Tag Archives: insurance brokers

A Brave New World: Move Away From the Commodity Trap

A controversial McKinsey Report, “Agents of the Future: the Evolution of Property and Casualty Insurance Distribution,” compares the impact of the Internet on travel agents to the proliferation of online insurance websites and considers whether the local agent will disappear if he continues to do business as usual. The report says: “Local agents are not in danger of extinction, but the role they play will continue to evolve. Those who can adapt to a new set of circumstances will thrive.”

The report talks about the dangers of online commoditization to our industry. From the thousands of agents and brokers I’ve coached, I know that the enemy is not technology; it is the dominance of the insurance bid … a commodity force that must be removed as the focus of the customer experience. It must be replaced by the risk-management process — a consultative and diagnostic approach founded on risk evaluation and mitigation … strategies to protect a family and business properly with the goal of reducing claim frequency and severity.

What does this mean for the insurance industry in 2014?

Insurance producers are tired and frustrated with competing in the “commodity trap” — the 90-day insurance bidding process. They are beginning to lose confidence in themselves because they are playing a game in which they have little impact on the outcome.

Commoditization is a battle that insurance agents, brokers and carriers confront each day. It occurs when the consumer perceives little or no distinguishable difference between products, services and resources — and when price has become the primary differentiator.

Picture commoditization as a disease that is eating away at insurance producers’ knowledge, wisdom and professionalism. It is so cruel and debilitating that it is stripping away the value proposition of even the most seasoned producer by reducing professional purpose to a number.

Time for a Q&A

To determine if your agency is affected by commoditization, ask yourself these questions:

  1. Are you losing your passion and purpose for the insurance business?
  2. Are you able to change the consumer’s perception of you?
  3. Are you angry and frustrated with the 90-day bidding process?
  4. When you introduce yourself as an insurance agent at a social event, do people treat you with dignity and respect? Are you perceived as a professional, trusted adviser, like a CPA, attorney or physician, or do consumers perceive you as an order taker?
  5. Is the insurance transaction, the 90-day bid, getting in the way of your ability to learn the customer’s business and its issues?

Solutions to combat commoditization

You may ask, “How can I stop being caught in this vicious game?” First, I remind you that you sell an intangible product. The less tangible, the more powerfully and persistently the judgment about the product can be shaped by packaging. You must position the package in a way to enable the consumer to change his or her perception about it.

Second, I ask you to consider three questions:

  1. To what degree does the small- and middle-market consumer have the time and ability to identify exposures? (0, low, to 5, high)
  2. To what degree does the typical insurance agent or broker assist his or her client with exposure identification? (0, low, to 5, high)
  3. To what degree does the small- and middle-market consumer enjoy the traditional insurance bidding process? (0, low, to 5, high)

Unless you’ve scored a 15 overall, your score gives evidence that you must stand out in a crowded marketplace!

Third, you must have a means to differentiate yourself by applying a consultative process focused on the identification, measurement and mitigation of risk. My personal formula is I3 (i.e., issues, implications and interventions).

When agents or brokers apply the I3 system, they improve their professional image, income and work-life balance. They discover a renewed purpose and passion for the business.

Fourth, if you are commodity-driven and chasing the 90-day insurance bid, you are headed toward extinction. Every day, consumers come face-to-face with transactional websites or agents. The surviving insurance agents or brokers of the future will transform themselves into indispensable, remarkable, trusted risk strategists.

The industry’s evolution?

Another industry study, conducted by Forbes for Zurich in 2013, supports the importance of a consultative process. In the study, 414 U.S. executives were interviewed. The study found that the majority of executives admitted that they were worried that they lacked knowledge of how to best mitigate risk; understand the sources of risk; and develop a sufficient risk-management budget. These are the same responses I’ve heard from small- and middle-market clients for years. The only difference is that most Fortune 500 organizations have fulltime risk managers, and middle-market consumers do not.

You can fill this void and serve your clients in a new, more consultative and diagnostic way.

