CPRM -- For Professionals Serving High Net Worth and Affluent Clients
AUSTIN, TX (December 15, 2014) -- The newest designation program of The National Alliance, Certified Personal Risk Managers (CPRM), strengthens the abilities of the insurance and risk management communities to better serve the high net worth and affluent client base through a unique combination of risk management, technical information, and account development. The CPRM Program is a collaborative effort between The National Alliance and the Council for Insuring Private Clients (CIPC). A pilot course, conducted in October of 2014, received very favorable evaluations--the highest rated program of its kind.
The five courses leading to the CPRM designation are:
- Personal Client Risk Management
- Understanding Coverage Differences: The Affluent and High Net Worth Client
- Evaluating and Protecting the Lifestyle
- Practical Application of Personal Risk Management
- Winning the Business: The Art of Presentation – Present or Perish
The Personal Client Risk Management course, scheduled for February 3-5, 2015 in Dallas, Texas, will include these topics:
- Understanding the High Net Worth and Affluent Market
- The Personal Client Risk Management Process
- Catastrophe Exposures, Mitigation, and Residential Loss Control
- Emergency Preparedness
Additional upcoming events include:
- Understanding Coverage Differences (Pilot - Invitation Only) April 20-22, 2015 in Dallas
- Understanding Coverage Differences (Open to Everyone) June 24-26, 2015 in New York
- Personal Client Risk Management (Open to Everyone) August 26-28, 2015 in San Francisco
Individuals should have at a minimum a full understanding of standard personal lines insurance exposures and coverages. The Alliance recommends CISR courses and/or CIC Personal Lines institutes to gain or reinforce this knowledge. Attendance at CPRM courses will qualify as an annual update for CIC, CRM, CISR, and CSRM designations.
Beverly A. Messer, CIC, CRM, CISR
Senior Vice President, Academic Development
The National Alliance for Insurance Education & Research
The National Alliance for Insurance Education & Research conducts insurance and risk management education and designation programs such as Certified Insurance Counselor (CIC), Certified Risk Manager (CRM), Certified Insurance Service Representative (CISR), and Certified School Risk Manager (CSRM). The company advances the industry quality by providing insurance and risk management professionals of every experience level with integrated, practical continuing education, timely research and designation opportunities. For additional information, visit The National Alliance website: www.TheNationalAlliance.com or call 800-633-2165.
Happy, Happy Consulting
As an agency owner, you have your producers, staff, carriers, and maybe consultants giving you advice. You probably only specifically pay the consultant for the advice. Consultants generally fall into one of two categories: to the point or happy talk. I propose that following happy advice will lead to brilliant success. To quote the 80's one-hit wonder, Timbuk3, "The future's so bright, I gotta wear shades." Blissful advice succeeds with agency owners because:
- If a person thinks of only happy, focused thoughts, only good things will happen. For example, focused happy thoughts will result in producers who sell lots of insurance and work constructively with CSRs.
Happy thoughts mean procedures will not have to be enforced. In a happy environment, voluntary compliance will climb to new heights because who will want to be the party pooper? This will be the proof that so many agency owners espouse is correct that only happy incentives are necessary. That negative incentives are never necessary.
Producers will complete applications and forms for the CSRs. They already know they should do this, but in an unhappy environment, they do not care about adding a tiny amount of additional misery. In a happy environment, their care level will reach the stratosphere.
- The competition will fail. Happy thoughts will act like a krypton shield around your accounts. Right now you may have lost some accounts to agencies with better coverages and services and with sales forces that are proactively selling and not wistful about pointing out the incumbent’s weaknesses. The problem with so many agencies is their reactions are negative. You just need to be happy and invoke the krypton shield.
- You may have always suspected those "experts" advocating loss control, mod management, and so forth were just trying to sell agents unnecessary tools. A happy environment seals the deal. Customers do not leave happy environments for better products or services that make them more productive, more profitable, or help create a safer environment.
- With happy, happy agencies, no negative conversations are ever necessary. First, the happy vibes spread so much goodwill among coworkers that everyone just performs and gets along. All that passive-aggressive behavior you hate dealing with is eliminated. Laziness is eliminated. Details are eliminated.
