Consultative Broker Briefing - V. IV, No. 4

The Consultative Broker™ Briefing
Volume IV, Number 4
A Free Publication of C.R. Ekern & Company
888.670.1177
www.crekern.com
Copyright, C. R. Ekern & Company, 2002

"Hold Your Margins"

I spoke this week with the Principal of a major West Coast brokerage. He gave me an interesting perspective on a dilemma his firm is facing. It seems that his firm is not growing quite as rapidly as the marketplace increases. "All we can figure," he mused, "is that our producers must be cutting commissions to hold deals together."

Consultative Brokers must hold their margins. We are not a philanthropic organization! Cutting our income is the worst thing we can do in order to attract or retain buyers. It is a lose/lose proposition, with us as the biggest loser of all. Don't do it, we don't have to.

Let's take a look at how it usually works. We are approaching the renewal of one of our largest accounts. For the second year in a row, the premiums will be increasing. Rather than face the buyer with the bad news, we decide to reduce our income by 5%. After all, we are still making more money on this account than we did two years ago. Right? . . . Wrong!

Here are some of the reasons why using commissions to offset rate increases is a really bad idea:

In the event our commission was originally 15%, at a 5% reduction, we have reduced our income by a whopping 33%. Most firms are unable to withstand this size hit to income.
Chances are that two years ago, in the depths of the soft market, we were running this account at a loss. Our attempt to duplicate those prices is suicide.
The wind is at our back this year. Don't be so anxious to return to the "soft market."
Once we reduce our commissions, will we ever get them back? Not if certain insurance carriers have anything to say about it!

As Consultative Brokers, you know the importance of demonstrating value and helping clients reduce their Total Cost of Risk (TCOR.) You are mastering the techniques that enable you to attract and retain clients at full margin. Your clients understand that your firm can't provide full services and risk control if at the same time you are cutting your operating margins. You are entitled to a profit!

Best regards to all Consultative Brokers,

Rob Ekern
President
C.R. Ekern & Company

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Thank you.
C.R. Ekern & Company