When you serve as a risk strategist for your clients, you offer solutions that they cannot obtain if they purchase coverage online. As a risk strategist, you advocate for your client with the goal of designing and developing enterprise risk-management strategies. In other words, you find out what keeps your clients awake at night and take these worries away.

Secrets to success

Below are seven secrets to you help you implement future success in your agency.

  1. Value proposition. Summarize the reasons why a potential customer should buy your particular product or service, how it exceeds that of the competition and why it is worthy of the price she pays. Your value proposition of the future should be concise and appeal to the client’s strongest decision-making drivers. It must be an irresistible offer, an invitation that is so compelling and attractive that a customer would be out of her mind to refuse.
  2. Confidence. Wherever you are in your career, display the knowledge, skill and attitude to serve as a risk strategist for your clients.
  3. Criteria filter. Screen out price shoppers. Determine quickly if your prospective client meets or falls below your standards. Rather than taking a random approach to prospect research and qualification, make your approach disciplined and strategic. You know what is at risk!
  4. Unique process based on I3 — issues, implications and interventions. Focus on deeply engaging the client. Develop emotional connections with your clients that transcend price and product.
  5. Relational capital. Build long-lasting relationships. Understand that relationships rarely are pursued and captured. Rather, relationships are rooted in rich soil, consisting of a blend of mutual trust, respect and shared values. These relationships produce bonds and connections that enhance both parties’ opportunity to succeed.
  6. Servant leadership. Connect with others and find ways to make them more successful. Make your approach about generosity, not greed. Always show credibility, integrity and authenticity. The degree by which you practice relational capital and servant leadership will be evidenced by higher hit ratios, retention, referrals and cross-sell opportunities.
  7. Purpose and passion. Rediscover your purpose and passion for our industry. Love what you do, and touch your clients’ hearts.

When you begin to serve clients as a trusted risk strategist, you will climb out of the commodity trap. Using the I3 process is your best, most powerful tool to escape commoditization and thrive.

This article first appeared in Professional Insurance Agents Magazine.

Dare to Be Different: It's the Only Approach That Works

In today’s dog-eat-dog business environment, it is essential that you develop a strategy to stand out in a crowded marketplace… to separate yourself from your competition.  Simply put, to be different! 

Theodore Levitt, the renowned economist, professor at Harvard Business School and editor of The Harvard Business Review, had the following to say in his 1991 book, Thinking About Management:

“Differentiation is one of the most important strategic and tactical activities in which individuals and companies must constantly engage.  It is not discretionary.  And, everything can be differentiated, even so-called commodities such as cement, copper, wheat, money, air cargo and insurance.” 

Price is the enemy of differentiation.  By definition, being different is worth something.  Consumers are willing to pay a premium, redefine the buyer/seller relationship, erect barriers to the seller’s competitors and establish the seller as a trusted adviser when a differentiated platform offers perceived value in the marketplace.

Research on Brand Differentiation

Even with all of the attention paid to branding these days, more and more companies are being commoditized.  In other words, fewer and fewer are able to differentiate themselves through the eyes of the customer.  Commoditization occurs when the focus of the consumer’s decision is on the offering rather than the quantifiable difference that you bring to the business.  You cannot see commoditization.  However, it can be felt with a negative impact on your confidence, reputation, time, money and relationships.  Brand Keys, a loyalty and engagement research consultancy, analyzed 1,847 products and services in 75 categories via its Customer Loyalty Engagement Index.  It found that only 21% of all the products and services examined had any points of differentiation that were meaningful to consumers.    

So what is missing?  A differentiated value proposition supported by a unique consumer experience.

Differentiated Value Proposition

Value proposition is the reason for your professional existence.  It describes how you create value for others.  It makes you stand out in a crowded marketplace.  Without a compelling value proposition, you are ordinary and disposable – a commodity.  With a distinguished value proposition, you are unique and indispensable. 

Your unique value proposition must summarize the reason why a potential customer should buy your particular product or service, how it exceeds that of your competition and why it is worthy of the price they must pay.  The ideal value proposition is concise and appeals to the customer’s strongest decision-making drivers.  It is an irresistible offer, an invitation that is so compelling and attractive that the customer would be out of his or her mind to refuse your offer. 

