What emerging opportunities can wholesalers take advantage of in 2011?
John Eltham: First, as a wholesaler our objective is to help our clients win and retain business. The continuing soft market requires a sharpened focus on the strength of existing relationships and increased alignment with our broker clients’ own target business. Providing those brokers with increased service efficiency contributes to their competitiveness. We therefore continue to invest in proprietary systems that reduce costs and make their business more appealing to underwriters.
Secondly, it is fair to say that opportunities typically arise when change occurs. We innovate products to expand the options our clients can offer risk managers, enabling them to deal with changing business practices.
Finally, the intermediary landscape is significantly changing with merger activity and consolidation of distribution, which is itself creating opportunities.
Glenn Clark: Program managers will seek to take maximum advantage of three factors:
1. What can be cross sold via the distribution networks we already have established?
2. Are there companion products or services that can be marketed to the clients we already service?
3. What changes in the marketplace lend themselves to new products?
New regulations often lead to uncertainty. The program market responds to uncertainty with unique products and solutions. Examples include HIPAA compliance, new healthcare legislation and green businesses/emerging technologies.
Greg Thompson: I expect the soft market to continue and I believe that the best opportunity is to get new programs done. Carriers will seek opportunities for new business and therefore will be more willing to consider approving new programs.
Also, as the soft market continues to erode wholesaler profits, the stronger and more financially stable wholesalers will be in a position to acquire wholesalers that are struggling.
Is the standard insurance market still absorbing the wholesaler business?
Clark: I don’t think that is the case at all. This is the kind of like the Mark Twain obituary when he was still very much alive: “Reports of my death have been greatly exaggerated.” The programs market consistently changes to react to new situations. While it is true that many coverages that were once considered exotic have moved to the admitted marketplace, new opportunities constantly are emerging. At the recent TMPAA meeting in Scottsdale, there were many new program managers pitching ideas to potential markets. There always will be room for innovation and new ideas.
Eltham: The simple answer is “Yes.” The U.S. domestic market continues to compete fiercely and admitted carriers continue to expand their writings into areas that have traditionally been considered excess and surplus lines territory. This is not unusual practice when the underwriting cycle is soft and will probably reverse as market conditions tighten.
Thompson: As is always the case in a soft market, standard carriers are entering the E&S and specialty marketplace to try and grow premiums. Their success varies depending on how aggressive they are willing to be and how effective they are at customizing their product for the market in question. One of the biggest advantages they have is the ability to offer retail agents higher compensation (commissions, profit sharing contingencies, etc). In addition, some agents prefer to work directly with the carrier as opposed to a wholesaler.
Those program administrators that are having success holding off standard market competition typically do so due to long-standing expertise and credibility in their industry niche.
What has your business done to cut expenses during the recession?
Thompson: We have taken a number of measures. We laid off 10 percent of our staff in November 2008 in anticipation of the imminent economic downturn. In addition, we have reviewed our expenses companywide. For example, we save money by the increased use of PDF policies as opposed to print documents, and converted from print media and direct mail to web-based advertising.
Eltham: We have improved systems and looked very closely at the type of business we are handling. Maintaining a strict discipline around business accepted means resources remain focused. There has been some business that does not fit our model and we have delicately pruned that back in close cooperation with our clients. Generally, we are doing more business with our existing clients, which is proving to be more cost effective for all parties.
Clark: Our business has had to cut back on travel, do some creative training (webinars), have the employees share in the health insurance increased costs and work some longer hours. Our compensation model is one that the employee shares in their own production. In an era of declining insurance premiums we find our production underwriters must work harder to preserve every renewal, and also maintaining their prospecting and new business disciplines. This can make for some extra time in the office to maintain and gain clients. We make a point of sharing our internal MIS so everyone is aware of how the business makes money. An excellent producer can still prosper in difficult times. Unfortunately, an average producer will have to change behaviors to progress.
Have you shifted your business strategy to accommodate economic changes?
Eltham: Our recent strategy has been to take a counter cyclical approach and actually invest in new people. In particular, we have been able to increase our reinsurance and UK retail business through investment in like-minded professionals seeking options for their clients in the wake of merger activity.
The U.S. is an important market for Miller and by growing our business in other markets, we have demonstrated to our U.S. clients that we are not only maintaining a very stable platform for them, but also continuing to strengthen it. Our financial stability has encouraged a number of clients to entrust us with more of their business as some or our competitors wobble financially or succumb to sale.
Thompson: We have tried to expand our products and advertising budget in the medical field, which has only been minimally impacted by the recession. We have reduced marketing expenditures on programs like tanning salons, many of which have closed due to the recession.
Clark: We have on a number of different fronts. On the existing accounts, we have installed much more renewal preservation activity. On the growth side we have employed a number of different strategies to help us grow.
1. Acquisition: This is a good time to buy agencies or books of business that may not be as equipped to survive this prolonged soft market.
2. Joint venture: The carrier has capital, product, expertise and claims while the agency is licensed, nimble, has the systems and access to smaller markets. It has proved effective for both.
3. Expense control.
4. Focus on the smaller premium accounts. These are under much less competitive pressure. The larger the account, the more competition there is for the renewal.
5. New products: We’re launching a new agency aimed at an underserved business segment. For an agent/agency you still have to have fun. There is nothing more fun than creating a new program or product.
What is your main objective for 2011 in terms of business goals?
Eltham: Our objective is always to trade profitably while providing our clients with first class and differentiated service. This means a commitment to employing and retaining talented people who provide the necessary experience and knowledge to help our clients win business.
Being privately owned, Miller can take a long-term strategic view in terms of future growth. We are analyzing trends to identify the next opportunities that will fit our longer-term growth plans.
Clark: Our main goal is to pay our bills and maintain the positions of the staff that built us. There is double-digit unemployment in the U.S. and we have yet to lay off an employee. We are committed to those who are committed to us. There are many partnerships in an agency such as carriers, insureds, etc. None is more important that the partnership with your staff. We’d like our new agency to be a success and we want to make our carrier partners lots of profit by writing good business together. We think we can grow even in the tough times.
Thompson: Our goal in 2011 us to remain competitive in a difficult marketplace by being aggressive on our profitable business and raising pricing and underwriting standards on unprofitable accounts. We also have initiatives on place to update and improve our coverages without imperiling our markets. In addition, a major goal for us is to make it easier for our customers to do business with us via reduced submission requirements and improved automation.
Are you tapping into the web and social media to seek new customers?
Thompson: As mentioned earlier, we have gone from paper and published media advertising to virtual marketing. Although we use e-blasts and virtual marketplace providers like programbusiness.com, we have only just begun to get our arms around tools like search engine optimization (SEO) and social media. Toward this end we have a new director of marketplace whose mission is to expand our presence in the insurance world, primarily through virtual media.
Eltham: We utilize technology extensively, but in a focused way, targeted toward our client base and underwriting markets.
Clark: We are totally active on the web. Our team is active data base marketers, e-marketers and provides a host of web-based tools to our distribution partners. We have not found the social media to match the hype when it comes to our business. Our team knows that social media has potential and we do not dismiss its ability to become a marketing tool, we just don’t have it figured out yet. Anyone reading this article who has figured it out, give me a call on my secret hot line and we’ll start a new business together.