If you are receiving this communication, you have or currently show up on carrier outlier reports to varying degrees. If you are receiving this email you have been identified to some degree by a carrier either in 2019 or in 2020. (That should not surprise you or offend you, as I stated in our last INFORMATIVE email- Most agencies show up at some point given the shear volume of things a carrier can track)
Remember that we discussed in our first communication (attached if you missed it), carriers employ teams of Data Scientists whose sole purpose is to find points of profitability. If you are a $37,600,000,000 WP company and the difference between 1% of profit or loss means $376,000,000 to your bottom line, EACH POINT OF PROFIT IS WORTH SIGNIFICANT INVESTMENT! (The Mathematical example is a real company, a wonderful gift to the first person who responds with the correct company)
For your review it might be good to understand how insurance companies make money. This link will take you to the exact minute the topic is addressed:https://www.youtube.com/watch?v=1fQkN0Qm7Dg&t=690s
Since every point of profit can have a pay day to the tune of 9 digit numbers, Data Scientists are always drawing conclusions as they relate to your agency and your behaviors. We reviewed what they might track and the top four carriers specific hot buttons extensively in our previous communication and will not address that in todays email.
Today’s communication I think is begging us to START with one significant topic that does not have a hard and true answer, and takes us into the theoretical world of Insurance….
ARE WE SALES PROFESSIONALS, RESPONSIBLE ONLY FOR THE SALE OF AND THE MAINTANCE OF INSURANCE POLICES, OR ARE WE SOMEHOW ALSO RESPONSIBLE FOR THE RESULTS OF THE INSURANCE COMPANIES, AND THEREFORE, ALSO RESPONSIBLE TO BE EFFECTIVE FIELD UNDERWRITTERS?
Many great agents feel as though their only responsibility is to procure more policies. If they do this one thing well, they feel they are doing their carriers a favor- Is this erroneous thought? Lets dive in and see if we can help make you a more informed agent, because more informed agents are more profitable agents.
Historically the answer was very clear, agents were Field Underwriters. There were fewer insurance companies in the US and they relied heavily on strategic partner relationships with a trusted, hand selected distribution channel to understand, accurately define, and write profitable risks with the company or companies they represented.
As some point carriers came to the table and boldly proclaimed, ‘We will take the responsibility for the results, since we price the product. From here on out we need you to sell policies and let us take care of the rest…’ Carriers evolved their distribution channels and freely gave access to their product, to everyone, with little to no strings attached, because carriers often suggested they should be held accountable to have the right price point for the risk and/or their algorithm would catch or price risks correctly that they did not want- So long as the agent provided the carrier with correct and accurate source information about the Risk or exposure. (Price and ease became the name of the game, often at the cost of agent commissions- more on that later.)
One more historical data point. A great carrier that always said, “There is a correct price point for every risk”, came to me about 6 years ago, I remember that conversation very clearly. We were sitting at a gorgeous boardroom table and that carrier said, ‘You know, it turns out there is not a correct price point for every risk. There are certain risks (Customers), that will always cost a carrier money.” I ALMOST FELL OUT OF MY CHAIR. 20+ years of that carriers messaging was turned on a dime that day…The END of an era.
And now we find ourselves in todays reality, the role of the agent changed again, reverting back, to an effective field underwriter. From a carriers perspective you are VERY MUCH A PART OF, and responsible for, the Sales AND PROFITABLITIY PART OF THE PROCESS. The carrier expects you to help underwrite and sell a policy and help the carrier find points of profit as well. And for your effective field underwriting you can be paid a lucrative part of the profits you help generate.
So back to the original question, Are you strictly a part of a sales engine or do you have additional responsibilities to generate points of profit? (This is not a light question and answers vary, but the correct answer in today’s environmentoverwhelmingly suggests, you are responsible for your agency behaviors, you are responsible to the insurance company to understand and define, to the best of your ability, the risks you are writing, and you are responsible for creating an agency capable of generating profit margins.
Let’s start with WHY I suggest are you responsible for profit in today’s world? The simple answer can be seen when the inverse of Profitability occurs. If a carrier does not see profitable risks being placed through your agency, at some point it will be time to shut it down. A carrier does not look favorably on a $2,000,000 book that loses money year after year, especially when there are agency behaviors demonstrated year after year that suggest the results of the book will not change. (Data Scientists draw those conclusions in tandem with The Sales, Marketing, Product Management, and Underwriting teams that interact with the Agency Distribution channel)
In the last email we discussed very specific topics that carriers look at as they relate to what is tracked and what conclusions carriers come to as it relates to agency behaviors and profit, so we will not go into that again here.
Today I want to address HOW specific actions or processes WITHIN YOUR AGENCY might be costing you points of Profitability, not from the carriers perspective but from an AGENCY perspective. I want to address the tools or agency behaviors you have built into your agency processes that are possibly costing your agency Points of Profit that you might not even recognize. Let’s start with the most obvious….
