An offering that actually enables you to cut insurance costs for your clients
By Dennis Pillsbury
"The equipment maintenance insurance policy alternative started in hospitals about 20 years ago, where equipment 'in service' level is critical."
--Lou Ricci, The Flanders Group
Wouldn't it be nice to be able to go to one of your commercial clients and offer them coverage that would actually reduce their total costs and provide administrative relief as well? In these days of rising insurance costs, it can be a pleasure to go to a client with a way to save money. And, to top it off, this market potentially represents more than $100 billion in premium. Even a small piece of that would be worth pursuing.
Lou Ricci, equipment maintenance insurance program manager at The Flanders Group, an independent agency based in Pittsford, New York, says that moving commercial clients' equipment maintenance needs to one equipment maintenance contract provides "a real cost reduction as well as administrative benefits. You're reducing multiple contracts down to one policy and one renewal. It actually enhances an organization's asset management since we can provide customized reporting showing the client how each piece of equipment and every vendor is performing. It lets them make informed decisions about when to replace equipment and/or vendors."
Of course, it's not an easy sell.
"This involves a lot of hands-on service and requires somebody who is dedicated to that," Lou notes. "I believe you need to have a specialist within the agency to be effective in this market. It's a fairly simple concept but takes a lot of time to implement. The toughest part is gathering all the equipment maintenance contracts. We assume that responsibility--but charge for it. We offer them a very reasonable rate that will be credited back to them when they agree to implement the program so they have some 'skin in the game' and own some responsibility to moving their commitment along."
But even before you get to that point, there are difficulties to overcome. "It's a long sales process," Lou says. "Your clients will be hearing from the sales people at the vendors that service won't be as good, even though, ironically, their company is still the one providing what should be the same level of service. Those people often make more from selling the maintenance contract than they receive for selling the equipment itself, so it's not surprising that they're going to try and protect that income and be opposed to reverting to providing services on a time and materials basis."
He notes that this argument can be overcome by pointing out that the "equipment maintenance insurance policy alternative started in hospitals about 20 years ago, where equipment 'in service' level is critical. Vendors don't want to break the control they have with an equipment maintenance contract. They want to be able to come back and sell equipment in the future. Self-interest alone causes vendors to oppose participating in an insured program."
Not for all industries
Lou points out that a number of industries have moved away from equipment maintenance contracts and clearly aren't a prospect for this type of concept. "We've found that financial institutions, colleges, school districts, hospitals, some manufacturers that have a headquarters with a large white collar group, large retailers, large supermarkets, high-tech industries and municipalities are all great prospects. Municipalities are especially good prospects because, once the coverage is in place, they no longer have to RFP (request for proposal) individual equipment maintenance contracts anymore. With the number of machines they have under warranty, the RFP process can be extremely lengthy. We can come in and end that for them."
"This is definitely a relationship type sale," Lou concludes. "The vendors have developed a trust relationship with these companies and you must do likewise, while keeping the same vendor in the picture. You also need to connect with a commercial client that has a commitment for genuine cost reduction. It really helps to be part of an organization like The Flanders Group where all the business is built on a relationship of trust. When I approach one of our current clients, I already have a built-in advantage."
Flanders uses two markets for the product--Specialty Underwriters, which offers a CNA product, and REMI, which currently offers a Royal & SunAlliance product. "As an underwriter, Specialty Underwriters has a huge customer base with various equipment covered in many places and situations. That serves to give them a lot of clout with vendors and creates credibility of longevity for us in our marketing efforts," Lou adds.
Commission can vary between 6% and 10%, and in most cases, this represents pretty significant premium dollars. One hospital, for example, could provide premiums of $2 million to $3 million. Right now, Flanders has six large accounts providing around $1 million in premium. "We also have a number of very large accounts that we're working on," Lou says. "This is a lengthy sales process, much
different than the traditional property/casualty sale with a specific inception date. Once incepted, account retention is much higher." *