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Upfront audit for mid-sized accounts pays off

A holistic approach to risk produces great results and long-term relationships

"What's interesting is that every client has been profitable and every line of coverage has been profitable. That to me is really proof that we are on the right trackby adding long-term value to our client relationship." —Jonathan Theders, CRA, CPIA, CHSP,Chief Executive Officer RiskSOURCE Clark-Theders

By Michael J. Moody, MBA, ARM

Much has changed in the commercial insurance arena over the past 10 to 12 years. We have weathered the losses associated with 9/11, several world-class storms and a financial disaster of biblical proportions and yet the insurance industry has continued to provide critical property and casualty coverages to the nation's businesses.

However, one aspect that hasn't changed is the on again/off again love affair the industry has with middle market accounts. Interest in this business has ebbed and flowed several times over the past dozen years—moving from a passionate disdain, as evidenced by the fact that some big box brokers basically gave away their mid-sized accounts because they took too much time to service, to a more aggressive attempt to attract mid-sized accounts. Today, we find a renewed interest in these accounts by the large brokers and a number of insurance companies that earlier were somewhat tepid toward them. However, it has always been the independent agents who have provided ongoing service to these accounts, regardless of the vacillating appetite of the large brokers and some of the insurance companies. And a small but growing number of these independent agents have gone beyond traditional ways of doing business to offer middle market accounts the same type of full risk management services that have been adopted by larger businesses that can afford to have their own risk management staffs.

The old way

The primary method of handling mid-sized accounts has changed little. Renewals of this business for the most part have remained the same, showing little imagination. Routinely, the holding broker would provide a quote to the business owner when the renewal date was near. Sometimes, the business owner would express his or her displeasure with the quote by seeking bids from competing brokers.     In many of these cases, it was merely a ploy to keep the holding broker in line because the business owner often had a friendly relationship with that broker and had little or no intention of moving the account, but simply wanted the holding broker to provide a lower quote. On the other hand, there were accounts that were habitual shoppers who would change brokers regularly in order to obtain the lowest price for coverage. Of course, we all know what happens to these shoppers when a hard market hits. But that's another story.

As a long-term strategy, this commoditization approach has done little to encourage the best from the market. Each agent/broker and carrier realized that the relationship with the insured was based on the ability to provide the lowest cost premium. As a result, there was little or no allegiance to the buyer and service was provided somewhat grudgingly.

A better approach

However, some mid-sized agents and brokers began to look for ways to make their relationship with the buyer more of a long-term partnership. They came to realize that providing a holistic approach to the risk faced by its business clients was the best way to foster a long-term relationship.

It was out of this desire to promote an approach that would allow agents to attract and keep accounts that wanted to adopt risk management solutions that the Beyond Insurance Global Network™ (BIGN) was formed. The 30-plus members of BIGN have a professed goal of becoming a "purple cow" in a market dominated by brown cows. In other words, they strive to be different and have started what they term a Risk Revolution™ that is designed to turn business owners into risk management partners rather than insurance buyers. In fact, in many cases, the word insurance is almost gone from the vocabulary of these new risk architects. The true goal of these agents is to help their clients mitigate or eliminate risk, with insurance serving as a risk transfer tool that may or may not provide the best solution.

At the heart of this approach is the risk management audit, where the agent gets to know the business intimately by interviewing a broad cross-section of the business's personnel. Once completed, the agent is then able to provide a customized plan for the reduction of that client's risks.

One of the BIGN members, Jonathan Theders, a Certified Risk Architect® and chief executive officer of RiskSOURCE® Clark-Theders of West Chester, Ohio, has been using this approach for a number of years. His agency dubbed this approach RiskSOURCE, with SOURCE standing for Strength, Opportunities and Understanding Risk Critical Exposures. To show its adherence to the approach, the firm changed its name to RiskSOURCE Clark-Theders in October of this year.

To demonstrate the effectiveness of this approach, RiskSOURCE Clark-Theders looked at 12 new accounts that had completed the RiskSOURCE Risk Management Audit. These accounts had begun to change their loss profile about four years ago and are now really seeing the results of their efforts.

Jonathan says his firm adopted the approach in order to differentiate itself from competitors. He points out that the agency needed to provide a better platform for assisting its clients. "We believed that it is an agent/broker's job to be a risk management partner first and a provider of coverage second." For several reasons, he notes, "somewhere along the way we'd gotten this backwards in that we were simply there to procure insurance for our clients. The insurance industry has gotten to where the bid and quote procurement is the status quo for the way business is done," especially for mid-sized commercial property and casualty accounts.

Astounding results

The RiskSOURCE program takes a different approach to client relationships. "Initially we guide our clients through a risk management audit process," Theders points out, "showing our value through real long-term strategies to help reduce and mitigate claims activity for clients and prospects." As a result, he says, "we really felt like our clients were doing better than the average." However, it was not until they analyzed the actual results of their accounts that he found out just how strong their results were. The accounts showed an impressive loss ratio of 8.58% over the four-year period. These accounts provided $3.4 million in premium and had total losses over four years of only $290,476.

While the 8.58% loss ratio is a remarkable number, Theders says, "What's interesting is that every client has been profitable and every line of coverage has been profitable." He goes on to say, "That to me is really proof that we are on the right track by adding long-term value to our client relationship." Further, he points out, "The centerpiece to our approach, the RiskSOURCE audit, not only yields loss ratio and claims experience improvement or reduction, but it also has identified ways to have management teams of our clients better identify strengths within their organizations that allow them to be more profitable." Through the use of the audit, the client finds that a third-party review is critical to understanding the organization's risks and opportunities. Because the audit results in a holistic view of the organization, identifying both strengths and weaknesses, the business is in a much better position not just to mitigate the risks that have been identified, but to utilize those uncovered strengths to grow and prosper. "So our external review can be extremely powerful in establishing a long-term strategic risk management partnership."

RiskSOURCE has also been responsible for the way the agency approaches its marketing. Clark-Theders Insurance Agency was like many other mid-sized agencies, depending on the traditional bid and quote approach to generate new business. Theders says that much of the risk audit work is done in advance of a renewal date. They explain their approach to risk management and get a commitment that if they can deliver the best approach, the client will award them the business. "We're pretty upfront about that." They do not charge for the audit; however, they believe that because the process will net a long-term partnership with the client, the agency is willing to make the time commitment needed to complete the audit.

Conclusion

Bottom line, does the process work? Certainly the loss ratios indicate that the risk audit and mitigation process is effective. Further, at this point, the marketing effort for RiskSOURCE Clark-Theders has been batting 1,000. Theders says that if the clients understand the process in the beginning, before quoting, they typically are committed to the more aggressive risk management approach that the RiskSOURCE approach can provide. At the end of the day, he says, "You know you're adding real long-term value to the customer," while mitigating losses.

Their agency still gets an occasional request to "quote our business." This is frequently followed by comments like, "I just want to make sure my agent is honest." To these types of "opportunities," Theders says, "You can use other agents in town to quote the business." And he respectfully declines.

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