2011 Vermont Captive Insurance Association Special Section
Battling for the middle market: Leveling the playing field
Both risk and opportunity for agents
By Michael J. Moody, MBA, ARM
For years, the insurance industry has reserved the more innovative alternative risk transfer (ART) products for only the largest accounts. But recently, there has been a major shift in this trend. As confirmed in the industry press over the past few years, and as noted in several accompanying articles in this issue of Rough Notes, middle market accounts are quickly moving toward more sophisticated ART programs. For some mid-sized agents and brokers, this is really exciting news, while others will fail to see the unprecedented opportunities this movement has brought.
This movement toward ART programs is important for a number of reasons, not the least of which is the realization that once accounts move to the ART market, they rarely come back to the traditional insurance market. Losing an account to the ART market is not like, "Oh, well, we will just wait until the next renewal and provide a more competitive bid." This is a trend that every mid-sized agent and broker needs to be aware of because, all too frequently, these middle market accounts used to belong to mid-sized agents/brokers who could not see where their client wished to move. The holding broker failed to capitalize on this increasingly important movement.
As with any marketing failure, it is usually difficult to pinpoint just one single reason for the failure. However, with increasing frequency, the reason can be traced to a lack of technical expertise to effectively compete with "full service" national or regional brokers. Quite frankly, this is disturbing. Today, there are methods to resolve this competitive issue and put the holding broker on a level playing field.
Many of the service requirements to compete on ART business do require a qualified professional. Take for example, the services of an actuary, which typically necessitates a person with formal training and professional credentials. Obviously, while actuarial support is needed for most ART market products, it would be highly unlikely that a mid-sized agent/broker could properly staff this position. However, access to the services of an actuary is readily available through independent actuarial services. But, despite this availability, it has not been enough to encourage their use by some mid-sized brokers.
Feedback was required
One independent actuarial service provider is working to change this situation. As Tim Coomer, CEO of SIGMA Actuarial Services (SIGMA) says, "We recognized that the ART market is growing at a good pace, and much of this growth has taken place with middle market accounts." He goes on to indicate, "We are also aware that many mid-sized agents/brokers were uncomfortable discussing additional value-added services, such as actuarial support, with their clients." However, rather than guess what the agents needed, SIGMA "decided to make an investment in researching this topic with some face-to-face meetings with mid-sized brokers across the country."
The results of the research were pretty uniform, according to Coomer. For the most part, "communication about actuarial topics is difficult for mid-sized agents and brokers" in spite of the fact that many brokers now realize that services such as actuarial are critical for their long-term success. While not long ago, services from specialists such as SIGMA were considered a luxury, today, notes Kevin Edwards, account executive at the Little Rock office of Regions Insurance, "Many publicly traded corporations are required to provide their auditors with up-to-date actuarial studies." And now, he says, "This even extends to private companies THAT need to get annual studies to properly establish their accruals. For us, being able to suggest service providers such as SIGMA is just one more way that sets us apart from our competition."
He also says, "You are always trying to put yourself forward as a full service broker." As such, it is important "that when we present our capabilities to prospects, we include actuarial services as part of the package." Edwards, who is a former corporate risk manager understands the value of having access to quality actuarial services. "It's not just the complex situations like captive feasibility studies either," he notes.
For example, "Even in simple things like negotiating the amount of an LOC with a carrier, actuarial support can make a meaningful difference." He points out, "In today's financial market, it is still pretty difficult to obtain an LOC; however, it is even more difficult to get it back." With quality actuarial support, "You know that you have kept the amount of the LOC as small as possible, thus providing your client with cost savings over the life of the LOC."
Edwards says that insurance buyers expect more today, and he says that successful mid-sized agents and brokers must move away from the "Hey, I want to quote your coverage" mentality to a more full service approach that includes actuarial services.
New resource needed
SIGMA, like most actuaries, provides services to a wide range of clients—everything from traditional insurance companies to other ART market service providers such as captive managers, TPAs, CPAs and even risk managers. But, Coomer says, "We love working with brokers, and we have decided to focus on their specific needs." He also notes, "We understand their concerns and want to support their efforts to talk to their client base about actuarial topics."
After hearing similar concerns voiced by numerous brokers, Coomer says, "SIGMA decided to develop a comprehensive resource to better prepare the mid-sized agents and brokers for discussions with their clients and prospects." The resource, which SIGMA provides to its brokerage network, includes training and materials to support a high level of analytical capabilities in support of their brokers. According to Coomer, "Training is provided in three levels: on-site at the broker's office, through Webinars and, finally, via videos." He also notes that for the most part, this training is a "work in progress," as additional requirements from the brokerage community are determined.
In order to develop a comprehensive resource that would provide value to the brokerage community, SIGMA understood that it would need to cover a variety of situations. Initially, one of the first issues that needed to be addressed was the age-old question, "How can a broker assess their book of business to identify clients that may benefit from actuarial work?" In order to address this issue, SIGMA developed a 14-question assessment tool that "provides a broad general assessment of whether or not actuarial services are needed," Coomer points out. Completion of an assessment will generate a report that shows the results of the assessment as well as a "SIGMA score" and a recommendation for moving forward.
After the assessment has been completed, the SIGMA resource provides a series of one-page summaries of various possible subjects. These summaries are designed to guide the dialogue with clients that score a high assessment, notes Coomer. Additionally, the resources include a variety of alternative risk transfer topics that include multi-page discussion guides with more in-depth information and further related services.
The resource also provides useful information such as a pricing matrix, which highlights typical SIGMA pricing, as well as a value matrix that highlights "many ways that an actuarial study adds value to the risk management process." At the end of the day, the SIGMA resource is designed for one thing and one thing only: to make the agent or broker more comfortable discussing the value-added services that can be provided by independent actuaries.
Movement to the ART market has been ongoing, despite the long-standing soft pricing of recent years. While growth has occurred in many market segments, much of it has occurred within middle market accounts either through group captives and risk retention groups, or single-parent captives. This fact has not gone unnoticed by the "big box" brokers who have recently implemented strategies to "dominate" middle market business. Many of the national brokers are playing up the fact that they have "full service" operations and have many capabilities in-house. However, this is not always the best approach. For example, SOX (Sarbanes-Oxley) legislation encourages an "arms length" transaction for services such as actuarial consulting. This can be a competitive advantage that mid-sized brokers can bring to the table.
As with risk management today, the movement to various ART mechanisms by the middle market represents both risk and opportunity for agents and brokers. For those mid-sized agents and brokers that want to compete with the "big box" brokers, today's insurance market offers many opportunities to differentiate their services and write more business. Enlisting quality service providers that share their same vision can be a "win/win" situation that can level the playing field for many mid-sized brokers.
SIGMA has spent considerable time and effort in designing and implementing its "Powered by SIGMA for Brokers" program. As Coomer has noted previously, SIGMA enjoys working with brokers and has decided to concentrate its marketing efforts on the mid-sized agent and broker community. He also indicates that the firm has set out a goal to make the broker's task of introducing actuarial topics to their clients and prospects much easier. And, he says, "SIGMA just wants to help." Further to the point, Coomer indicates that it is "our objective to exceed expectations and have fun while doing it."
Bottom line, if you are a mid-sized agent/broker who is looking for ways to expand your service offerings to your client base, it may be to your benefit to consider the "Powered by SIGMA for Brokers" program. Coomer mentioned that brokers can gain access to the content SIGMA has developed by registering at www.SIGMAactuary.com/register.
Movement to the ART market has been ongoing…While growth has occurred in many market segments, much of it has occurred within middle market accounts.