Summit gives brokers insights into consultative services

Rough Notes, May 2000 by McCoy, Thomas A, Boone, Elisabeth

In the market of the new millennium, the winners will be producers who add value to the transaction

The idea behind the 2nd annual Consultative Brokerage Summit, held in Phoenix in March, was to bring together leading brokers, risk managers, insurance company executives, alternative market specialists and other experts to talk about the ways brokers can grow by adding value to their client relationships. For two days, more than 100 professionals discussed strategies that brokers can implement to become "consultative" rather than "transactional" brokers.

The conference was founded and developed by C.R. Ekern & Company and sponsored by the Rough Notes Company.

Kenneth H. Pinkston, vice chairman of Willis Group, Ltd., who served as keynote speaker at the conference, said, "A broker needs to be considered a partner with the client, in the same way the client's attorney or CPA is a partner." Pinkston provided the following illustration (shown in the box below) to illustrate what is happening in dealings between brokers and clients.

In the past (#1) the most important element was the relationship, followed by the conducting of the transaction, Pinkston said. Advice was least important. Then (#2) advice began creeping forward in importance but was still secondary. Now we are moving into a time, he said, when advice is paramount. "The relationship is still very important. However, if you have a great relationship but can't provide the advice, that won't be enough to keep the client:'

William N. Failor, senior vice president of Marsh USA, offered further insights on where the brokerclient relationship is heading, and what brokers can do to provide value-added services. One of the critical issues brokers face, he said, is how to price some of their services. "The advice and counsel brokers provide is intellectual property, and no industry is worse than we are at determining what intellectual property is worth."

On the subject of fee-based pricing, Failor suggested that brokers start by asking, "What do I need as a return on investment to keep the agency open?" One approach to determining fees, he said, is to determine the cost of providing services-such as by the number of hours involved and establishing an hourly rate. The next step, he suggested, would be to tie fees to performance-such as a setting a base fee of $100,000 which would rise to $150,000 if certain objectives are met.

Greg Sidler, of Caliper, addressed the issue of hiring and managing sales people, drawing on Caliper's widespread experience in testing insurance industry people. One measure of the accuracy of Caliper's testing is that 94% of the time when it recommends against the hiring of a sales person, and that person is hired against their recommendation, the employee will not work out.

Sidler said that assuming the right person is hired, the most important factor in determining the person's success will be the support he/she receives from his/her manager. "Once a person is hired," he said, "there's no such thing as a self starter."

Nancy Carini, of Conning & Company, provided more of a macroperspective, using Conning studies of the commercial insurance market as the basis of a forecast of what's to come. Among her observations:

-Prices are slowly moving up, but there will be no sudden changes. A Conning study predicts increases this spring of 3.9% in workers comp, .6% in general liability, .8% in commercial property and 1.5% in commercial auto. Overall, however, Carini said, "Prices are jelling, rather than hardening."

-Price increases in the traditional market could lead to a growth in market share for the alternative market. (Currently 34% of commercial premiums is written in the alternative market.) Middle market business (50 to 1,000 employees) would be affected most by any increase in alternative market business, Carini predicted. That's because the alternative market has already soaked up 80% of the larger (national) accounts, whereas only 20% of the middle market business is currently in the alternative market.

Commenting further on marketplace dynamics, Carini noted that small to mid-sized brokers are shifting their focus to try to sell larger accounts, while large and national brokers are focusing downward on selling smaller accounts. "With the economy probably cooling down in the next five years, the growth area will be small commercial accounts," she predicted, while "the middle market and large markets will stand still."

The Summit Conference also included breakout sessions focusing on specific ways that brokers can add value in client relationships. At those sessions, discussed under the headings that follow, questions were encouraged, and presenters supplemented their Powerpoint presentations with anecdotes based on everyday market experience.

The environmental coverage market

While the overall theme of the Brokerage Summit was more about finding creative approaches to managing risk than it was about identifying hot growth markets, sometimes the "consultative approach" leads brokers conveniently to hot products. According to three experts on a summit panel titled "Environmental Insurance Production: The Hidden Profit," the market for environmental coverage is growing 20% per year as opposed to a 3% growth rate for the overall property/casualty market.