C.R. Ekern & Company - TCOR Article

The Consultative Brokerage Series

Moving Away From Price-Based Selling
By Rob Ekern
© Rough Notes Magazine, December 2000

"To compete with mega-brokers, agents must explain the client's ultimate cost of risk management and financing program.

The application of TCOR provides endless value to clients. The firms that understand this are able to differentiate themselves by providing value-added service and an impact on their clients' and prospects' balance sheets."

As a Consultative Broker® you know there is a difference between price and cost. The successful firms and brokers are the ones who are learning to differentiate themselves by demonstrating their impact on client costs. When a broker can discuss his/her impact on client cost, suddenly price is not the issue.

The Mega-Brokers know this and they have developed a term that describes it. The Mega-Brokers call it TCOR (Total Cost of Risk). TCOR is used to discuss the ultimate cost of a firm's risk management and financing program. When discussing TCOR, a broker can bring in all of the concepts of Consultative Brokerage®. This is possible because TCOR has a direct impact on the client's balance sheet. TCOR is more than simply the cost of insurance.

In its traditional sense, TCOR defines risk costs in three major exposure areas: property, tort liability, and occupational disease or injury. Of course, as a consultative broker you know that risk has expanded beyond these traditional boundaries. However, for this discussion of TCOR we will stick to the traditional three exposures.

Within the traditional three exposures are six types of costs: insurance premiums, retained losses, internal administration, outside services, financial guarantees, and fees & taxes. A complete discussion of these costs is critical when making a client presentation on any new or renewal account. Why? Because when you discuss your impact on TCOR your firm can actually differentiate itself. Failure to do so will leave you able to talk about only one thing--price!

I know what some of you are thinking. You are saying to yourself, "Okay, but I don't work on mega-accounts. How do I use this TCOR thing with my clients and prospects?" So let's talk about how you and your firm can use TCOR to demonstrate the added value of your firm.

Here are the pressure points of TCOR:

You must have all the client information regarding their costs. This includes insurance premiums, losses, percentage of time dedicated people spend on administration and overhead costs (This may be no more than a secretary who administers certificates of insurance!)
You need to have the financial information of the firm including balance sheets and income/expense statements.
You must educate the client concerning how all of these factors affect their overhead and balance sheets.

Point number 3 (above) is critical. The client must be educated and then acknowledge the value of the impact. The sophisticated buyer already knows and will be using this discussion to see if you understand it! The unsophisticated buyer may be learning it for the first time. You need to be sure that the buyer values it; otherwise, the buyer will translate TCOR to simply the price of insurance.

One other word to the wise: Once you embark on a discussion of TCOR you must not change your course. Some clients will attempt to turn a TCOR discussion into nothing more than a price of insurance discussion. In the event you allow this to happen, your efforts will be undone and you will be in a bid and quote situation.

Upon gathering the information and discussing the importance with a client, it is time to demonstrate your impact on TCOR. Here are some examples of ways you can demonstrate your firm's impact on Total Cost of Risk. For the purpose of discussion we are excluding the discussion on reduction of Insurance Cost (You already know about that!)

Reduced Administrative Costs - When you help a firm implement a safety program, or make them more effective in the administration of certificates, the administrative costs have decreased.

Reduction of Retained Losses - When you assist a firm in actuarially reducing retained losses or compressing workers compensation claims, the losses are reduced.

Reduction of Taxes or Fees - When you help a client implement an alternative risk-financing program, any plan that reduces the cost of insurance, the carrier taxes and fees are reduced (For example, a large deductible plan greatly reduces the cost of taxes and fees.)

Outside Services - Many buyers have not considered the fact that outside services have increased their cost of risk. This is particularly true concerning safety consultants, property inspections, and actuarial expenses. You can impact their cost of risk by providing these services as part of your program. Or, you can impact their cost of risk by using these services to obtain a lower cost of insurance.

Consultative brokerages and their staffs are learning to practice TCOR and other consultative brokerage techniques. We look forward to sharing some of these in future columns of "The Consultative Brokerage Series" in Rough Notes magazine.

The Author:

Rob Ekern is president and CEO of C.R. Ekern & Company, consultants in agency sales and client development training. Rob has 25 years' experience as an agent/broker. He started an agency from scratch at age 24 and later became of one of the top producer/brokers for a major international brokerage firm.

Reproduced with permission from Rough Notes Magazine, December 2000 Edition. © Rough Notes Magazine.

Consultative Broker and Consultative Brokerage are registered trademarks of C.R. Ekern & Company.

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