This article talks about the effects of bidding commercial insurance accounts on an annual basis does to an account and its reputation. The ideas and opinions expressed here solely represent my own.
“I like to keep my current agent honest.”
“I like to know I have the cheapest price on the market.”
“Companies change their rates every year so I have to change my insurance.”
“You guys bump the rate up every year so I have no choice but to shop.”
The above reasons are phrases I hear on a daily basis, and they all carry some weight. There are agents out there who aren’t honest; it is nice to know you aren’t overpaying for your insurance; companies can experience multiple rate changes over a few-year span; it does seem like WE are the guys that are trying to take more and more money from you.
The fact of the matter is there will always be a reason, whether good or bad, to shop your insurance on an annual basis. There are some things that I do believe warrant an insured to make the decision to open up their account to bidding, such as poor service (if you feel your service is poor, then it probably is – find an agent that will service you as well as you pay them, and then some).
While the mass belief is that this is simply a phenomenon highlighted by agents to prevent clients from shopping, the ‘true’ truth is that shopping your insurance can be detrimental to your insurance reputation in the marketplace; and yes, you do currently have an insurance reputation. But what exactly is an insurance reputation?
Now, continually shopping your insurance does you no favors, regardless of whether you are a commercial account that pays $100,000 per year on insurance, or a personal lines account paying $3,000 per year; the effects just grow exponentially as the premiums increase. So, that being said, let’s talk about the insurance reputation of a $100,000 commercial lines account.
From the moment your account enters the insurance market, there begins its, and your, reputations. Insurance carriers divide all lines of their operating into territories, thus making them much more easily managed. Within each territory, there will be an Underwriting Department. Assuming that your business does not undergo a massive relocation, and the carrier continues to write in your state while you’re in business, it is likely they know of your account – for better or worse. If it is for better, this means you are known to be a dream account in every sense of the idea – you are a sizable premium, a well-run business, positive outlook for future plans, you as the owner work well with the carrier, and you don’t shop around providing you receive good service. If it is for worse, then you might have a real problem.
‘Worse’ implies you are someone who is perhaps late on payments, perhaps has a terrible claim history, or perhaps may be difficult to work with; but more likely is that they insist on putting their account up for bidding every year. All the other aspects listed can be worked with, but the shopping around thing is big no-no in the world of commercial insurance. It will destroy your reputation in the insurance market.
I am a firm believer that insurance is a relationship industry, and without good relationships, this industry would be totally online. Catch a different guy, however, and he will tell you it is going that way anyway, but I refuse to adhere to nonsense. A relationship by nature is, or should be, mutually beneficial. An insurance company is willing to pay out millions of dollars to cover a claim according to the insurance contract, in exchange for a much smaller amount of capital. While $100,000 is by no means a small amount of money, (please bear in mind that insurance on the commercial level should represent around 1% of income, meaning he/ she who pays $100,000 per year makes $10,000,000 per year), it is minute in comparison to what would be paid out in the event of a huge claim or total loss.
The point here is that your insurance company, while receiving what seems like handsome pay (if we were to do the breakdown of a premium, you would see how small the profit margin is!), assumes great risk. But that is their game, that’s what they’re in business to do, yet the fact remains that they much prefer to have solid relationships with clients than make a boatload of money from an account that will be gone the next year.
This is how the annual process plays out for an insured who plays the bidding game:
- Three months before renewal, the insurance person will be instructed to get “apples-to-apples” quotes on the current policy.
- They will find 3-5 agents/ agencies, and ask each to prepare 3-5 proposals.
- One month before renewal, they will take these 15-20 proposals, along with the incumbent agent’s proposals, and check the coverages to make sure everything is the same.
- Once they have set aside all policies that match exactly to the current policy, they will select the policy with the lowest premium, and cut the check for it.
- Repeat next year.
Many businesses will call this their SOP (Standard Operating Procedure), and back it up with, “What does it matter if the coverage is the same and if the price is good?” And from the outset, it doesn’t seem like it would cause much damage.
The first thing about his method is that eventually you will run out of carriers that will want to write your account. Please don’t be fooled into believing that you pay so much for insurance that a carrier would be stupid to turn it down. They are in the business of risk management, and after a while of that kind of repetitive activity, the numbers just do not make sense anymore – and in more ways than one.
Consider the manpower, time, effort, money and resources that goes into appropriately analyzing the risk of a large account; it is a lot on all fronts. Then, consider how much coverage is put into the pot available to your account in the event of loss versus the premium paid for it; also a lot. Lastly, consider what cost of the maintenance of the account throughout a year; depending on the client, this can definitely be a lot too. Plainly it is not worth the manpower, time, effort, money and resources of a carrier to write your account anymore.
The really bad news for the insured is, whether or not they realize it yet, they will be one and done in the event they have a considerable loss. They would still receive the same service and claim handling procedure as any other account, but it is likely they would be non-renewed. Should this happen, good luck finding a standard carrier who will write your insurance.
You may get a young, enthusiastic agent who wants to write everything, take your policy to the market, only to be told “Try another sucker.” In layman’s terms, what is being said here is, “I know it seems like a good account, but we see this one every year. Even if they give you the business, you won’t have it next year. I’m sorry but we will not write this account ever again.” At which point, you are limited on options. You either go to the assigned risk markets that will surcharge you at least 25%, or go uninsured.
Make no mistake; insurance is a huge financial portion of running a business, and should be approached in the same way as any other financial agreement. Your insurance will be the one thing you pay for that is there to bring your business back to life rather than leaving you in the hole. The relationship a business has with its insurance carrier, agent, underwriter, or whatever the case may be, will directly affect how well their insurance works when needed. And I don’t mean in terms of the payouts, but also what happens after the payouts. They will not be quick to cancel or non-renew the policy as they know the business/ business owner has had a great previous ten years with no claims in a growing business; they know you pay on time; they know you are diligent with providing information; they know you are good people with integrity who understands the importance of the reciprocal relationship.
But, change is certain; rate changes happen, carriers change appetites, carriers change territories, etc. The best way to approach any change that needs attention is the same as it always is – work with your agent and your carrier. Let your agent and your carrier protect your reputation in the marketplace by advocating for you, in whatever capacity that may be. They cannot advocate for you based off a six-month relationship via a policy, the same way a solid relationship cannot be built in that time. This advocacy, the same as a good friend, comes through when you need it most, and is becomes stronger with longevity.
Never make a decision based on emotion, and insurance is an emotional purchase. It may seem like a formality, a legality, but think of how it protects your business, and what having your business does for your life and your family. All these things contribute to why you buy insurance. Approach the choice of your agent, carrier and policy with a lot of care, and choose accordingly as that decision could have a significant impact on your life. Find people you like, and stick with them.