Customer Experience Journey

What is the Customer Experience Journey?  It is the sum of all experiences that the customer has with you and your organization … the actions and results that make the customer feel important, understood, heard and respected.  Each and every customer interaction molds and shapes the journey.  While you may take great pride in the “features and benefits” of your offerings, it is important that you assess the degree to which you are stimulating the emotions of those whom you serve.  To accomplish this, you must deeply engage your customer’s emotions in addition to, and even above, their intellect.  You will hit roadblocks unless you are able to form an emotional connection that transcends price and product. 

Emotional connections are essential components of the journey.  Research indicates that more than 50% of the customer experience is subconscious, or how a customer feels.  The self-conscious brain is a fertile garden in which to sow positive seeds.  The mind is highly selective, processing millions of pieces of information each second.  Whether you realize it or not, you are touching the subconscious in each step of the Customer Experience Journey. 

In designing and delivering a Customer Experience Journey, it is important that you have a plan to engage the consumer.  Emotional engagement is the foundation of the customer experience.  People rationalize personal decisions first but make decisions based on feelings.  A great experience transcends the rational attributes of a product or service (i.e., price). 

Cecil Beaton, the English Academy Award-winning costume designer, said: “Be daring, be different, be impractical, be anything that will assert integrity of purpose, emotion and imaginative vision against play-it-safers, the creatures of the commonplace, the slaves of ordinary.”

Dare to be different?  You bet! 

A Dangerous Misunderstanding on the Reinsurance Broker’s Role

Reinsurance represents one of the most valuable but least understood assets for insurance companies. Unfortunately, it is sometimes, without much further consideration, assigned to be monitored by someone at the insurance company who is not savvy about reinsurance and who has other, primary job duties. As a result, by default, it can be the broker who sold the program who is left to advise management on such important issues as recovery, premium calculations and interpretation. Many insurance companies act as if the broker is a fiduciary working for them. This approach provides for a direct conflict of interest that the company ceding responsibility is often totally unaware of. Deferring reinsurance oversight to the broker is not an appropriate course of action.The misunderstood relationship with the broker

A recent court case (Workmen’s Auto Insurance Co. v. Guy Carpenter & Co., B211660 (c/w B213853)) specifically determined that the reinsurance broker does not owe a fiduciary duty to a reinsured company. The court rejected the company’s argument that the broker, as the company’s agent, had heightened duties including those of honesty, loyalty, integrity and faithful service, as well as a duty to make a full and fair disclosure of facts.

It was asserted that the broker breached its duty by failing to secure timely payments, failing to secure the best available terms of reinsurance and acting with the intent to injure the company by incurring inflated commissions. The court said the question was whether the broker was the company’s agent and, if so, whether that agency imposed fiduciary duties on the broker as a matter of law such that the broker can be held civilly liable for breaching those duties.

The court said that an “independent insurance broker is not an agent of the insurer, but rather is an agent of the insured.” But the court also said that a broker “cannot be sued for breach of fiduciary duty in a manner that conflicts with existing insurance law. In reaching this conclusion, we confess that agency law and insurance law are in conflict, resulting in a legal conundrum.”

The company suggested to the court that case law and statutory law involving insurance brokers should not be applied to reinsurance intermediary-brokers because they have far more complex and comprehensive relationships with their clients. The court responded that such an argument should have been brought up sooner and ultimately allowed the broker to prevail because of procedural rather than substantive issues.

Comparing the relationship of an insurance broker with an insured to the reinsurance broker’s relationship with a reinsured is amazingly naïve. Somehow, it escaped the court’s attention that the reinsurance transaction is not strictly regulated, and that applying the same rules to a relatively non-regulated transaction was inappropriate at best. Perhaps the court believed that insurance case law developed in a vacuum, and that it was not tempered by regulatory oversight and legislative consumerism.

Still, the author assumes that the court would apply its same “(il)-logic” to other reinsurance brokers.

