and retain business," he declared. "Use us from the beginning and all the way through."
Actuaries as allies
Another invaluable resource for a consultative broker is a consulting actuarial firm. In a constricted market, accurate and detailed loss data can make the difference between acceptance and rejection of a submission. Al Rhodes, president and senior actuary of SIGMA Actuarial Consulting Group, Inc., in Nashville, Tennessee, described the kinds of data a broker must obtain from clients and explained how to get and use the data.
Rick Fineman, safety and risk management consultant.
Rhodes recommends obtaining a minimum of seven years of loss data. Minimum data requirements are a loss run summary by line of coverage, by policy period, total paid, total incurred, total claim counts, and open and closed claims. Additional data needed are loss run detail (electronic if possible), prior loss evaluations, and changes in exposures resulting from a merger, acquisition, growth, layoff, or new location. Also required are payroll data for workers compensation, sales data for general liability, square footage for property, and miles driven for auto insurance. Underwriters also need accurate data on claim counts, claim frequency (counts per exposure base), and pure loss rates (losses developed and trended per exposure base).
Industry data sources identified by Rhodes are:
* NCCI/ISO/RMI--trends and loss development
* Best's Review--trends
* Best's Aggregates and Averages--loss development
* Business Insurance/National Underwriter
Helping a client prepare accurate loss data is well worth the effort, Rhodes emphasized. Not only is it a compelling way to demonstrate the broker's value; what's more, "The good news is that a loss control program can have a big impact."
Return to work
Another way for a consultative broker to deliver added value to mid-market clients is to provide access to an effective return-to-work program. In a presentation titled "Compassionate Productivity," risk management and safety expert Rick Fineman described People@Work, a disability management program developed by Wausau Insurance. The program's fundamental principles are:
* Promote immediate notice of losses.
* Reduce frequency and severity of injuries.
* Provide employers with a pre-injury/illness game plan.
* Provide appropriate and timely medical services.
* Return the employee to transitional work.
* Ensure that return to work is progressive and ends with full duty.
The Compassionate Productivity approach is based on these standards:
* Tasks, not jobs, should be identified for accommodating injured employees.
* Tasks must be compassionate toward the worker.
* Tasks must be productive for the employer.
Mark Abbott (left), director of training and development for C.R. Ekern & Co.; and Rob Ekern.
Having an effective return-to-work program in place is an excellent way to control workers compensation costs, as well as the uninsured costs of on-the-job injuries and illness, Fineman said. "Your client can keep the work force stable, instead of losing an employee and incurring the expense of replacing him or her." In today's economy, where unemployment is low and employees' expectations are higher, he added, return to work offers employers a proven way to improve morale, loyalty, and retention.
Environmental insurance secrets
In the middle market of today, specialization is king. A rapidly growing niche market that offers brokers an array of opportunities is environmental insurance, according to David Dybdahl, an environmental risk management consultant based in Middleton, Wisconsin. How fast is this specialty market growing? "Environmental insurance is growing 20% annually. Property and casualty is growing 3% annually," Dybdahl said. "When efficiently produced, environmental insurance pays twice the revenue per hour as traditional P&C business."
For the consultative broker, this specialty niche offers a host of attractive opportunities:
* 70% of new business is written on first-time buyers; there are no incumbents to fight.
* There is a prospect-rich environment--less than 10% of the market has been tapped, and 90% of the potential prospects do not have to fire someone in order to hire you.
* Environmental insurance is a great door opener.
* Environmental insurance enhances most insurance programs--it is good for your clients.
* Uninsured environmental losses strain a broker-client relationship and are potentially career limiting for everyone involved.
What's selling in the growing market for environmental insurance? Dybdahl outlined "what's hot and what's not."
Hot
* Solutions to environmental legacies--past activities that created present liabilities
* Property transfers
* Secured creditors
* Environmental wrapups on remediation projects
* Gap-filling environmental insurance placements
Not
* Hazardous waste firms because of market consolidation
Dybdahl shared with brokers his "secrets of the trade":
* If you approach the client's environmental risk management problems from the insurance side, you will probably lose.
* Underwriters close on one out of 15 submissions that cross their desks. To win, you need to dramatically improve the odds of closing.
* In the past, most of what has been written regarding "pollution" insurance in the trade press is technically wrong. The reporter is usually writing about general liability coverage.
* Environmental insurance policies really do pay environmental claims.
* There is much less coverage litigation for environmental insurance than for most traditional insurance lines: workers compensation, general liability, auto.
To win the client's confidence and business, Dybdahl said, "The three-step sales process is critical."
1. Discuss the environmental risk "problem" with multiple technical buyers in a credible way.
2. Discuss potential environmental insurance solutions in language the client can understand.
3. Give the client an estimate of the price of the deal on the spot to eliminate wheel spinning.
To successfully produce environ-mental business, Dybdahl offered brokers these "secrets of the trade":
* Look for opportunities beyond hazardous waste.
* Develop nontraditional sources of leads.
* Acquire a working knowledge of environmental risk management.
* Use resources.
* Pre-qualify prospects before going to market.
Stand out from the crowd
For brokers who want to get and keep solid mid-market commercial accounts, Rob Ekern's Consultative Brokerage Summits offered a clear, expertly annotated road map. His roster of specialized experts served as invaluable guides for consultative brokers who have resolved to leave X-dating and price quoting to the "brokers du jour," and have chosen instead to be the gatekeeper of essential services that help their clients grow and prove the brokers' worth in a challenging marketplace. *