Retention ratio is almost perfect
By Dennis Pillsbury
"Our approach embodies the enterprise risk management concept, even though we don't call it that, because it involves looking at all the risks faced by the client and developing ways to reduce or eliminate those risks, regardless of whether insurance is part of the solution."
--Scott Addis, President, The Addis Group
When producers with The Addis Group, King of Prussia, Pennsylvania, approach a prospect, the word insurance almost never comes up. Instead, the focus is on risk. All prospective clients are given a complete diagnostic risk management checkup before Addis will even consider handling their business. The Group utilizes an audit tool to develop "a clear understanding of an organization's operations, exposures and risk profile," Scott Addis, president, says. "It allows us to take an holistic approach to assessing risk. The confidential one-on-one interviews with client management and employees are key ingredients in this process. Typically, we find that the well-intentioned middle market consumer has not been trained how to identify exposures to risk. Their insurance broker or consultant is primarily working with them on risk transfer strategies related to insurance placements. We go to that consumer and talk about the differences between just procuring insurance and establishing a true risk management program."
Scott admits that this is not the right approach for every prospect. "We start out by assessing the degree of their excitement with the concept of risk management. Around two out of 10 are not excited at all and we walk away from those businesses." With the 80% who express a certain degree of excitement, Addis explains the process through which they will have to go in order to become a client of The Addis Group. An audit team of three to six people will go into their company and interview managers and employees for anywhere from a half an hour to an hour-and-a-half to try and determine what they think are the one or two most critical risk issues facing the company. "We stress confidentiality with the interviewees and try to hit a cross-section of people in the company," Scott says. "At the same time, we will be looking at claims data, copies of leases, employee manuals, OSHA logs and so on." Each member of the audit team writes a report on the interviews, and then they start to look for common themes. "Invariably, we find that what the CEO believes are the critical risk issues are not the ones cited by the employees and managers. We often find that it's very little things that are making a critical difference in the attitudes and morale of employees--key factors in having a safe and profitable work environment."
For example, Scott points out that interviews at one company found that a number of employees felt that company management no longer cared about them--because the company picnic had been cancelled. "When we questioned the CEO, we found out that the picnic was cancelled because of excessive drinking and foul language that upset some of the other employees and the CEO's wife. It was simply a lack of communication that had snowballed into a situation where employee morale was on the decline."
He continues: "Our approach embodies the enterprise risk management concept, even though we don't call it that, because it involves looking at all the risks faced by the client and developing ways to reduce or eliminate those risks, regardless of whether insurance is part of the solution. Sometimes, solutions are as simple as additional training for employees or crisis management, or it may require a complete overhaul of the safety program, policies and procedures."
Scott adds: "Insurance is not the driving force during this process. It very seldom comes up during the assessment phase. Because of this, we are viewed very differently--and more favorably--than most of our competition." The goal, he says, is to develop "a good, effective, long-term relationship."
Once the risks and solutions are identified, The Addis Group works with the client on implementation. "We look first at the client's internal resources to determine if the solutions can be accomplished by their own people. Then we look to external resources that might be helpful, including employer's associations, their insurance broker, and so on. We don't always have the answers, but we will help them find people with the answers," Scott says, adding: "We have a cadre of 10 or so consultants that we use for such problems as substance abuse, human resources consulting, violence prevention, etc. We even use a business cultural psychologist who can help companies deal with morale problems."
The advantages
Vis-a-vis competition: The ERM approach gives The Addis Group a distinct edge over most competitors. "We discuss compensation and make it very clear how much we will be paid if we place their insurance business," Scott says. "That can be a real eye-opener for them because they then realize just how much they are paying their current broker. On many occasions, we've already provided more service gratis than they ever received from their broker."
Vis-a-vis underwriters: "Insurance underwriters love this process," Scott points out. The process gets The Addis Group "inside the client's organization and helps to focus management's attention on risk management." He says that company underwriters "will do stuff for us that they will not do for others."
Comments from underwriters from several companies:
* "We're more willing to accept risks submitted by Addis because of their in-depth understanding of their clients."
* "The Addis audit process is an instrumental part of our underwriting process."
* "We have great faith in the process. We wholly support this unique and collaborative approach."
Scott says The Addis Group "tends to get better pricing from the underwriter because we get the senior management of our clients involved in risk management."
Vis-a-vis clients: "Our relationship with our clients is strong and long-term in nature because of our emphasis on helping them eliminate or shift risk if possible, even outside the insurance business. They view us in the same manner as other professionals with whom they do business."
The result is The Addis Group has a hit ratio of over 90% and its retention ratio is almost perfect. They recently received the Marsh-Berry Pinnacle Award in recognition of their outstanding results. Scott admits, however, that there were moments when he wasn't sure this approach would pay off, although he was always sure it was the right way to do business. "When we first started out, other agents and consultants warned us that our acquisition costs were just too high. And, for the first five years, I often wondered if they might not be right. But then we got over the initial hump. Referrals started coming in from the clients who really liked the way we did business and we landed nearly every account that we wanted. At the same time, we retained all our current business. What we had always believed was a win-win-win approach really started to pay off with better loss ratios, hit ratios and retention ratios." *