The aha moment

The broker itself defines “broker” as a reinsurance intermediary that negotiates contracts on behalf of the reinsured. Yet the broker says it does not have the traditional duties imposed in the agency-principal relationship.

The attitude by the broker is, in my opinion, the single biggest takeaway for companies ceding management of their reinsurance. It is confirmation that is incorrect to believe that your broker owes you the duties of honesty, loyalty, integrity and faithful service as well as a duty to make a full and fair disclosure of facts, and that it is acceptable for brokers to generate inflated commissions. It is now been made clear that, when push comes to shove, the standards to which your reinsurance broker is held are not really a whole lot different than when you are buying a used car, where statements made concerning the sale are considered “puffing”; just an opinion or judgment that is not made as a representation of fact.

Companies that delegate reinsurance risk management to a broker may themselves be breaching fiduciary duties to stakeholders. That is, while the case concluded that the broker does not have a fiduciary duty to the reinsured, courts are quick to confirm that officers of the reinsured do have a fiduciary duty to the reinsured.   Obviously, officers cannot meet their fiduciary duties by assigning those duties to someone whom the court has found to have no fiduciary obligation to the reinsured.

I do not fault the particular broker in its defense. The issue is not the particular broker in the case or brokers in general; the real issue is the willful ignorance of the reinsured. Not questioning the motives of the broker is naïve. Remember, the broker, like the used car salesman,  makes his money based on how much comes out of your pocket in the sales transaction.  Risk management requires truly understanding the environment in which you operate.

The above case is not unique in bringing to light the ignorance of courts concerning reinsurance. Judges have been known to throw up their hands when dealing with reinsurance and admit that they do not understand what is being presented.  In the case of Indiana Lumbermans Mutual Insurance Co. v. Reinsurance Results, Inc., in the U.S. Court of Appeals for the Seventh Circuit, Case Number: 07-1823, the court stated:

“The lawyers’ oral arguments were excellent. But their briefs, although well written and professionally competent, were difficult for us judges to understand because of the density of the reinsurance jargon in them. There is nothing wrong with a specialized vocabulary – for use by specialists. Federal district and circuit judges, however, with the partial exception of the judges of the court of appeals for the Federal Circuit (which is semi-specialized), are generalists. We hear very few cases involving reinsurance, and cannot possibly achieve expertise in reinsurance practices except by the happenstance of having practiced in that area before becoming a judge, as none of us has.”

Ignorance is only part of the problem

The reinsured holds much power but is afraid of using it. The playing field is certainly not level to begin with, but all too often the ceding company’s management exacerbates this lopsided power arrangement. It is amazing how ceding company management knows instinctively that their clients have many alternatives, but somehow believe that they, as a client of the reinsurance broker, have no alternatives. Companies often do everything they can to protect the “long-term broker relationship.”

This demonstrates a complete lack of understanding by ceding company management of their own fiduciary duties. The fiduciary duties of officers of insurance companies are to the company stakeholders, not to the reinsurance brokers.

This lack of understanding should be of particular interest to regulators overseeing insurance. All states now have a statute or regulation pertaining to recognizing a company in “hazardous financial condition”; one telltale sign is the lack of competence and fitness of those in management. Breaching a fiduciary duty could indicate lack of fitness.

Most insurance companies are ultimately in business to make money and serve their clients. Mistakenly believing that you are in business to make friends and keep long-term broker relations will put you out of business.  Reinsurance is a commodity. Thinking of it as anything else makes you an uninformed consumer.

Your reality – the Wild West

Your business (insurance) is a highly regulated one that owes a fiduciary duty to its clients. To stay in business, you must depend on reinsurance, offered by an entity (reinsurers) that is, for all intents and purposes, unregulated. Additionally, this commodity must be purchased in certain quantities or an agency (AM Best) that gauges how viable you are will let everyone know that you face questions.  You may have to go through a salesman (broker) that the courts have determined owes you no fiduciary duties, and whose income is based on how much it can sell you. That is, there is no  incentive for “your” agent to advise you of ways to reduce your costs. To people in other industries, it would appear that “your” agent actually doesn’t work for you.

