Amid turmoil, agents and brokers can find
workers comp success
Experts stress need to help clients navigate through market changes, monitor safety issues
By Dave Willis
A number of factors are converging to drive substantive changes in the workers compensation arena. Agents who recognize these factors and can respond to them will be well positioned to grow their business and hold on to existing customers.
According to Tony Ciofani, executive vice president and chief underwriting officer at PMA Companies, economic and cost factors are creating a push-pull effect on the market. "The workers compensation industry is seeing a dramatic increase in prescription drug costs and, at the same time, a deflating economic impact on results," he explains. "The increase in prescription drug costs, led by spending on opioids and other narcotics, has driven and will continue to drive medical costs higher, while continued low payroll growth and historically low interest yields will stunt premium growth and limit investment income."
Marshall Kornblatt, executive vice president of insurance operations at GUARD Insurance Group, a Berkshire Hathaway company, adds, "An industry performing at a 115% or 117% combined ratio cannot be sustained. Compounding the problem is an investment environment that is far from lucrative and far from stable. These factors create pressure to return to an underwriting profit model featuring more restrictive underwriting acceptability criteria, a narrowing of appetite, and less use of aggressive pricing tools like 'preferred carriers' and credits."
The changes in the workers comp market are not across the board, according to Geoff Pratt, CPCU, ARM, ARP, director of workers compensation at NSM Insurance Group. "A lot of people say the market is hardening," he remarks. "A term we use in our office to describe it is 'schizophrenic.' Yes, the marketplace is changing, but it's very spotty." He notes that certain classes—transportation, for example—are seeing what he calls "a definite hardening and contracting of the market." In some classes, geography plays a role as well.
Actions by the National Council on Compensation Insurance (NCCI) will affect the market in the coming years, according to Todd Kurz, marketing specialist with MidAtlantic Insurance Services, a wholesaler that operates in 38 states. "NCCI is making a change to its experience rating plan, and it is increasing the split point between primary and excess losses from $5,000 to $15,000 over the next three years," he explains. "The split point will jump to $10,000 in 2013, $13,500 in 2014, and to $15,000 in 2015."
Kurz notes that the shift could have a major effect on the experience modification factors for a number of employers. "Thousands of businesses can expect potentially significant increases in their workers compensation premiums if they have had multiple losses in excess of $5,000," he comments.
As the market evolves, retail agents and brokers can help their clients navigate the changes. But they may need to shift their approach. Enhanced interaction with clients is a good first step. "This challenging market will require agents to engage in constant communication with clients, particularly those who have seen significant price decreases over the last several years due to payroll declines from a lagging economy and a very soft insurance cycle," explains Kornblatt. "Agents will need to prepare their clients for the likelihood of higher prices."
"As the effects of increased prescription drug costs and a prolonged economic downturn play out, agents and brokers need to educate their clients on underlying cost drivers and the impact of the economy," Ciofani says. "This market provides an ideal opportunity for agents and brokers to strengthen client relationships—and retention—by demonstrating their value and expertise."
Communication with carriers and MGAs also is important. "In a difficult market—and especially when they're dealing with difficult classes—agents and brokers need to keep up with all of the changes taking place," Pratt notes. "As an MGA, I probably talk to 25 to 30 agents a day on the phone. Many times, the conversation starts with a specific risk issue and evolves into the broader state of the market. Their clients are hearing from other agents, so they need to be up to date on what's going on with their markets."
Enhanced communication can help drive greater retention. "It's not enough to just call a client two or three months before renewal," Pratt points out. "Agents and brokers need to stay in touch and keep insureds apprised of what's going on in the marketplace. If there's big news in a particular state, or if a certain class is seeing unusually large price increases or market shifts, that's something a client needs to know well in advance of renewal time."
Ciofani concurs. "Agents and brokers should do their absolute best to avoid surprising their clients," he asserts. "We receive a significant number of new business opportunities each year because the incumbent carrier was late with a renewal quotation or because the broker and client were not prepared for the significant price or program adjustments requested.
"Sound communication is critical throughout the year," he adds. "The client's loss experience should be discussed, along with any possible price and program changes, well ahead of the renewal deadline. This sounds pretty basic, but we have seen, time and time again in this industry, how a renewal can be jeopardized with inadequate communication and poor timing."
A prospective look at the account can help reduce the element of surprise. "Agents and brokers should be projecting their clients' upcoming experience mod, and should review their NCCI Mod Worksheet for accuracy," Kurz advises. "Show the client the impact that each loss is having on his mod and premium."
