Consultative Broker Briefing - V. IV, No. 10 - Benchmarking: A Key to Demonstrating Value

The Consultative Broker™ Briefing
Volume IV, Number 10
A Free Publication of C.R. Ekern & Company
888.670.1177
www.crekern.com
Copyright, C. R. Ekern & Company, 2002

"Benchmarking: A Key to Demonstrating Value"

Many of us are facing some very difficult renewals this July renewal season. The full aftermath of September 11th has caught up with the marketplace through increased reinsurance terms. We have been forced to advise some of our clients of increasing premiums for the second year in a row. Tempers are flaring, patience is thin, and through all of this we are asked by clients, “How do we know that you have been doing a good job?”

Historically, many insurance brokers and agents have allowed themselves to be judged against one criterion – Simply, this year’s premium versus last year’s. When we allow this to happen, it is a lose/lose proposition. If the market is hardening and we deliver premium increases, our clients feel we have taken advantage of them. If the market is softening and someone else provides a lower price, our clients feel we are preparing to take advantage of them! We lose either way.

Astute Consultative Brokers are using a tool called benchmarking to demonstrate long-term client value. It is a technique that was developed by large account Risk Managers but lends itself very nicely to our upper-middle market clients. Benchmarking allows us to provide clients with objective data over a long period of time, not just last year.

Here’s how it works:

Select a client that you have represented for a number of years and go back in time.
Select a year in the past, preferably at least four to five years ago, and divide the total premiums into the client’s revenues per thousand. This will yield a benchmark rate per thousand of client sales.
For each of the past several years including this current year, establish the rate per thousand using the sales and premiums from each year.
Compare each subsequent year’s rate to the benchmark rate.

Brokers that are using benchmarks are finding some very interesting results:

In many cases, the rate per thousand of sales is actually lower than the benchmark. For example, if your client’s premiums have increased by 70% during the time period but their sales have increased by 80%, their rate is actually lower!
Even if their sales were relatively flat, when we go back five years we see that three of those years included rate per thousand decreases. Even with the premium increases of the past two years, our rate this year is not substantially higher than the benchmark.

Using the Benchmarking technique on your largest accounts may help take some of the sting out of your July renewals. It will allow you to fully demonstrate your long-term value to your clients and answer their question, “How do we know you are doing a good job?” with confidence.

Best regards to all Consultative Brokers,

Rob Ekern
President
C.R. Ekern & Company

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Thank you.
C.R. Ekern & Company