If the commodity you purchased turns out not to be what it was said to be, then you must arbitrate the matter with the entity that offered it. Reinsurance arbitration has proven to be every bit as costly and time-consuming as litigation but offers none of the advantages or safety nets provided by the courts. In spite of naïve judges, the court system is a better option. Judges are naïve only because reinsurance transactions so seldom land in court. Courts are a vastly superior forum that offers reason, rules and stare decisis, where precedent is followed, records are published and the same issues do not have to be determined multiple times. In arbitration, if a decision is made that is unfavorable, you may not appeal the decision. If this same scenario has been arbitrated before, you will never know it, because there is neither precedent nor a record. The outcome will not be determined by legal construction of the commodity you purchased and a set of interpretive construction rules but by the “custom and practice” of the industry, which coincidentally is neither written down nor uniformly agreed upon or adhered to. Arbitration only provides an advantage for the unregulated party to the transaction; it in no way benefits the regulated party. If the commodity you purchased does not measure up to the set of standards your regulator imposes, your regulator will punish you, not the entity that produced the commodity. Additionally, your clients to whom you owe a fiduciary duty have no recourse against the producer of the defective commodity you purchased even if it caused you to go out of business.

Substitute ANY other industry for insurance, reinsurance and broker in this scenario and you will quickly discern the absolute draconian forum in which you must operate.  Now you can see why I don’t believe that the ceding company has a reasonable basis to believe that deferring reinsurance oversight to the broker is appropriate.

The next time you sign your broker-of-record contract, try this experiment:

Ask to insert the clause  – “the broker agrees and understands that it is acting as a fiduciary for the Company in all matters in which it services the Company, with all duties and standards imposed in a fiduciary capacity.” While the court was not willing to assign such duties, the broker is free to contractually assume them!

Call Reluctance: the Bane of Sales People

I remember my first day as a stockbroker like it was yesterday, I was sitting at my desk in my brand new, three-piece suit. I was fired up, ready to start my new career! As I waited for my license to clear over the next three days, I researched different stock ideas that I could recommend to potential investors.

On the third day, the owner of the firm came up to me and asked, “What are you doing?”

I said, “I'm waiting for the phone to ring.”

He looked at me with amazement and said, “That's not how this business works! You need to pick up the phone and start making calls.” He gave me a list of people to call and walked away.

I sat there for a couple of minutes thinking, “What have I gotten myself into?” This was not how it was supposed to work. Months earlier, I had walked through the skyways in downtown Minneapolis watching stockbrokers jumping up and down with excitement as they watched the tape from the New York Stock Exchange while talking on the phone. It looked like so much fun. Obstacles weren't even on the radar!

Sometimes, it is better to not know about the obstacles that lie ahead.  In the movie “The Wizard of Oz,” Glinda the good witch didn't tell Dorothy about all the obstacles she'd face: the poppy field, the spells, the guard. . .  well, you get where I am headed. Had Glinda told her about all of the obstacles, Dorothy might never have made it back to Kansas. She might not even have left Munchkin Land. To this day, I am grateful that I never realized all the obstacles I would encounter as a stockbroker.

My biggest obstacle? Myself. I was flat out afraid: of failure, of success, of the phone! I had severe call reluctance. What was I going to do? How was I going to overcome this? The telephone seemed to weigh a thousand pounds. I had a knot in my stomach the size of a basketball.

I remember the first call; I was terrified. The person I called hung up, and I was relieved, actually, I didn't have to say anything. The next person listened to my pitch but then hung up. I made several calls that day with no success, and I thought, “This is going to be a very tough road.” I finally made it to the weekend, went home and did everything I could to avoid thinking about Monday morning.

When it inevitably rolled around, I felt like I was going to the slaughter house. I reluctantly headed to the office to attend my first sales meeting. I still had a knot in my stomach as I sat down to listen to Tom Vanyo, the owner of the investment firm. I had never been to a sales meeting before, and I didn't know what to expect. Deep down, I was hoping it would last all morning so I wouldn't have to get back on the telephone.

