Every new insurance agency wants to come out of the gate like gangbusters, racking up a lot of revenue quickly. However, putting premium on the books without regard to the quality of the accounts can cause problems down the road for a new agency. Just like an insurance company, an agency should be at least somewhat choosy about the risks it writes, in order to protect its reputation and bottom line.
“Companies are watching new agencies very closely, so writing everything and trying to push the edges of the underwriting rules will can raise immediate red flags with the carriers,” says Strategic Agencies, LLC president Joe Totah. “The best approach is to do a great job for the prospect, explain coverages and why they need it. Agents who do this do not have to sell primarily on price.”
Lisa Harrington, executive vice-president and chief marketing officer at the International Risk Management Institute, advises agencies to find a market niche. “Having a specific set of focused industries helps you resist the temptation to try to be everything to everyone,” she says. “You become an expert. You learn what a high-quality risk is in each area of expertise.” Chris Burand, an agency consultant, says agencies can strategically place the “less than stellar accounts” with markets that do not emphasize upfront underwriting. He also notes that some carriers’ predictive modeling tools allow agencies to be less choosy with risk selection. “Not all companies have such sophisticated models, but many do,” he says, “and at least with those carriers, who often cannot afford to admit this, quality upfront underwriting can be more of a hindrance than a benefit.”
Totah advises inspecting each risk and gathering as much information as possible, keeping an eye out for misinformation. “Quality business is a matter of getting as much information as you can about the risk. If there are red flags, it’s probably not a quality risk.” Harrington agrees, suggesting agents be wary of prospects who are hesitant to give complete answers, share company information, or who do not want to work through coverage checklists. Burand advises agencies to avoid producers and staff whose main criteria is “whether the decision maker is at least breathing. Like attracts like, so quality producers and quality staff will attract quality risks.”
Totah also warns against risks with a history of cancellations for non-payment of premium or for underwriting reasons. He also advises staying away from rate shoppers who do not consider coverage. Harrington echoes that advice: “If you sell on price, you die on it.”
Carriers’ underwriting appetites are subject to sudden changes, though Burand argues that agents who are paying attention should be able to predict these shifts. He advises agents to study their carriers so they will be in a position to take advantage of abrupt underwriting changes. Harrington cautions agencies to make sure they have options for their clients should a carrier decide it no longer wants a certain class. She also says that this is a situation where having multiple niches can help. “When one industry is in a downward trend, something else you were writing might be going the other direction.” For Totah, writing quality business will help agents roll with carrier changes.. “Even though a risk class can deteriorate, quality business always has a lower loss ratio.”
Being selective means occasionally telling prospects that the agency cannot help them. “Rejecting a prospective client is so extremely difficult, especially in a small community,” Burand notes. That community, he adds, could be a market niche as well as a location. He advises agents to always give the client an explanation. “Indicate that their risk is not something you do,” Totah says, “and refer them to another agent who does non-standard risks.” Harrington recommends having two or three standard answers ready and being polite but firm.
In the end, the secret to keeping loss ratios down is working closely with clients who are willing to put in the time and work. This approach also sells more insurance. “The client doesn’t know what they don’t know,” Harrington says. “If you do the thorough work of digging out every possible need, and show them, they’ll buy more insurance from you.”
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