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Critical Issue Report Fits and starts Too many insurers lack strategic vision By Dennis H. Pillsbury Our readers are of course familiar with the plethora of stories that have graced the pages of Rough Notes on strategic initiatives undertaken by insurance companies. In most cases, these initiatives enhance the coverages or services being provided to their independent agents. It is a commendable record. Unfortunately, these efforts are frequently short-lived. Too often, companies will announce an initiative only to have a change of heart, new management that wants to take the company in a new direction, or new software that will make the agent’s life so much easier if they only implement the 27 steps necessary and, by the time they do so, the company will have moved to yet another new software and agents will need to implement 23 steps and then … well, you get the point. Just as our pages have been graced with stories on successful strategic initiatives, so too are our desks replete with stories that never made it into the magazine. These were stories born out of an announcement by an insurance company that had just invented the greatest coverage or service or download/upload system—or what have you—since sliced bread. We interview the key people at the company, talk to enthusiastic agents who are beta testing (if that is occurring), send photographers to take the appropriate pictures and then get the phone call from the insurance company that, in essence, says: “Never mind.” How is an agency supposed to plan when the companies the agency represents enter and leave markets without so much as a by your leave; stop services that agents have incorporated into their systems; and continue to demand that agents provide them with only the business that fits their risk appetite-today? No, that was yesterday’s coverage du jour. This was the topic of conversation at a recent meeting. Agents were talking about establishing five-year plans for growth, but they were unable to include their insurance companies in those plans because “the companies only plan quarter to quarter.” One agent pointed out that a company that had been with the agency for a long time, nearly three-quarters of a century, and had insured a certain risk for more than 10 years, suddenly decided that this risk no longer met its strategic objectives. The agent pointed out that in its worst loss ratio year, the loss ratio for the insured in question was 67%, and the average was in the 30s. The 67% was the result of one large loss that was unlikely to recur. “I emphasize to my clients how important loyalty to a company is and then something like this occurs,” the agent lamented. “How are we supposed to convince the insured public to be loyal? And how can the companies expect us to be loyal?” Of course, if this were just an isolated incident, that would be one thing. But it’s not. Agents at this gathering provided example after example of companies changing horses in mid-race and hanging loyal agents out to dry. And, of course, for us in the publishing business, there is that pile of unpublished articles about now passé strategic initiatives that we are reluctant to inter in a final resting place. There’s always the chance that another change in direction may occur and we can simply run a five-year old story on a “brand new” initiative, with a few name changes, of course. The real victims of this lack of strategic vision are the insurance companies themselves. Did anyone ever wonder why more than half of the commercial risk transfer market now uses an alternative to traditional insurance coverage? Well, wonder no more. We keep hearing that this is only a hard market phenomenon, but new captive formations have continued during the soft market. There are now 30 domiciles in the United States, and they are experiencing continuing growth in lines of business that are considered soft today. Insureds that have opted for the alternative approach to risk transfer almost always cite budgeting as one of the key reasons for leaving the traditional marketplace. Budgeting is just too difficult using the traditional marketplace when insurers are slaves to the underwriting cycle. One commercial insured noted that a cycle is where “companies would have inexperienced underwriters learning how to say ‘no,’ followed by a period where those same individuals would learn how to say ‘yes,’ followed by.… It’s insanity.” One alternative market wag expressed it this way, “We’re the traditional market for a lot of the commercial insurance coverages. The so-called ‘traditional’ market is just a glorified residual market. I can’t believe they want that to continue.” One of the most significant changes I have seen in the many years I have been writing about agents is how many of them now include alternative market mechanisms in their arsenal of services. Many of them are moving their best clients into captives or other alternatives, and these accounts are probably lost to the traditional market forever. But, most important for these agents, they are probably clients for life. The insurance companies need to take a hard look at how they do business. Fits and starts just won’t cut it any more. * |
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