- The Comparative Rater: The tool was created to make an Independent agents life easier by:
- Speeding up the process by reducing redundant data entry
- It gave us the ability to see everyone’s offering as it relates to price, not product
Comparative raters delivered a & b to our industry and it cost Independent agents dearly. It cost the industry significant commission cuts as it demonstrated, very well, the Independent channel’s desire to run to the lowest price all too often.
Another History lesson: One insurance company was famous for being the first to drop commission to 10/10 after offering the agents the ability to sell their product at different commission levels. After a while they saw that agents overwhelmingly did not care about commissions, they cared about the sale of the policy, and so it was the beginning of the IA commission cuts. This was repeated by others, as recently as a few years ago when other carriers created a stripped down product with a stripped down commission rate. The Rater pointed out the lowest price and more often than not the policy was sold to the carrier that offered that price. The Industry used the tool to facilitate selling on price.
From a carriers perspective, the Comparative rater does one thing: it shows the agent the weaknesses in the Carrier algorithms/ the product and then tempts the agent to exploit that weakness- (“Because if our agency doesn’t, the agent down the street will”) Too often the industry became a product of the tool, instead of letting the tool be a product for the agency.
Too often ALL agents (the whole independent distribution channel) fall into the what PGI calls, “The Carrier Algorithm Trap”
I want to be very clear here on exactly what the Carrier Algorithm Trap is: When an agent uses the Comparative Rater to only help them identify and sell the best price they are simply using the tool to identify the weaknesses, or dare I say, mistakes, in the carrier pricing, as such, the agent is 100% DESTINED to build a book of business on risks, where the correct Written Premium was not calculated, causing the book to NEVER generate a Profit. For more info on that: https://www.youtube.com/watch?v=xyKA28AbLU4
What can you do to identify whether or not you have fallen victim to the Carrier Algorithm Trap and what actions you can take to change this destructive behavior:
- How do you use the comparative rater in your agency?
- Do you write who you want to write or who the comparative rater tells you to write?
- Are you differentiating the product and the coverages…Not all is Apples to Apples on the rater….
- Do you know who pays you extra compensation (In all its formats) and direct your policies there, or do you let the comparative rater direct your policies to carriers?
- Consider, setting the rater aside for a while and seeing where you direct the polices.
- Consider taking select carriers off the rater for a time to show staff where you want to direct the polices.
- Understand the compensation structures of the companies where your business currently resides vs what is it might look like with another carrier.
- How do you decide where a policy is written?
- What does the presentation part of agency process look like? Is only one carrier being presented? What drives the presentation to what carriers?
- The carrier algorithm is delicate, if the risk is not accurately defined by you or the client to the carrier, the risk (the new policy you just wrote) will cost your agency points of profit.
True story that ends in tears: Long ago I called on Independent agencies right out of college, like the reps you meet with today. I had a large geographic state territory and my largest agency had a book that was 3 or 4 million with just my one carrier. But that book was NEVER profitable. Long story short. After a deep dive I figured out that a producer in the agency (The son) was changing the zip code in the system to a farming community just outside of the city and that was a sure fire way to drop the price for the client. Mathematically speaking if the zip code had not been manipulated on 100’s of policies, the LR would have come very much in line with what it needed to be, but because there was missing premium needed to price the risk correctly, the agency was never profitable. We did not choose to report to the DOI and have that process unfold on a legal stage. I did terminate our largest agency and it did cost the father (Owner of the agency) dearly as it cost them their number one carrier and a few other contracts as well.
Every variable you get wrong on the policy costs your agency and the carriers points of profit. Some clients don’t help facilitate a process that allows you to get all the variables correct, so you need to be empowered to do one of two things: Ask the right questions and or allow the client make another agency less profitable.
What questions are you asking to better field underwrite and understand your clients better? Below is a list of example situations you should be asking yourself or your clients (Conversationally) to assure you have a solid understanding of them and the risk they represent.
Logical questions to ask yourself or your client as you compile information about your potential new client:
- How many drivers are listed compared to cars, if out of line, why?
- Are the drivers only driving less than a few miles one way?
- Why is the client being non-renewed or cancelled? Request the cancellation letter for your review.
- In the photo the roof appears to be older than the information given. Do you have documentation to support this?
- In the google photo, there appears to be a dog in the picture. You expressed you do not own a dog?
- There are several screaming children in the background, is there possibly a daycare operation going on?
- You mentioned you are a hairstylist, and your husband is a general contractor. Any business being done on premise? Is the husband using his truck for business?
- Carriers will pull from public records who they believe lives in the household…Who lives in the household with you?
- What are the names and ages of the household members?
