C.R. Ekern & Company - Avoid Losing Clients

Avoid Losing Clients at Critical Junctures!
National Underwriter, June 1998
Copyright, C.R. Ekern & Company 1998

Independent Agencies and Brokerages are under a growing threat for their middle market commercial clients. The commodity sellers from the bottom and the resource providers from the top are squeezing these firms. The competition for larger accounts has previously been based upon price, coverage and a single relationship. The buyer yardsticks have been shifted with the awareness that price does not differentiate brokerage firms except in the commodity environment.

The changing distribution systems have caused our clients to be more selective in the brokerage firms they chose to do business with. The expectations of these sophisticated clients have increased as they chose perceived expertise as a differentiator. They have realized that in today’s marketplace price is readily available, and the insurance policy is a commodity. They are selecting brokerage firms based upon their ability to solve problems and provide resources.

As competition for the middle market accounts increases, the incumbent broker/agent is extremely vulnerable in several situations. In these difficult situations it is usually not about the Insurance Policies or price. The competition is based upon relationships and the perception of superior resources.

The following are 5 classic examples of why agents get fired. The purpose of this article is not to disturb you, but perhaps save you tens of thousands of dollars. My goal is to help at least one of my readers protect his or her largest account. (Let me know if I have achieved it!)

Why Agents Get Fired! #1 - The New CFO

Has it happened to you yet? You have just been introduced to the newly hired Chief Financial Officer of your largest account. When you look into this person’s eyes you realize you have just met the devil. There is no warmth, just the coldness of a new agenda. Probably this new agenda does not include you or your firm.

Why does the hair on the back of your neck stand up? . . . . Here’s why!

The new CFO has a financial background. He or she judges the value of the service based upon resource capabilities and quality information. They have a higher level of expectations. In the event they came from one of the Big 6, they are accustomed to Global Capabilities and Team service. They may well have relationships with one of the major International brokers.

Here are the steps to protect yourself:

Find out why they are there. The arrival of a new CFO usually means one of two things. Either the firm is in difficult financial straights or it is positioning itself to go public. If you know the reason for the new CFO, it will allow you to determine what the agenda is.

Get the background of his/her prior job. In many cases the new CFO brings in the same brokerage firm who assisted them in their prior position. You need this information to protect yourself from being blind-sided.

Provide a Stewardship Report ASAP! You must demonstrate to the new CFO how important your firm’s role has been to the development to date of your client. Remember that the new CFO has no history with you and may not be aware of all the things your organization has done.

Test the Relationship. You have a problem if your calls go unreturned, the lunch meetings unaccepted, or your recommendations ignored. The client is getting advice from somewhere, just not you.

Don’t be afraid to be fired! Sometimes you need to have a serious discussion with the new CFO as regards your position going forward. If need be, look this person in the eyes and say " My sense is that you may be happier to be represented by another brokerage firm." This will begin a dialogue that will lead to an understanding.

Why Agents Get Fired! #2 – The Initial Public Offering

I recently spoke with an agent who told me that they "just didn’t get involved" with IPOs. "They are just too messy," he said. "We let the other guys do those."

Are you kidding me! How can you be in the commercial insurance business and not work on IPOs? Public offerings used to be reserved for large organizations or high tech start-ups. Today they are prevalent in all industries from construction to transportation. They are the new brass ring for owners of smaller businesses.

Have you ever lost an account to an initial public offering?

Many agents do not see the bullet coming. The reason for this is because they don’t realize the rules have changed. The initial public offering injects 2 new entities into the relationship, which have not existed before. The 2 entities are:

The Investment Bankers – These investment bankers may either provide private placement capital or underwrite a public offering. In either event they bring their own professional advisors into the transaction. One of these advisors is usually an Insurance Brokerage firm.

The Security Exchange Commission – Your client is now playing by a new set of rules. The SEC mandates confidentiality requirements, statutory filing requirements, and accounting rules. Your client needs advisors who can advise them in these transactions.

When the IPO is in the wind, here is how you can protect yourself:

Understand the Deal. With the signature of confidentiality agreements, professional advisors can obtain access to the private placement documents or preliminary information. This is critical, as they will outline the strategy and issues going forward. In some cases you can obtain public information on the web. However, it usually is too late if the information is public. Someone else acted as an advisor to reach that point.

Know the Steps and Timeframes. There is usually some lead-time between the decision to bring in the investment bankers and action. This is the period for you to position yourself as the advisor. That way, when the investment banker is chosen, you will already be the professional advisor.

Know who is the Investment Banker and the Board. The Investment Banker and the Board members may have favored professional relationships. It is important that you know who they are. Otherwise you may be surprised.

Know who are the Other Current Professional Advisors. You are not the only professional advisor who is vulnerable. Other advisors such as the local banker, accountant, and attorney firm are also at risk. An alliance with these individuals can be to your benefit.

Get Help!! Recognize the fact that you are no longer in an Insurance transaction. Your long-term value is the ability to bring information and solve problems. Align yourself with industry experts who have worked in that arena previously. Your major competition has these experts, you need them too.

Why Agents Get Fired! #3 – The Request for Proposal (RFP)

Visualize for a moment the picture of an atom. You have the nucleus with impenetrable material and around it circulate the particles, all trying the to get in. Doesn’t that look like the RFP? There sits the client and his/her advisors in the center, while the brokers and agents all spin in circles trying to figure out the key to success.

