We have asked the following question of thousands of agents from across the country; “Why don’t you go upstream and sell to larger accounts.” With few exceptions, responses are strikingly similar. They include:
- “Large accounts have experienced talent on their payroll, so they already have their risk management and insurance programs effectively managed;
- “We can’t compete with the resources of the “big-brand” agencies; or
- “We don’t have a value proposition that will resonate with large accounts.
Admittedly, competing against the largest agencies in the country can be intimidating. Especially, if middle-market agents are not aware of the vulnerabilities of large agencies, or don’t have a powerful value proposition to bring to the table. It’s long past time to set aside mistaken beliefs, and either ramp up your current commitment to large accounts, or get into this arena for the first time.
The first step is to dispense with the notion that all is well with large accounts. Frequently, decision makers at large accounts have been charged with multi-million dollar responsibilities, but have not been gifted the training necessary to make effective ones. It is predictable to find a decision maker who has been overwhelmed with greater complexity, increased risk and probability of adverse financial outcomes, and lack the capabilities to address them. Risks are changing and growing at an accelerated pace, and it is difficult to keep up. Especially, if risk management and insurance is not the only responsibility of the person or people in charge.
Incumbent large account agents often exacerbate the challenges faced by their clients. We are all aware of the high retention ratios in our profession. No different than smaller accounts, there is over a 90% likelihood that large accounts will stay with their current agent at renewal. Incumbent agents are well aware that the odds are in their favor to retain the account, so they tend to avoid “rocking the boat.”
For example, let’s assume a large workers’ compensation account has been renewed by the agent year after year without any appreciable recommendations or changes. Then, the agent is approached by an actuary at an association function. The actuary points out that their services would assist the agent’s client to make better informed decisions regarding “loss picks,” retention or deductible levels, collateral, cash flow and a host of other critical issues. Instead of welcoming the recommendation, the agent feels uncomfortable and fearful.
The thoughts racing through the agents mind include:
- What do I say if my client asks why I have not previously recommended actuarial analysis;
- What if I am asked analytical questions that I can’t answer;
- Why would I want to risk losing this account by introducing something new, because the account will likely renew, if I don’t.
So, the account renews without much fanfare. But, the client would likely have been better served with an actuarial assessment. A heightened analytical approach would likely have precipitated the following risk reduction:
- Greater insight and negotiation leverage arising from an independent calculation of the “loss pick;”
- Revised or confident affirmation of risk retention and deductible levels;
- Enhanced negotiation leverage to reduce the cost and limitations of collateral;
- Enhanced cash flow projections resulting in fewer disruptions in operations; and
- Improved risk management processes and fewer claims due to an examination of Loss Development Factors.
Exploit Misaligned Incentives
High retention ratios are a usually a boon to incumbent agents, but vulnerabilities emerge as incumbents are motivated to “play it safe,” and not to “rock the boat.” Incumbents tend to get complacent, and the status-quo is their friend. This dynamic creates a huge opening for the middle-market agent who is prepared to disrupt the current state.
Long standing business relationships create additional weaknesses for incumbent agents, of which large account agents are not immune. The process of changing insurance companies or professional service providers, such as third party claims administration, managed care, and loss control, is a costly and time consuming endeavor. Even though it is not advisable to frequently change these relationships, usually it takes a competitive agent to commence a deep-dive assessment of whether or not these providers are performing at a high level.
In addition, it is only natural for agents and their team to become cozy and comfortable with their carrier and service provider cohorts who work with them to service the account. Usually, many meetings and dinners are shared among the parties. This coziness, which can bring many benefits, can make it uncomfortable for agents to challenge an erosion in performance or an increase or restructuring of fees.
Let’s assume several years have passed since the managed care organization changed their cost-containment service fees for a large workers compensation account. The agent was told by the service provider that their new pricing structure was “standard,” and in alignment with their competitors. The change was accepted by the agent and the client without any serious examination or concern.
Years later, the agent reads an article that prompts some anxiety about the managed care company’s fee structure. Perhaps, the agent did not perform enough due diligence or push back hard enough at the time of the change in the fee arrangement. Or, it is possible, the agent’s remuneration may have been increased due to the new fee structure, so a misaligned incentive was created between the agent and their client. All parties, for different reasons, got along by going along.