Just in case someone does not perform, no worry--be happy. Just deny an issue exists. Ignore it. Find some benchmark that proves the problem does not exist. For example, if a producer has only averaged $10,000 of commission growth per year while at your agency, don't worry. Just give him some house business or track sales by premiums to make him look better. Or just look on the bright side. While 25%-40% of producers are pure failures, 25% are not failures. Where did those 25% begin? At the bottom. So if you employ one or more of those failures, they likely just need another decade or three to succeed. Always look at these situations as if the glass is half full. After all, with them, you at least have volume which makes the fact they cost more than they generate, not including the E&O exposures they create, all worth it.
- Last, but not least, happy thoughts will enable you to get through hard times. And if something goes wrong, you won't notice it.
The blissful state of mind and these results are why you want to hire consultants that only provide happy advice.
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The E&O Angle of Popular Sales Programs
Time after time I have shared with clients the E&O exposure created by popular sales programs only to have them exclaim, "I never thought of that! Thank you!" It's not that I'm smarter but that I do a lot of E&O work and because they love sales, they tend to have blinders on when they learn of a new sales program. One popular question they often ask is, "Why didn't the sales consultant warn us?" Obviously, it makes their recommendation less fun!
Here are some popular sales concepts and their E&O exposures if extra precautions are not taken.
Broker of Record/Agent of Record Letters (BORs)
This sales concept is especially popular in benefits and large commercial because the idea is that the insurance company does not matter. Instead, the agency is what matters and the incumbent agent is clearly inferior. So sign the BOR and I'll take over your account immediately. From a sales perspective, this is great because the gratification is immediate, it can be mid-term so you do not have to wait, it is a bigger "in your face" moment relative to your competition, and as often practiced, it is less expensive because all the paperwork (i.e., applications) do not have to be completed.
The E&O exposure is that the new agent assumes the old agent's mistakes and if the incumbent agent was so good the client would not have left meaning the new agent has almost definitely assumed material E&O exposures. The key solution is to immediately rewrite the entire account and obtain new applications ASAP.
Agents are under pressure both figuratively and literally to increase their advertising. I see companies that create electronic based advertising for agencies advertising themselves with stories of how much business will increase and the numbers advertised are stupendous. Even better, if you hire them, they will tell the world how great you are so not only do you not have to tell the world how great you are (remain humble and all that) but they'll actually develop the website and brochures for you. They'll make you look good.
The problem is they make agencies look too good. Whatever an advertisement says an agency will do means the agency gains that responsibility and if it fails to follow through, their E&O exposure increases materially. For example, common tag lines are, "We'll get you the best combination of price and coverage every time," "We'll find the right coverages just for you," "We are experts in...” “We always work to get our clients the best price," etc, etc. etc.
This all sounds good until the agency has an E&O claim where the insured points to the tag line and says, "Why did you promise this and fail me?" If you advertise you'll do something, do it.
Separating the Client from the Incumbent
In a nutshell, this program simply points out the failures of the incumbent agent. It is often used in combination with a BOR. I do not see a problem with this method. However, I have seen quite a few agencies perfect the separation message and indicate, if not outright promise, they will perform all those benefits the incumbent has failed to perform. Again, if you indicate you will perform certain services, you have an obligation to do so.
The exposure is not just an E&O issue. The exposure is a reputational exposure too. Often the insured's loss does not rise to an E&O. It does create anger, disappointment, frustration and they tell everyone they know. All the web based advertising you can afford will not overcome a bad reputation built by disappointed customers. While I completely understand that selling is more fun if you don’t have to do the work that follows, especially since so much work may have been required to make sale, the right thing, the safe thing and the thing that leads to more sales is to do what you say you will do.
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The Agency's Cheese got Moved!
A popular management book five or so years ago was "Who Moved My Cheese?" by Spencer Johnson. Many agency owners enjoyed the book. It may be time to reread it or read it for the first time because agency owners' cheese is being moved a long way.