It’s the Atomic Bomb for incumbent agents or brokers. In the event your client decides to do a RFP you are going to get fired! Someone else has created an opportunity; you no longer have control. In most cases the RFP process is a smokescreen to change brokers.

What many agent/brokers do not realize is that the Request for Proposal is not an insurance transaction. The buyer knows that anyone can obtain the insurance. They are judging expertise and resource capabilities. They usually have been shown these capabilities elsewhere and are simply going through the motions as a justification to move their account.

Here is my advice to anyone who is invited to compete in the RFP: Unless you created the opportunity, or are intimately familiar with the issues, walk away! You will be part of the window dressing while the incumbent gets fired, and the firm who created the RFP gets hired. In other words "Cannon Fodder".

How does a firm successfully compete in an RFP?

If you are the incumbent, don’t let it begin. You must stay on top of the issues and resource requirements of your client. This process takes place throughout the year, not just at renewal. Use stewardship reports as the way to demonstrate ongoing value.

If you are not the incumbent, create the opportunity. By developing issues and demonstrating superior resource capabilities, firms position themselves to the dominant position. Creation of an RFP is merely the method in which the client anoints them.

Understand the issues. Most RFPs occur because the incumbent agent has lost touch with the issues. These issues can be technical, resource, or relationship based. The successful participant must be fully versed on these issues and prepared to resolve them.

Develop Spheres of Resource. You need to be prepared to reach outside your immediate organization for resources to assist your client/prospect. These resources will allow you to create the perception of adding value. In many cases the perception of superior resources is what attracted the client.

Learn Conceptual Presentation Techniques. In most cases RFPs require team presentations with visual and written materials. The ability to produce and deliver these effectively is critical to your success. These presentations are based upon the creation and demonstration of ideas, not price!

Why Agents Get Fired! #4 – The Acquisition or Merger

An Agent friend of my received a call at 11:30 PM one Friday evening from his largest client. His client told him that he had just returned from signing the deal that sold his company. The client just couldn’t sleep until he told his agent/friend about the sale. Guess who didn’t sleep the remainder of that night!

Hasn’t it happened to you? Isn’t it a helpless feeling?

Usually these deals involve other multi-state or multinational firms. The acquiring firm has an established relationship with another broker. Rome Cannot Serve Two Caesars. Someone must go, and the other broker is going to make certain it is you!

Here is how you compete in this situation.

Be an advisor in the deal. Someone needs to perform due diligence on the risk-financing program. There are usually 2 appetites for risk, and the one program may not fit the other. What happens if one of the programs contains massive unfunded reserves in a cash flow program? What will the newly combined program look like on a Pro-Forma basis?

Get the horsepower. Reach outside your immediate organization for the resources you need. In the case of a multi-state or multi-national merger you may need to form strategic alliances with other brokers in those locations.

Be ethical. In the event you are the advisor in the deal, providing the due diligence, you will need to place the clients interests above your own. It is very possible you may discover flaws in the program that could create problems inside the deal. You must disclose these at any cost, including your risk of being fired. Failure to do so will have significant consequences, as these flaws will eventually be discovered.

Why Agents Get Fired! #5 – Depend upon the Carrier or Product for differentiation.

Independent Agents and Brokers have always used the product as a basis of differentiation. "We represent XYZ Company", they say. "XYZ Company has an excellent program for people in your industry." In most cases they are not the only firm who has access to XYZ Company. They have not differentiated themselves, merely tied their fate to the commodity/product.

The sophisticate buyer of today recognizes that the product is readily available at virtually any price. They want and expect more from their agent/broker than simply the ability to place insurance. The insurance program is usually the last criteria in selection of which Agency/Brokerage will represent them.

The successful Agent/Broker of the future will learn how to differentiate themselves first, in which the placement of insurance is one of the tools provided to clients. They will learn how to be compensated on a fee basis, and provide value outside the insurance policy.

Here are some ways to prosper without being tied to the commodity.

Learn Consultative Brokerage™ techniques. The ability to develop issue-based prospects, build relationships, introduce resources, institutionalize clients/prospects, and exercise broker control will differentiate agent/brokers. These Consultative Brokerage™ techniques allow an agent/broker of any size to create perceived value.

Learn how to compete conceptually. Conceptual competitions are not based upon the product, but how a firm intends to provide value to the client. This value is based on many things besides the insurance carrier or policy.

Institutionalize your Franchise Accounts – Make certain your current major accounts are bulletproof before looking elsewhere for new business. Your largest accounts are probably targets for other brokers. They are an excellent way to practice and implement consultative brokerage™ techniques.

Master the 5 Pathways to New Business – There are only 5 ways to create new revenue. These pathways are Seminar Selling, Active Prospecting, Request for Proposal, Networking, and Cross-Selling. The firm who learns and masters these will control their marketplace.

Lead Change– Our industry is changing more rapidly than ever before. There are new distribution systems emerging that are not dependent on traditional agents and brokers. For your organization to have value in the future, you must establish a culture change that matches client expectations.

As competition intensifies for larger accounts, the successful Agent/Broker will learn how to match capabilities to buyer’s expectations. Hopefully they will not experience the bitter lessons of Why Agents Get Fired!

Rob Ekern is President of C. R. Ekern & Company. His experience includes operating an Independent Agency, and later becoming a top producing International Broker. He has produced over $1 million of new commissions and fees during his career. C. R. Ekern & Company is dedicated to assisting Independent Agents & Brokers in learning and implementing large account development techniques. He can be reached at 1-888-670-1177.

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