- Carriers will have a welcome call and often a drive by inspection with the new client, to verify some of the information given. (i.e.: who is driving which vehicle, how many miles one way, for what purpose, odometer readings, public records on oil changes, or any dogs?)
- Are there any seasonal or regular visitors that stay at the house longer than a few weeks?
- I need to understand who is of driving age in the household, as unlisted drivers might also be uncovered drivers in the case of an accident.
- Carriers will do an outdoor home inspection to verify the property is an eligible risk.
- Do you carpool/or transport other kids to practice? Have you heard of an umbrella?
Who picked your insurance coverages? You or your agent? – good indication to see if the client knows about insurance or if you need to do a deeper explanation.
- The Person who sends me the best Field Underwriting question you ask in your agency will win Something valuable and very cool.
- Processes and Documentation. Have a process and document EVERYTHING. EVERY SINGLE THING.
Not providing a rejection form when an accident has occurred is a sure fire way to have an E&O claim and or having the limit paid out completely by the carrier and increasing your agencies LR in significant ways that should never be acceptable. Some of you might scoff at the idea that this could even occur in an agency, but don’t be too quick to judge, an agency should have signature docs for policies they acquired through:
- A signed Agent of Record
- Purchased or Inherited policies
- Policies set up for electronic signature that have not yet been completed.
Today I would ask you to take it upon yourself to audit your own agency and determine where you need to true up your agency processes and check to assure you have all signature documents on file.
I would also ask you rhetorically do you have a documented process for everything your office does? (Annual Reviews, Quote proposals, endorsements, etc. (Check out Process Street)
- If you don’t Measure it, you can’t Manage it.
Agencies that manage typical agency metrics are more profitable and grow at a faster rate than agencies that are passively creating an insurance agency.
What are you tracking? What should you be tracking? Now that you know carriers track EVERYTHING, ask them to help you track specific metrics you are interested in tracking as it relates to your agency.
Ask the industry or other agency friends what and how they track metrics. They typically love to share.
Do you know how to pull reports to track your LR, production, and some high level agency metrics, like Frequency and Severity? Attached you will find a document that will detail how to pull common reports for the top four PGI carriers. (Progressive, Nationwide, Safeco, Travelers)
Consider Tracking some of the following:
- What % of your book is with what carriers?
- What is your total WP?
- What is your Agency Retention ratio?
- What is your retention ration with your partner carriers?
- What clients make you the most amount of money?
- What clients require the fewest touches?
- What are carriers paying you?
- In all their different formats (Rex eluded to 10 different formats)
- Average WP per client
- Retention per client
- What percent of the book is Personal lines to Commercial lines?
- What percent of the book is rounded with how many other insurance products?
- What percent of your book has what limits?
- Who is the best Underwriter in your agency?
- Who is the best closer in the agency?
- Consumer satisfaction
- Where your leads come from?
- Close ratio at the agency level and the Lead level?
- Carriers that require post upload touches (How many?)
- Is your LR a frequency or Severity problem?
- Lead Generation Vs Lead Determination
You are a sales machine with responsibilities to your carriers to generate profit. You get a 100 leads from 10 different lead providers every month. Have you determined what leads turn into more profitable clients and what leads make you a $10 an hour agent AND cost your agency points of profit? (https://youtu.be/vz8a8pANrfs?t=71)
Once you begin to track this it will become obvious what lead providers are actually helping you ring the cash register and what lead providers are actually costing you and your Stake holders money. You will understand that some lead providers are facilitating your presence on carrier outlier reports.
If you have received this email your agency has shown up on one of the Big Four carriers outlier reports. ( This communication is to help make you Aware that your agency shows up from time to time on these reports) Outlier reports are intended to point out agency behaviors that might be costing the carrier and you POINTS of PROFIT.
Consider some self-reflection on what seemingly innocent agency behaviors you and your staff might have that could cost your agency points of profit and have you showing up on outlier reports. How well do you know your producers behaviors and how much control do you have over those behaviors? Do their behaviors have you showing up on outlier reports.
The next step in this communication series is to take action steps with some agencies that have shown up habitually on multiple carrier outlier reports and to see if we can identify ways to sure up the agency operations so that you don’t find yourself in a situation where your access is removed. The next communication will be sent to a significantly smaller percentage of agencies and will be incredibly detailed as it relates to how you have been identified as an outlier and might begin conversations that can detail steps you can/ should take resolve that. (A separate initiative outside this communication is general code cleanup as it relates to carrier usage, quoting frequency, and production- there will be no confusion as to which communication you are receiving.)
We hope as you go through this series of communications there will be moments of self-reflection and desire to understand your role in the industry as an agency owner and become more informed. Because more informed agents, are more profitable agents
Young, Rex, Shawn
Shawn Michael Walker