The insurance distribution industry is changing faster today than I have witnessed in the 25 years I've been in the industry. The ACA is having a significant impact on the distribution of health insurance from a myriad of angles and no one yet knows the entirety of these changes. The advent of direct writers, who are essentially computers, selling personal insurance is new, something that did not exist in any agency owners' minds when they got started in this industry. The importance of websites and electronic media and the estimated $6 billion being spent on insurance advertising in 2014 were all unthinkable not that long ago. The consolidation of national insurance companies has led to approximately 11 P&C carriers now writing more than 50% of all net written premium (out of approximately 800 P&C carriers). The investment agencies now must make in people and agency management systems is creating an overhead cost few agency models fully anticipated.
These factors all create great opportunities for those willing to adapt to the new position of their cheese. I am concerned for those agency owners that do not yet recognize their cheese has been moved. They are not dumb or ignorant. Their circumstances are such that most often they are making plenty of money. The negative effects of the changing market place has not hit them yet due to their unique and for the time being, their favorable circumstances. When a person is making plenty of money, seeing how the bottom may fall out due to a changing market place is quite difficult to do.
The most common situation in which this occurs is when the agency is a cash cow and especially when the agency is a wasting asset cash cow. This is a situation in which the agency is not investing in selling or marketing or people and yet it is staying nearly even while generating significant cash flows.
Another common situation is where the agency is focusing on marketing. There is not an agency today that can compete with the advertising budgets of the direct writers. For marketing to work then, it has to be extremely intelligently done usually within a well-chosen niche. Generic marketing to the masses cost too much to be effective and yet, the agencies I meet are often most concerned with marketing to the masses. They do not have true specialized expertise, specific market niches or anything specific at all. They are quality main street agencies struggling to be giants.
The cheese was moved but they moved it themselves in these cases because independent agencies were designed to sell, not market. Focusing on marketing rather than selling is an expensive distraction.
The agency owners who do not know the cheese has been moved will, if they do not become cognizant of how market place changes will affect them, at best see a gradual decline of their agencies. At worse, the decline will occur slowly at first and then hit a precipice. I do not know what they can do about what is happening in the industry but I know what they can do to protect themselves. The first is to accept the marketplace changes will affect their agencies materially. It is just a matter of time.
Other agency owners know their cheese has been moved. This group can be divided into two and both groups are frustrated. The first group is frustrated by the insurance companies’ emphasis on growth versus underwriting. Their agency is designed to underwrite upfront and the cheese got moved due to several factors. One is this historic soft market. The industry has not had a true hard market for approximately 15 years. The truth is many insurance companies do not know how to grow and truly increase their premiums without either a hard market or cutting rates materially below the industry. The fact the market has been soft for so long prevents either strategy, so all they can do is demand and plea with their agents to sell more insurance. Another factor is predictive modeling. Right or wrong, smart or dumb, the use of predictive modeling decreases the value of agency upfront underwriting for many insurance companies. Agencies that had survived and even thrived by upfront underwriting but not selling, find their culture is not as important. That is a frustrating position but reality.
The second group that knows the cheese has been moved is frustrated because they know the key to keeping up, and especially a key to prospering, is the need to invest in better management. These agency owners just want to be left alone to sell and engage with their clients. They do not want to manage workflow, train producers, or hold anyone accountable for doing their jobs. They do not want to deal with procedures and IT systems. These items drain their energy and enthusiasm for the business. Yet, they know the job requires an elevation which in turn, requires a change in culture.
The solution for both these groups is proactive internal leadership. Most agency owners are better outside agency leaders than inside agency leaders. The first step is developing a strategy specific to the agency for developing inside leadership. The second step is executing that strategy. Most often, execution requires an outside party. Whether it is a consultant, hiring a sales manager or hiring a COO or CFO, an outside person is required because outside agency leaders' personalities find the execution of an internal strategy to be energy draining.
When the world changes but you don't, life can become a bummer if you let it. I hope you do not let it get to you!
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The Cluster Conundrum for Insurance Carriers
Clusters/Aggregators have exploded as the most significant change in the independent insurance agency distribution system. A rough estimate suggests that at least one in four agencies is now a member of some kind of cluster, aggregator, franchise or other type of shared ownership/shared company contract organization. Some of these entities are now among the top twenty insurance agency distributors in the industry.