For the next 60 minutes, Tom talked about the value of personal development. He repeated over and over again that we must work on sales skills. He shared examples of how to ask better questions to engage the prospect and how to ask for the order more than once. I locked on to every word he said, taking several pages of notes. The entire meeting was inspiring and full of great sales ideas.

Afterward, walking back to my desk, I observed the top producers in the company making outbound calls. I noticed how enthusiastic they were. It was almost like being at a revival. As I pondered my next move, I thought, “Why not model excellence!” I asked a couple of the top producers if I could sit with them to observe their phone presentations. They agreed. I wrote down word for word what they said. I observed the key to their success: They were enthusiastic about what they were selling. I thought: I can do that.

I was so inspired. I still had a knot in my stomach about making phone calls, but I was not going to let that hold me back. Enthusiasm overcame my nerves. In my first month, I opened up more than 35 accounts and earned more than $3,000 in commissions, plus a $250 bonus for opening so many new accounts. Within eight months, I opened up more than 180 accounts. I still knew very little about sales. I did learn, however, the secret to overcoming my call reluctance: enthusiasm! And when I was excited, my prospects and clients got excited, too.

My first full month was simply amazing. I noticed that, with every phone call, my skills were improving dramatically.  This sent my confidence soaring. The more calls I made, the more confident I became. Tom was right. The key to success in sales was personal development.

You, too, can develop yourself.  You have unique skills and abilities.  Add those to a positive attitude, continuing personal development through learning and applying what you learn, preparation, persistence and enthusiasm, and you have some of the keys to transform your own call reluctance.

Three Steps to Sneak Past Gatekeepers Using – Of All Things – YouTube

If you’re targeting prime prospects who

  • don’t reply to your emails
  • don’t return your calls
  • or screen you through gatekeepers

Try this little-known YouTube strategy.

Imagine getting a video where someone says YOUR name in it?

 “John, I recorded this short video for you because I think I can help you…”

It’s a powerful connection builder.

Because the one-to-many approach is so easy, very few advisors use a one-to-one approach to video marketing.

However, there is a stealth way you can do this for free and open up doors that used to be closed.

Step 1: Record a video using YouTube’s “Webcam record” feature.

This will allow you to record a quick video without all the equipment and lighting. You’ll get an instant link you can copy and paste into your email.

Done.

Step 2: Give away something that will help make prospects’ lives easier.

Don’t just ask for an appointment; give them something to prove you’re an expert.

Separate yourself from the herd by sharing a secret, strategy or technique that will help them with their current insurance situation.

Use a script like this:

“Hi, Lawrence, I’ve recorded this short video because I’m helping CEOs like you in Dallas lower their risk and protect their employees.

“I’m sure your insurance advisor is great. However, there’s a little-known strategy most don’t use to help software companies like yours because it’s just too complex.

“I’ve been using it for seven years and implemented it with 28 other software companies like yours with great results.

“It’s all in my special report [Hold up a copy for them to see] called “The Five Most Critical Trends Facing Software Companies, and How to Protect Yourself from Them.”

“Just reply to this email, and I’ll send it to you, or click on the link to get access to my calendar, and I’ll review it with you over a 15-minute conversation to see if you qualify.”

Simple.

Step 3: Add a link to your online calendar to take the next step.

Sign up for a tool like Timetrade, which allows you to publish an online calendar you control. Others can sign up to be on your calendar, and it automatically populates into Outlook or Gmail. Paste that link into your email.

Brilliant.

Step 4: Send a short email.

Remember, your ONLY goal is to get them to watch the video. Don’t waste time.

Use this format:

[subject line] Lawrence

Lawrence,

I’ve been trying to reach you without success. So I recorded this short video for you.

My calendar: [link]

Enjoy,

[your name]

At first, you’ll take a bit longer to get it all set up, but once you do you’ll be able to get each email/video done in nine minutes or less.

Remember, be yourself in your video – everyone else is already taken wink

Ok, let’s recap:

Step 1 – Record a short video via YouTube.

Step 2 – Give away something of value that helps your prospects.

Step 3 – Set up your online calendar for easy scheduling.

Step 4 – Write and send the email.