When the Axe Falls

As we jumped over the small stream, I could feel the warmth of the late Fall sunshine on the back of my neck. All around us the trees were aflame with color. Already, for the first time this season, the forest floor was coated with leaves.

Beside me, also dressed in jeans and a bright check shirt, was Al, an efficient broker whose fully automated office was in the small town nearby. Fred Wilson, my boss, the manager of our company’s downtown branch, had joined us for our hike. My backpack carried sandwiches, some fresh fruit, and a few cans of beer. Al carried a utility bag with his tool kit and a spare chain for the chainsaw.

We had driven two hours up the highway from the city early on this Saturday morning to share the weekend with Al and two other brokers at his small cabin. It was our annual wood-cutting and brush-clearing pilgrimage, when all of us got a day of good physical labour in the woods. It was a fair exchange: Al got the fallen trees and branches cleared off his property; we each got a trailer full of logs and wood for our fireplaces.

As my company’s senior marketing representative, I enjoyed long-standing relationships with many brokers throughout the province. Broker Al was a keen outdoorsman and shared the pleasures of his bush cabin with several business friends and associates.

We clumped up a short rise to the cabin. Sitting in the chairs on the verandah, we saw the two other members of our work party: Bob Davies, the co-owner of a successful midtown brokerage in the city, and Stan, who ran his office in a small town (population: 30,000) an hour’s drive away.

“This is what I like to see,” Al said with a laugh. “Workers who arrive before the boss! How about a cup of something hot to start your day?”

Ten minutes later, we were all sitting together in the warm sunshine with steaming mugs of coffee.

“Well guys, it seems we’re not the only ones doing some cutting and pruning and clearing out,” Al said. “Have you all heard about the axe-swinging that some companies are doing?”

We all nodded our heads. In the wake of deteriorating industry results, many insurers were busy taking drastic action: cutting back their broker forces, getting out of unprofitable lines, trimming commissions, and cutting their own staff and regional offices. One or two had even quit a couple of provinces where their results had been horrific. I personally had to deliver the bad news of cancellation to a number of brokers, and I mentally winced at the memory.

“You haven’t been handed any ‘Dear John’ letters have you?” I asked.

Al shook his head. “Nope. I think I’m high and dry for now.”

Then he smiled, and added: “I wasn’t so lucky a few years ago, Dave. During an earlier industry crisis, out of blue, I got a call from the marketing rep of one of my lead companies. It wasn’t time for his regularly scheduled visit, but he said he had to see me. When I asked him what he wanted to discuss, he wouldn’t say – just that it was ‘important.’

“Anyway, I told him to come up the next day and he rolled up on his own. Well of course he’d come to cancel me. But being relatively new to the business, he did the job badly.

“First, he praised me for supporting the company so well for so long. Then he mentioned the hard times the company was having, and that these hard times meant tough decisions had to be made. He sort of rushed over the fact that the company was cancelling me and immediately began telling me again what a great operation I ran. I suppose he was trying not to hurt my feelings.”

My boss Fred piped up: “If he was young and inexperienced, I’m surprised that he didn’t bring along his regional manager for moral support.” He turned to me. “Dave: what else did he do wrong?”

I threw up my hands. “He did just about everything wrong,” I said. “Telling a broker the company no longer wants him isn’t a pleasant task, but sometimes it has to be done. The ground rules are pretty simple, really. Be fast, clear and factual. Don’t argue. Keep your cool.

“And in a situation where it’s a long-standing relationship with a significant volume, many company managers would want to accompany their marketing rep when that rotten job has to be done.

“But tell me,” Fred said to Al, “how did you react at the time?”

Al chuckled softly. “You know, at first I was sure the whole thing was a mistake, a company screw-up. I convinced myself someone had mixed up a file, picked up the wrong name and got me by mistake. So I called a VP in the company that I knew–“

Al gave a rueful laugh. “It was no mistake. They were cutting me off.”

I shook my head. “Nowadays, a lot of companies do it differently. We certainly do, as you know. At the beginning of the year, we put together an agreed business plan with our brokers, and we all sign off on it. We both agree on the details since it’s for our mutual benefit, setting out clear goals on volume and business lines and commission rates and contingents and such. That way, we’re both singing from the same song sheet.”

I let the thought sink in before carrying on. “There’s another sensible and practical thing we write into our broker contracts: we agree that if we run into problems down the way, we’ll work with the broker on rehabilitation efforts to turn things around rather than simply terminating them. It makes sense to do this, because the insurance business is interdependent. Each of us depends on the other’s efforts, so it’s only reasonable that when things aren’t working out, we should sit down together and try to fix the problem. It’s not only more merciful, it makes economic sense too.”

My boss gave me a friendly nod of agreement, then turned to our host. “Al, your experience with that marketing rep reminds me of a time years ago when I worked for another insurer. I hate to say it, but that’s precisely the way it handled personal relationships with its brokers, even long term ones. The relationship literally meant nothing, only bottom-line results counted.”

Fred looked over the top of his glasses at us. “It was the company’s unwillingness to be flexible with its longstanding and profitable brokers that eventually convinced me to leave. As we all know, what goes around in this business comes around. The company that discards a slew of its brokers one year may be trying to woo them back a couple of years later.”

Stan’s head was nodding his head in agreement, and now he joined in. “Let me raise another issue here,” he said. “I think company people tend to forget that, as brokers, we are expected to juggle all the different marketing plans, all the different premium targets, all the different restricted classes from all the companies we do business with. Each of these companies expects us to give them priority, to feed them the choice risks. Each of these companies churns out fancy new binders, glossy sales brochures, underwriting guides, marketing newsletters, sales target bulletins and directives until sometimes we’re swimming in the damn stuff.”