A consultative approach can help set an agent or broker apart, notes Dave Simmons, vice president of regional sales at GUARD Insurance Group. "If you are not bringing value beyond delivering a proposal, your business is at risk," he explains. "If you are educating clients, informing them about the insurance marketplace, and making recommendations to improve their results—in terms of both insurance cost and workplace safety—you are likely to be considered an asset."
He also encourages agents and brokers to talk about carrier strength and stability. "Discuss why you recommend one carrier over another," he says. "Address the importance of financial stability and ratings from respected rating organizations, as well as consistency in writing policies in both hard and soft market cycles. This will help you create an environment where clients are less swayed by lower-priced competitors with less attractive financials."
An effective way to retain clients is to help them reduce losses and improve safety. "Without a doubt, agents and brokers should guide their clients to focus on the total cost of risk," Ciofani asserts. "Remember, premium is just one component." He says agents and brokers should consider how they can partner with clients and insurance carriers to craft solutions that will prevent and mitigate losses.
He encourages asking—and answering—specific questions, including: What loss drivers have been identified? What tailored risk prevention plans can be deployed? If a claim occurs, how can the loss be mitigated? Are modified return-to-work positions available? "In short," Ciofani says, "a total-cost-of-risk approach includes working with a client and the carrier to maximize workforce productivity by maintaining a safe and healthy work environment."
When accounts perform poorly, Simmons remarks, agents and brokers should review the performance and work closely with clients to reduce future losses. "For instance, with larger risks, agents need to make sure the policyholder has a drug testing program in place," he explains. "They also should use stringent hiring practices, have a defined and active safety program, and use the carrier's loss control services."
Pratt concurs. "To keep costs down, agents and brokers should encourage their customers to take advantage of any and all loss control elements offered by the carrier," he says. "Make use of everything—from surveys to lock-out tag-out training to other loss control services. Not only does this help the client, but it also builds a stronger client-carrier relationship, which can help with retention. Clients who get more value are less likely to switch."
According to Kurz, "Agents should review their clients' loss history and identify those clients whose mod will be negatively impacted by the upcoming NCCI changes. They should meet with the client and review all open claims in an effort to close the claims prior to the next mod promulgation." He notes that clients with good experience can actually lower their mod because of an increase in the discount ratio.
Agents and brokers can also help when claims happen. "Fast reporting has proved to produce better claims results," Simmons observes. "Return to work is also a critical component in helping reduce ultimate claims costs. That needs to be supported. Policyholders that provide light-duty options for injured workers have significantly better outcomes than those who don't."
Attracting new accounts
Some of the approaches that help agents retain business can also help them find new customers. "Attracting new business, again, involves keeping on top of what's going on in the marketplace," Pratt says. "For example, if you find a niche that is having some problems, use your market knowledge to find a solution."
Such knowledge can help agents and brokers identify sectors where strong non-comp programs exist. "For instance, there's a large national carrier that writes social service organizations, but doesn't offer comp," he explains. "That's a tough comp market. Carriers aren't particularly fond of it; they don't want to get into it, and some are actually getting out. Finding a solution for social service workers can yield good results. If you've been a generalist producer your entire career, find niches where there are difficulties and target them with a solution."
Kornblatt agrees. "Given anticipated workers comp premium increases, gaining a reputation for being a specialist can only help," he comments. "The same goes for classes of business. Focus on a few, and target geographic areas that have concentrations. Then develop relationships with prospects.
"Be sure to educate clients about the impact of experience mods," he adds, "using one of the available software applications to actually show clients the effect of a reduced mod on their premium. This can be very effective." Adds Kurz: "Explain upcoming NCCI changes to your prospects and offer to review their loss runs and experience mod worksheet."
Agents and brokers should try to build on success. "Ask for referrals," says Kornblatt. "If you have satisfied clients, ask them to point you to others you could serve. Get testimonials and use them in advertisements and on social media. Nothing is more powerful than a prospect realizing that a business associate, friend or competitor uses an agency and likes the sales and service."
Kurz advises agents and brokers to "never sell workers comp on price only. Emphasize the importance of having a carrier that offers aggressive claims management and proactive loss control services."
As Ciofani puts it: "One person's challenge is another's opportunity. Significant turmoil continues not only in the workers compensation arena, but also in the P&C industry as a whole. While prices are rising overall, absolute pricing and pricing methodology differ from carrier to carrier. What's more, mergers, organizational changes and restructuring have affected some industry players, impeding their ability to effectively serve clients.
"Many brokers and agents are well versed in identifying these challenges," he remarks, "and they are prepared to recommend the right solution and carrier partner for their clients. The most successful ones are able to present clients the total cost of risk—the big picture, if you will—so they fully understand the overall cost and loss drivers."