Now, the incumbent agent is caught in that uncomfortable situation where approaching the client with this discovery may put the account at risk. Or, by doing so, the agent’s personal income may take a hit. Again, agents tend to opt for not “rocking the boat.” As a result, the agent retains the account, and the client is left paying unnecessarily excessive fees for eroding performance. No one had stepped forward to disrupt the status-quo.
Opportunities for Benefit Agents
Similar circumstances arise from large group health accounts, as well. For the purposes of this paper, large group health is defined as a company with more than 500 employees. This definition could change downward over time due to a number of changing circumstances in the health insurance and data analytics arenas.
There has been a dramatic reduction in the cost of health care data analytical services over the last 5 or 6 years. Again, many incumbent agents have not kept up. Many are not aware that analytical services, due to their cost, were previously only available to firms of greater than 10,000 employees. However, due to the reduction in the cost of data storage, and computer processing power, companies as small of 500 employees can now access services that were cost prohibitive a handful of years ago.
It is now cost effective for companies, with as few as 500 or more employees, to identify up to 10% of their medical spend that is lost because of waste, abuse and fraud. Identification of these lost dollars, through an electronic process, is the first step to empowering the client to recover money already spent, and prevent future, unnecessary health plan costs. A 5% to 10% recovery may not seem to be a large enough number to address. But, those relatively small percentage reductions in the medical spend of a 500 participant health plan equals $250,000 to $500,000 in savings. You can do the multiples for larger employers.
In addition, not only are substantial dollars being lost and wasted, but lacking these processes, the fiduciaries of the plan are at significant risk. Fiduciaries of the health plan are required to behave and act as a “prudent person” in their management of the plan. Although, “prudent” is not clearly defined in the law, it is not likely “prudent” to allow an unnecessary waste of money of that magnitude. What was “prudent” behavior 5 or 6 years ago, is not necessarily “prudent” today, because of the emergence of new technologies and methods.
It is no surprise, and it’s understandable, that the incumbent agent will be hesitant, if not too embarrassed, to introduce the emergence of these services for all of the reasons already mentioned in this paper. So, once again the employer and employees suffer unnecessarily, due to the myths and misconceptions in the large account arena. Millions upon millions of dollars can be redeployed to a greater good, when middle-market agents step into the mix.
It’s About Belief and Gumption
Middle-market agents are correct when they assert that “big brand” national or regional agencies carry clout by their name alone. And, yes talented and experienced people with capabilities and resources work for these agencies. However, their reliance on the advantages of their name, reputation and incumbent status, exposes them on multiple fronts. As you know, incumbency has its advantages. But, incumbency also creates numerous weaknesses and risks that can be exploited by the committed and prepared middle-market agent.
It is long past time for middle-market agents to dispel the myths and misconceptions of the large account space. Not only is the space rife with opportunity, but employers and their employees continue to face unnecessary risks and waste of resources arising out of the status-quo. Training, resources, and capabilities are readily available to assist you to get up to speed to compete. But, the first step is to believe the marketplace is ripe for you to enter, and employers will be better served if you get prepared and go after large accounts.
|About the Authors
Frank Pennachio, Partner
Frank Pennachio has more than 30 years of experience in the insurance industry as an agency owner and as a sales and marketing consultant to independent insurance agents. He has consulted with agency owners and trained more than 1,000 agents in the past decade, encouraging them to develop their expertise in all areas of protecting an employer’s workforce.
Frank is an accomplished speaker, presenting at national conferences and seminars to agents, employers and other insurance professionals. In addition, he frequently writes articles on Self-funded Group Health, Workers’ Compensation, Sales & Selling, and Lead Generation for industry publications including American Agent & Broker, Risk and Insurance, Professional Insurance Agent, HR Magazine and Insurance Journal. He is recognized as an expert in the Workers’ Compensation community.
Susan Toussaint, Partner
Susan Toussaint has been professionally involved in various aspects of the insurance industry for more than a decade. Her expertise is in developing repeatable processes designed to improve an agency’s plan for attracting, acquiring and retaining profitable business.
Susan has held leadership, sales and operations positions with Florida’s largest health care system, where she worked with employers to develop occupational health and wellness initiatives and improve their injury management processes. She has also been responsible for leading multidimensional employer-focused sales teams. In addition, she frequently writes articles on Marketing, Getting in the Door strategies, Sales & Selling, and Client Retention for publications such as American Agent & Broker, Professional Insurance Agent and Property Casualty 360°.