Bob Davies leaned forward in his chair. “You’re right, Stan! You’ve brought up an excellent point that sometimes gets lost in the fog of daily business.”

Bob paused for a second, closed his eyes in concentration, then spoke. “Okay, let me paint you a picture,” he said.

“Company A wants to be a bigger player; to do this, its board of directors decides the company has to be more aggressive. The bright lights in its marketing department dream up an impressive new campaign to go after small commercial business and quickly crank up the promotional machinery.

“We brokers are invited into the company’s head office for a high-octane slide show, a full morning of enthusiastic pep talk, and lunch thrown in for good measure. The company loves us all and tells us this campaign is only the beginning of its ‘bold new strategic initiative for growing its business and becoming a market leader, blah, blah, blah.'”

Bob took a quick swig of his coffee and continued. “Well, unfortunately the campaign doesn’t do too well f
or Company A,” he said. “Why? Well for one thing, there’s a lot of competition out there for small commercial – everyone wants it. For another, the company’s marketing energy runs out of steam after the first big push. The hotshot marketing manager who thought up the whole idea is suddenly promoted to VP. She hands off the campaign to her successor, who isn’t as capable and of course is on the steep learning curve of his expanded responsibilities.

“Then there are the usual administrative foul-ups in segmenting all this new business for brokers like me. We’re supposed to be able to tell if we qualify for the various levels of enhanced commissions and bonuses the campaign promised us.

“But then the stock market starts to tank, the company’s investment income plummets and, to cap it all off, there’s a sudden rash of shock losses from all this shiny new commercial business. When that happens, panic breaks out in the executive offices of Company A-“

“–So they decide to cut their losses, right?” Al chimed in with a laugh. Getting a nod of assent from Bob Davies, he smoothly picked up the story line.

“They quickly decide that their volume has to contract, so a hundred of their brokers must get the axe,” Al continued. “Computer results are studied. And that brand new marketing manager, who never liked his predecessor’s campaign much anyway, arbitrarily decides that any of its brokers below a certain one-year premium volume – or above a certain, rolling five-year loss average – will immediately get the chop…”

Stan smacked the top of the railing with his hand. “You’re right!” he exclaimed. “That’s the way some companies do operate!”

Stan looked over at Fred Wilson and me and gave us a sunny smile. “Present company excepted, of course,” Stan said. Then his face grew serious.

“But you know, in my experience even the good companies sometimes map out pretty good marketing strategies, but do a lousy job of administering them.,” Stan said. “Result? We get frustrated, the company gets defensive, and the whole affair starts to wobble.”

There was silence for a moment. Then my boss threw out the question that had been at the back of my mind also. “Tell me, Al, when that company flat-out cancelled you, how did you handle it?”

Al set down his coffee mug on the verandah railing and scratched his ear thoughtfully. “Actually, when I sat down to think about the situation, I decided it was pretty dumb of me not to have seen it coming,” he said. “When I looked back at my experiences with this company over the previous two years, I realized the signs had all been there if only I had been attuned to them; if only I had read them correctly.”

Bob Davies leaned forward. “What are some of those signs, Al?”

“Number one sign,” Al replied, “is your loss pattern. As we all know, good loss ratios mean nice relationships – and, of course, nice contingent cheques. Unfortunately, I ran into a string of unusual losses just at the time the company was running into its own tough times.”

Al glanced around at us shook his head. “That was definitely a bad combination–“

“–What about your volume of business with them?” Bob cut in. “Was that not a mitigating factor?”

“Well my volume was sizeable, but it apparently wasn’t sizeable enough to buy me any leverage,” Al said quietly. “And my book with that company didn’t fit what they were now looking for–“

“In other words,” Stan interjected, “that company had changed its marketing strategy?”

Al nodded. “Yes. Not only that, but there were some senior management changes. The new top brass decided on a new course of action. They decided to move away from certain classes of small commercial risk. Of course, over the years I had piled up plenty of the stuff they didn’t really want any more. So when I got hit with a bunch of shock losses, it was the perfect excuse to cut me loose.”

Al took a quick sip of coffee. “Sure, it was brutal, but in a way I blamed myself,” he said. “I wasn’t as experienced then as I am now. I simply wasn’t sharp enough to pick up on the changes that were taking place in that company.

“I should have! After all, they were one of my lead insurers. They had sent out marketing reports on the type of business they were now seeking. But because you’ve always enjoyed pretty good results on your book, it’s easy to get a little too comfy – maybe a little complacent.”

I looked over at Al. “Didn’t their marketing rep make it clear you were overloaded with the commercial business they didn’t want any more?”

Al shook his head slowly from side to side. “Like I said, Dave, he was young and inexperienced. I don’t think he wanted to rock my boat too hard, so he didn’t say as much as he might have or should have.” He shrugged his shoulders. “And to be honest, I didn’t question him hard enough about my mix of business and whether or not it was a problem for them. It was a learning experience all round I guess.”

We climbed out of our chairs, picked up our chainsaws and walked towards the screen door. Fred Wilson looked at Al and said: “You should tell us what happened next. Did you manage to re-market that book of business with another company? Were you able to replace that insurer with another one as good or better?”

Al smiled. “I’ll be happy to tell you whole story tonight over a couple of drinks, my friend,” he said. “That’s if you’re all not too tired to listen.”