Brokers: Choosing Your Competitive Ground

Believe it or not, you choose your competition and playing field. You choose to compete in a specific field and with specific players. If you choose a field better known to others than yourself, you will be playing at a marked disadvantage. If you redefine the field, you naturally redefine your competition. If you allow your competition to define the field, then your only option is to play by their rules.

If you want to feel good about your golf game and enjoy the challenges thereof, I suggest you avoid playing against Tiger Woods. You are certain to become frustrated. Unfortunately, this is what most business people do every day and, as if that were not bad enough, they wager their business on the outcome. Is this not insanity? The “insurance game” is no different. Given the choice, you can play at home or away (home is always preferred), by your rules or theirs.

Insurance has two diametrically opposed distribution techniques. To the extreme left are “commodities” and the extreme right are “relationships”. Commodities have taken on an apocalyptic persona by way of the new competition of which we are so aware. The shadow cast by these giant diversified companies upon our playing field is actually their weakness and not their strength. Their justification is to increase the bottom-line. To them, the client is nothing more than a dollar sign. They are experts at changing the rules to benefit themselves and their strengths. They believe they can force us to their game, on their field. We must find our “unique value”, apply it to our game and play on without them.

Keeping definition

The new comers that we are talking about are, of course, the large financial players. They are not a charity, have no hidden agenda and are not God’s gift to the consumer. Neither are they His revenge on us. We are no less than and, I prefer to think better, at this game than they are. After all, we have the “home court” advantage.

Why have we allowed these new comers to redefine our business to their end? How does this dovetail with the p&c insurers looking to the Internet and direct writing as alternative distribution networks? Because of need. They need business to stay in business and they are not willing to bet the bank (excuse the pun) on our ability to compete. If we are unable to give them what they need, they will find some other way to get it. That is our real problem. The small “relationship broker” is best suited to fill this need but because of size and lack of critical mass he does not measure up to the task.

Now, let us take a closer look at these competitors. Think about this, “the side with the biggest cannon does not necessarily win the war”. Strength is not just powder and shells, but food for the troops. A side of beef can be as important to the outcome of the war as a cannon. These newcomers to our shore have huge infrastructures with enormous appetites. This infrastructure requires them to transact business in a manner known to them and their branding. Redefinition of the playing field is not an option for them but a necessity. To be successful, they must redefine our marketplace to fit their field and rules. They are commodities oriented and must therefore reduce the insurance distribution system to be that of commodities which means that they must remove the relationship factor. Their success is their ability to make us play their game, in their field and by their rules. Remember, loss is a four letter word. To players who are only profit oriented, it sticks in their throats like a bitter pill. A pill their stockholders will not readily swallow. Loss is their enemy, of this you can be certain, and they will not court it for long.

Keeping a unique path

Let us talk now of this friend of ours, loss. Loss is their Achilles’ heel. Insurers are to the left of center and by themselves can more easily see commodities than relationships. Naturally then, any solution that presents itself quickly to them will be commodities based. Insurers develop their personality passively due to their playing field. Therefore, the playing field is what builds their infrastructure. They are wholesalers by nature, not retailers. Like the others, they are what they are. The broker has been their right-hand relationship builder of choice and will continue in that role but not if forced to play in their field. The problem here is that the presence of new competition is slowly but surely pushing us left. The consolidators are evidence of this. This left field requires a very specific, predefined manner of doing business. This is not our field of choice and we can not win there. To be successful, the broker must avoid this field at all cost. Left to their own, insurers will take our future into their hands and seek out a distribution channel appearing more suited to their needs. The future is ours to write or others to write for us.

Being right

As discussed earlier, insurers are commodity-based. They are not on the street and their infrastructure is not street friendly. A broker smoothes the path between insurer and client to bring both together on common ground. Unchecked, the “new boys” will change the insurance business to commodity-based. That is their playing field and the only place they can be successful.

How do we keep our business relationship-based? Firstly, a client will never leave you. You must push them out. The direct writers do this to brokers by pushing the price button. When closely examined, pricing by itself is most often not the issue. The relative price is what is important to every client. What everyone else is paying is far more important than what he is paying. This is most evident remembering when gas was 50 a liter and we thought that was high. Now, if you found gas at that price, you would think you had died and gone to heaven.

Actually, making the product price sensitive is good news. If all you have to offer is price, it can only come from one of two places, claims or expense. It is far easier for a good broker to take twenty points off the claims piece than it is for our competition to take twenty points off the expense side.

Being right is the right place to be. It is also right to be relationship-based. Our success will be measured by our ability to make the playing field as uncomfortable as possible for the competition. If we take away their food, they can no longer put up a fight no matter how big their guns. We make the choice. We must either provide unique value or play a game that we cannot win. cu

By Brian Thompson, president of SurNet Insurance Group Inc.