TENSIONS OF A TIGHTENING MARKET

One look at his rapidly reddening face and I could tell that our vice president was not enjoying himself. Worse than that, he seemed ready to explode. As the senior broker representative in the center of the conference room continued with his tirade, our vice president was angrily shaking his head and showing clear signs of being about to blow a gasket.

It was our company’s semi-annual Broker Liaison Group get-together. This B.L.G. meeting (known within the company as the Bitching, Lying and Gloom session) was supposed to be a day when we got together with a group of our leading brokers. Because I was the company’s senior marketing representative and had a long-standing relationship with many of the brokers, my attendance was mandatory. The morning session covered the usual required topics: state of the market, claims experience, new products and practices, e-business development, commissions and the like. Each of our brokers had been given a personalized portfolio filed with diagrams and flowcharts detailing the company’s progress and their own firm’s experience with us over the past five and ten years.

After lunch and a couple of other presentations, the meeting finally tackled the last item on the day’s agenda: the “Open House” session. It provided the opportunity for our brokers to air their pet problems or grievances, and for us to respond to them. There were usually a couple of animated exchanges during this session, but this year the B.L.G. was led by “Y” – one of the most aggressive and pugnacious men in our whole broker force. And today he was holding nothing back.

He was obviously furious at our company’s tighter new underwriting policy and he had spent several minutes roasting every aspect of it, using the sort of blunt language normally used on hockey rinks. Finally, he had looked truculently straight at our vice president. “Two years ago you were beggin’ for our business,” he roared, “now it’s like a miracle if we get a risk through! On top of that – I guess we’re not supposed to have any problems sellin’ increases on all our business! You people have gone right off the deep…”

“Now just a minute!” Over the screech of a chair being rammed backward came the voice of our vice president who had jumped to his feet, his face a rich scarlet shade. “That’s not only unfair, it’s inaccurate!” he said heatedly. “We’re subject to the same business laws which affect all insurers. The soft market pushed prices down to uneconomic levels. Now they must rise. That fact is true for everyone in the market. We have not ‘gone off the deep end’ as you suggest. We are simply returning to sensible underwriting standards and sensible pricing…” That brought a derisive guffaw from “Y” who jumped to his feet again.

For a second I thought we were about to have a real shouting match. But at that precise moment the dapper figure of our president strode into the conference room. He had a warm smile on his face and his arm was extended towards “Y”. “Sorry to break in on your get-together,” he said cheerfully, shaking “Y” by the hand and looking around the room. “I meant to come down to say hello earlier, but you know…” He shrugged his shoulders helplessly, “I was trapped on the phone by a couple of my directors.” He smiled again at us all. “You know how awful directors can be.” Then, with his arm still casually draped over “Y”‘s shoulder, he steered him to the far side of the room, crooking his finger at our vice president as he did so.

As this happened, my boss Fred Wilson, manager of the company’s downtown branch office where the meeting was being held, walked to the center of the room. “Now then,” he said smoothly, “let’s move on, shall we?” Two hours later the gathering had adjourned peacefully and amicably with handshakes all round. Platters of hot and cold finger-food had appeared, a bar had been opened and drinks had been served. Small mixed groups of brokers and company staff were sitting together and winding down the day in cheerful conversation.

I looked over at Fred Wilson. “Nice timing, boss,” I said. “I think you de-fused a bomb that was about to go off.” He smiled. “One of my better ideas that,” he replied modestly. “I had a hunch that ‘Y’ could be a problem at this year’s meeting, so I suggested to the president that he and I stroll down to say our hellos just about the time that ‘Y’ would be at full throttle.”

Beside us, there was a chuckle from Bob Davies, who ran a highly successful midtown brokerage. “You old smoothie, Wilson. The last time I saw ‘Y’ and your Veep, they were piling into your president’s car, heading for his private club. My guess is that an hour from now they’ll be each other’s very best pals.”

“Maybe, maybe not.” It was the voice of our company’s senior underwriting manager, Judy, who was sitting close by with a couple of our brokers. “I know that ‘Y’ has been on thin ice with us for a long time…VERY thin ice,” she emphasized. “Something you can share?” Bob Davies asked. Judy shrugged her shoulders and nodded. “It’s no great secret, but the firm ‘Y’ heads up simply does NOT pay its agency accounts on time. They have huge volume with us, but they never pay for the business they place with us until we practically sue them!”

“Aren’t all our brokers supposed to be on 60-day pay these days?” I asked. Judy laughed derisively. “Supposed is the right word, Dave,” she snorted. “Major brokers like ‘Y’ figure they’re a law unto themselves. When our agency accounts people get all over our regional office about ‘Y”s overdue account, the regional manager has a fit. He’s terrified that if we bug ‘Y’ to pay his firm’s overdue account, they’ll shift their business elsewhere.”

I nodded my head in agreement as she spoke. “From a company standpoint, it’s our dirty little secret,” I muttered. “Plain truth of the matter is far too many insurers are lousy money collectors. Lots of brokers take advantage of that fact. Who can blame them if they delay payment to us? We’re easy pickings.” Beside me, I could see Fred Wilson, also nodding grimly. “I’m afraid what Dave says is true. And it’s even worse than that.” He shook his head and looked around at our group. “Believe it or not, I recall an instance where we actually paid out a million dollar loss on one piece of business “Y” placed with us before we received a dime of the premium due.”

