PERSONAL LINES SELLING
Current market conditions require deliberate
marketing and underwriting strategies
By Troy Korsgaden
What it boils down to is taking responsibility for those things that are within our control, and one of those things is field underwriting.
The subject of this discussion--growth through profits--may strike you as a basic tenet of running a good, solid business. You may be thinking: "Duh! Of course one must have profits in order to grow. It's a given." Yet it is not necessarily the case in the insurance industry. Sure, agencies can write a lot of policies and receive the commissions, but are they taking a long-term view and writing business that is profitable to their carrier companies? Let's look at the bigger picture.
It has become painfully obvious to the insurance world that these are tough times. Combined ratios have risen, while marketing availability is at a long time low. Some companies have left the property/casualty market and there are no newcomers to fill in the gap. There are moratoriums in some states for fire insurance, and auto insurance is becoming more difficult to sell as companies raise rates and tighten up underwriting rules.
Factors driving market uncertainty
It would be easy to point the finger and say who is to blame, but a number of factors are driving current market conditions. First, the weather has been more severe than it has ever been, resulting in various and sundry types of claims. Increased litigation is a factor. And over the past two years, the marketplace has been hit with, of all things, mold claims. Who would have ever predicted, let alone planned for, huge mold claims? The financial markets have been like a roller coaster ride with ups, downs, fast falls, and then a screeching halt as the tragedy of September 11, 2001, struck at the core of America. When combined, these factors have created big losses in the insurance business and uncertainty in the marketplace. And this uncertainty not only is affecting carrier companies and top management, but it has filtered down to the agency field force and to the consumer, who is feeling the pinch with higher rates and shrinking market availability. Even after some of these issues are resolved, only one thing is certain. There always will be something new confronting the marketplace.
In an era of total self-absorption, the months that have followed September 11 have been a time for introspection, self-examination, if you will. Agents are looking at what they can control and what they can't control. Some things are obvious--we can't control the weather, we can't control the financial markets, we can't control terrorist acts. What it boils down to is taking responsibility for those things that are within our control, and one of those things is field underwriting.
Taking responsibility
Growing our business--which in turn contributes to carrier company growth--is the way to future success. We have to take some personal responsibility. As a field force, we've been waiting for the company to fix the problems. It's time to grab the bull by the horns and do the right thing. You must choose with whom you do business to be successful in the future. Historically, the insurance model was based on driving the customer through the front door or to the telephone, with not much thought or planning as to what type of customer would come in or call. Because of that history, the systems are ingrained into our more mature agents, and passed along to newer career agents--we are supposed to rely on reactionary methods. I believe there is a better way and that is to achieve growth through profitability.
To be profitable and to achieve proper risk selection, an agency must have a marketing plan. This roadmap will guarantee that qualified prospects will come through the door every day. This can be accomplished by taking a proactive approach to your business rather than relying on the old method of reacting when the phone rings or someone walks through the front door. Set appointments with people referred from current customers. Set appointments with clients to up-sell other lines of insurance or financial services products. Require your staff to x-date, x-date, x-date, then filter through the x-dates and spend your valuable time talking with quality prospects. In order to do the right thing, you need choices. Set 10 appointments a day with quality prospects and guarantee choices, not desperation. If one or two don't show up, it is no big deal because you still have at least eight opportunities to be of service. Conversely, if the agent has only one appointment and that prospect doesn't show up, what have you accomplished? Nothing. Worse yet, what if the prospect does show up and that's your only appointment for the day? Human nature is to try to make that prospect qualify, even if he or she is a "pit." We need to look for cherries, not the pits.
Proper risk selection must be considered from the very beginning of the relationship with a client. The new prospect may look good on paper--no speeding tickets, no claims history. But just because someone looks good on paper doesn't mean that he or she qualifies for the lowest rates. We need to ask probing questions to assess risk. Assessing risk is a part of taking responsibility for the kind of business we write. We need to choose wisely. We want customers who will stay with the agency year after year. We want customers who believe in insurance. We want quality customers who want to have someone help them navigate through the maze of choices, so that they can make wise decisions for their family.
Easy is not always better
It's easy to take all comers and write an auto policy for six months. It's easy to have an ad in the Yellow Pages to attract business to your agency. Studies have shown that you can attract price shoppers, but that's about it. Doing quote drills is not the way. Taking the wrong type of business is like speeding to the wrong destination, faster. We never, and I mean never, give a quote over the phone. The telephone is a wonderful business tool--to set appointments and seek information. Period. Trusted advisors don't do business over the phone.
It's also easy to get auto referrals from car dealerships. In our consulting services, we have looked at this marketing ploy from every angle. We've looked at this business overall and it is unprofitable business any way you cut it. In the go-go days of insurance, it was all about putting policies on the books and increasing revenue, with little or no regard to underwriting profitability. Many successful agents wrote high numbers of policies each and every month. But today, the chicken has come home to roost. Writing high policy count has proven to be a trading of dollars for the agency because the retention is just not there. The agencies that still use this approach have been relegated to order-takers because with every new policy written, two are exiting from the back door. Worse yet, writing this type of business has really put a drain on capacity to write new business because the rate structure has to cover for the non-renewing policies. This is now a fact of life-- it's a drain on the agency and on the company to have an unprofitable customer.
A final thought
What it boils down to is that agents must take responsibility for the quality of business they write. Make a conscious effort to write profitable business. 1) Doing so is good for our customers by keeping rates competitive for the broadest coverage. 2) Doing so helps our agencies. Writing profitable business is less costly to administrate and service, which in turn will increase market availability and competitive products to sell. 3) Doing so is good for our carrier companies because it makes them financially stronger, increases capacity to write new business and helps them be more confident in long-term planning and decision making in the marketplace. 4) Doing so is good for our industry. Overall, industry profitability creates more competition and as we like to say at Troy Korsgaden Systems, "Competition is good as long as it's good competition."
So what does this all mean? Looking at the big picture of profitability in the industry can be overwhelming. But after the events of 9/11, most of us have really looked inward; and if you take the time to look at your agency and your place in the industry, it's easy to see you must take personal responsibility for profits. At the very least, you will know you are doing the right thing. *
The author
Twice named "Agent of the Year" from among 14,000 Farmers Insurance agents and a frequently featured keynote speaker at industry events, Troy Korsgaden has trained nearly 30,000 insurance agents and staff across North America. His book, Power Position Your Agency; A Guide to Insurance Agency Success, explores in-depth, strategies for growing and retaining insurance agency business. For more information, call TKS at (800) 524-6390, fax the company at (559) 625-1603 or visit the TKS Web site (www.tksystems.org).