Thinking back, a great case can be made this evolution should never have occurred except for one factor. It began in the last hard market, a time when carrier contracts were difficult to obtain making joining such an organization more appealing. However, these entities took off during the industry's softest market in history. Soft markets are historically characterized by companies giving contracts to every agent breathing. That did not happen this time in the same fashion. Instead, companies gave contracts to every such organization regardless of how ethical or even legal they were/are. Nonsensically, they even pulled contracts from regular agents only to reappoint them when they joined one of these organizations.
A key point that needs to be distinguished is that these organizations fall into two broad categories. Just a couple involve joint ownership. I will leave those aside because very few entities use this business model.
The vast majority of legal entities that have developed in this market are clusters. Historically, before the recent paradigm change, companies avoided clusters because of the lack of underwriting control. Clusters are, for all practical purposes, just a different form of brokering business and historically these kinds of brokering arrangements have not controlled underwriting results. That is why agents do not get loss ratio reports from brokers as they do with direct contracts. With individual agencies, companies can easily track results. In turn, companies can address problems and reward quality results directly with an agency owner. What changed to make companies no longer think underwriting control was necessary?
Two factors changed. First is simply greed and desperation. Companies could not grow in the soft market so they desperately began appointing clusters in the hope the clusters would generate growth the traditional agency plant was failing to provide. Some of these clusters/aggregators provided growth to carriers but rarely was it organic growth and often it was just a reorganization of numbers that created the appearance of growth on certain reports. Most clusters, especially the home grown kind, do not generate any organic growth because existing agencies that could not grow on their own are simply combined with other agencies that cannot grow on their own in hopes of getting access to five or twenty other companies so they can write more business. Exactly how that is supposed to happen without any more sales activity is a mystery to me but few companies ever ask that question.
The second factor that happened a little later in the cycle was the advent of predictive modeling. Many companies have concluded they no longer need upfront underwriting because their sophisticated, blackbox statistical analogues properly price every risk. Therefore, all companies need is more activity put into the funnel because the software knows no limitations as to how many applications it can consider.
I believe their conclusion regarding predictive modeling is a stretch based on my experience working with agents and on-the-ground company people. While predictive modeling has strengths, it is not a cure all. One issue is the downside has not yet been realized because the downside is the tail and the tail has not disappeared (the idea that a new pricing model can be created and thereby forever eliminate underwriting cycles reminds me of "experts" immediately before the credit crises advising the new sophisticated credit models had eliminated credit crises). However, assuming for the moment the conclusions are correct, several just as important risks still exist or have been created.
First, the organic growth issue has yet to be addressed. Second, because companies have failed to address the fact that a huge proportion of agencies cannot sell insurance but they assume that by joining a cluster they will magically gain the skill set to sell, companies now often have high concentrations of business with these clusters. They are now in a bind.
Third, companies created twisted incentives. Some have agreed to pay clusters more money without really requiring any extra performance. They lost underwriting control and they gained tremendous exposure to incompetency. Even if predictive modeling works great, most cluster agreements have been written so poorly that they are time bombs and yet, almost no company ever even reviews these important and critical contracts. It reminds me of the Road Runner cartoon with the coyote putting dynamite in one gopher hole, lighting the fuse, and then putting his head in a connected gopher hole for protection.
At the same time, the safe agency, the agency with one owner a company can go to, the agency that is not participatory to a time bomb contract, is paid less than incompetent and sometimes unethical aggregators. How is a company in better shape now?
These companies now have too much concentration of risk by being too dependent on clusters. The quality is lacking either a little or a lot in ways predictive modeling does not address. But to take proactively constructive action risks losing too much business. Furthermore, it is not too easy to go back to the traditional model because, quite directly, companies have diluted their brand. By appointing so many agencies through clusters, what is special about any given company? Additionally, companies' reputations have been damaged. Think about this. If an agency is so bad that a company does not want to appoint it, but will appoint it if the agency joins the local cluster, what does that say about the company’s care for quality? How does this behavior impact a company's reputation?