There was dead silence for a second while this nugget of information sank in, then Judy, our senior underwriting manager spoke again. “Pardon me for saying this, but it seems to me that a lot of the young brokers in our business today don’t know how to sell an increase. They’ve grown up in mostly soft market times when prices were falling and companies like us were in a competitive rush to put business on our books. Now, suddenly, things have changed. These brokers are being asked to sell a $250 increase on a $5,000 policy and they’re screaming that they can’t do it. For goodness’ sake,” she snorted, “it’s a 5% increase after four years of steady decreases!”

“There’s some truth to what you say,” Bob Davies nodded, “especially when you have brokers who don’t sell value-added service – only low price.” Fred Wilson set down his now-empty glass and looked across at his broker friend. “Bob,” he said, “let’s not forget that there’s another factor in this whole equation of rising price levels. Some brokers are probably justified in claiming that not all insurers are raising prices like we are. Why not? Well, they may be new companies in our market, they may be companies trying to re-balance their portfolios. They’re out to build volume and they’re going after business the only way they know how – by going low on price.” He shrugged his shoulders. “Let’s face it, our renewal business is someone else’s new business. The new company doesn’t have the claims history of a particular piece of business to worry about. To them it’s a highly desirable chunk of new business, well worth going after aggressively, whereas for us, knowing what we do about its claims experience and other history, this same piece of business simply has to be renewed at a higher price level
.”

“Isn’t it a fact,” I observed, “that most of us have to tap into a whole different sent of skills to cope with a tightening insurance market?” That brought a deep laugh from Joanne Newman, a hard-working broker who partnered a thriving brokerage in the suburbs. “Yeah,” she shot back, “you need a brass neck and a tough hide – like me!” Then she looked thoughtfully around at the group of us. “Which brings me to my peeve with you company guys these days…”

“…come on, Joanne”, I encouraged, “you’re among friends. Tell us what’s bugging you.” Joanne set down her plate. “Okay. It seems to me that you company types are turning your backs on the close personal relationship we used to enjoy with you. Time was, we had the same underwriter to process all the business we sent you. The same underwriter handled renewals and endorsements. We got to know them, and they got to us and our staff. It worked well. Nowadays it seems we get a different underwriter every day.”

Before I or Fred Wilson could respond, our underwriting manager Judy jumped into the fray. “Joanne – it’s ironic, because we changed our old systems to respond to broker demands for faster turnaround service. We used to allocate one underwriter to three brokers. The needs of these three brokers were that underwriter’s exclusive responsibility. But when that same underwriter had, say, fifty commercial line renewals to process in a single month and the broker was screaming for faster turnaround, and the underwriter at the next desk only had ten C/L renewals to handle – well, something had to give. So business turnaround time went down, but unfortunately it does mean that you may have to deal with some different underwriters from time to time.”

Across from me sat Al, a fully automated broker I knew well. He operated in a small town 160 kilometers outside the city. He leaned forward in his chair. “Okay – I might as well lay my pet beef on you company types. First – I now have a significant investment in my vendor system, and it works pretty damn well. Keeps track of my client profile and information, policies by class and size, receivables, renewals, overdues – all the important details are there. And the people who sold me my system are constantly offering me new and more sophisticated applications. But now you company people are coming along and saying to me: ‘Al – why don’t you start to use our super-duper new website. It’s going to offer you many of the same programs and services you’re now buying through your vendor system’.” Al raised his hands in the air. “But really, you’re asking me to start double-keying my information: keyed in once on to my tried-and-tested vendor system, and then once more into your shiny new company website. And let’s not forget, a company website will only offer a single-entry system for the business of that company. What do I do about all the other companies I represent? Anyway you slice it, it seems like double the work for me and my staff, but no extra money in sight.”

“Speaking of things not in sight…” It was Bob Davies talking, and although he had a smile on his face I sensed the edge to his voice. “I wonder if we brokers might be favored some time soon with your revised list of desirable risks or even acceptable risks.” He raised his eyebrows at Judy, Fred and I. “We can all agree that the tightening market has changed how insurance companies look at risks, but we brokers would really like some sort of guidance as to what’s acceptable these days, and what’s not.”

Judy, our senior underwriting manager, groaned and held up her hands. “You’ve got a point,” she said. “We’re working on it, believe me.” Then it was broker Al’s turn. “I’ve just got one more question for you before we all go home. Whatever happened to all that wonderful, warm TV and magazine advertising you company guys were doing recently? You remember, the stuff that was in prime-time or appeared in the best magazines, all those nice comfy messages that even mentioned your independent broker partners. Don’t tell me…” He feigned an innocent smile at our group, “that all these nice, fuzzy, feel-good messages are one more victim of the tighter market?” Judy looked at me. I glanced over at my boss, Fred Wilson. He coughed gently and stood up. “I refuse to answer that question,” he said with a rueful grin, “on the grounds that you all know the answer.”