Agents today have a more jaded view, understandably so, of companies than I have ever witnessed in 25 years. Great opportunities exist for companies willing to stand for quality and prove they stand for quality by doing business only with the highest quality agencies and brokers individually. Even doing business with these new kinds of organizations that actually have proven underwriting quality control makes perfect sense. At the very least, these companies might consider creating a separate division with different support. A real opportunity exists because many companies will not get the point of the trap into which they are falling; the trap they have built for themselves. They will ride these models to the ground and go down with them. Quality in the end always pays.
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The Solution to Your Hiring Problems
Only hire people you dislike. Only hiring people you dislike solves many problems, but maybe that approach is too strong for staff personnel. At least hire staff personnel upon whom you are neutral. You do not like them but you do not dislike them. However, with producers, the best strategy is to stay extreme and only hire producers you dislike.
When someone you really like does not perform, doesn't it create considerable discomfort, anxiety, and even sleeplessness knowing something must be done but just not being able to do so? The procrastination just extends the pain.
Now think how much easier it would be to fire someone you really do not like!
The beauty of this hiring strategy gets better. If you hire someone you like, you want them to like you too, correct? So you might pay too much, cut them too much slack, and so forth and so on, correct? Of course. How is this scenario good for your agency?
But what if the person was just as qualified but you did not like them? Would you manage them better? Would you at least set better boundaries and expectations?
You are by now seeing the brilliance of this strategy. I am sure you are also scared because maybe you have never hired someone you did not like. Although likeability by agency owner was never a stated requirement in the want ad, the unstated fact is that being liked by the agency owner is the number one requirement.
So what do you do when hiring someone with whom you are ambivalent or simply do not like? Hopefully you do what you have always done from the perspective of identifying the required skills and then judging which applicant most likely possesses those skills to the highest degree. The only difference is that when you judge, you judge with cold appraisal skills rather than warm hearted wishes.
The biggest difference is in managing these people. Managing people you like is easy if they exceed expectations. Otherwise, anxiety and poor management result. When you do not like someone, it is much easier to advise them of how they are not meeting the job's requirements and if they do not improve, it is much easier to fire them.
While much truth exists in my advice, few agency owners will follow it because they simply need to like the people, especially the producers, they hire. Given many agency owners will continue hiring people on the basis of how much they like them as much as any other quality, the key becomes taking yourself out of managing them. Give the authority for managing and even firing to someone else.
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Chris Burand is president and owner of Burand & Associates, LLC, a management consulting firm that has been specializing in the property/casualty insurance industry since 1992. Burand is recognized as a leading consultant for agency valuations, helping agents increase profits and reduce the cost of sales. His services include: agency valuations/due diligence, producer compensation plans, expert witness services, E&O carrier approved E&O procedure reviews, and agency operation enhancement reviews. He also provides the acclaimed Contingency Contract Analysis® Service and has the largest database and knowledge of contingency contracts in the insurance industry.
Burand has more than 20 years' experience. He is a featured speaker across the continent at more than 180 conventions and educational programs. He has written for numerous industry publications including Insurance Journal, American Agent & Broker, and National Underwriter. He also publishes Burand's Insurance Agency Adviser for independent insurance agents.
Burand is a member of the Institute of Business Appraisers, a department head for the Independent Insurance Agents and Brokers of America's Virtual University, an instructor for Insurance Journal's Academy of Insurance, and a volunteer counselor for the Small Business Administration's SCORE program.
NOTE: The information provided in this newsletter is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.
Burand & Associates, LLC is an advocate of agencies which constructively manage and improve their contingency contracts by learning how to negotiate and use their contingency contracts more effectively. We maintain that agents can achieve considerably better results without ever taking actions that are detrimental or disadvantageous to the insureds. We have never and would not ever recommend an agent or agency implement a policy or otherwise advocate increasing its contingency income ahead of the insureds' interests.
A complete understanding of the subjects covered in this newsletter may require broader and additional knowledge beyond the information presented. None of the materials in this newsletter should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this newsletter. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.
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Copyright 1995 - 2015, Chris Burand