“Us” Versus “Them”

I stood at the entrance to our company’s boardroom, shaking hands and exchanging goodbye greetings with our select group of brokers as they filed out. Beside me, my boss Fred Wilson was doing the same. Today had been one of the regular meetings of our Broker Liaison Group, and it had not gone particularly smoothly. In fact, quite a bit of the dialogue between ourselves and our brokers over the past six hours had lived up to the informal description of the BLG as “bitching, lying and gloom” sessions.

I knew part of the reason for this was our company’s worsening results over the past six months. This in turn had brought some changes to our marketing strategy, particularly in the commercial lines’ area. As well, there had been a small shakeup within our underwriting department, with some role-switching by our senior underwriters. Overall, the situation had apparently created some friction among our independent brokers.

Our company took the concept of a Broker Liaison Group seriously and we unfailingly brought a select group of our leading brokers into head office for a full day of open debate and a free exchange of ideas and initiatives. However,

today there had been some grumpy exchanges over our new marketing strategy, our pricing, and our service deliverables. As the manager of our downtown branch, Fred had been in the thick of much of the action, and he was looking a little fatigued as we said our farewells. My role as the company’s senior marketing representative was largely a supporting one to senior management, but I knew most of our BLG brokers on a first name basis. I was well aware of their strengths and weaknesses.

Just then, a broad arm slipped around my shoulders. A quiet voice said: “Dave, you and Fred look like you need a stiff drink. Why don’t you join Al, Harry and I?” Beside me stood Bob Davies, co-owner of a successful midtown brokerage. He was flanked by Harry, whose suburban brokerage gave our company a good mix of commercial and personal business, and Al, who ran a highly efficient and fully automated office in a town of 75,000 people that is located an hour and a half outside the city.

I looked over to my boss and raised my eyebrows. In response, he gently jerked his head towards the exit. Grateful for the opportunity, I grabbed my coat and joined them as they headed for the elevator. Fifteen minutes later, we were comfortably seated around a table in a local steak house, sipping our drinks.

“Bit of a rough day for you two, eh?” Bob Davies said. “Oh well, you can always put it down to experience.”

That brought a grunt from my boss Fred. “We certainly will, my friend. But you know what they say about experience, don’t you? It’s what allows us to recognize our mistakes when we make them all over again!”

Harry chuckled and leaned forward. “You know, I think the BLG meeting got off on the wrong foot, first thing, over that issue of renewal pricing versus new business pricing on commercial lines. Your company’s not the worst offender; still, some of our commercial clients who were renewing got a hold-the-line price, but new customers for the same class of business got a lower price offer.”

My boss opened his mouth to respond, but broker Al jumped in ahead of him. “I think there must be a company rationale that says: ‘Look, we’re betting that existing Client A won’t want to go through the inconvenience and expense of moving his account, so we can safely lever him up by five or ten points.’ Is that what happens?”

Fred Wilson sighed. “It’s a little more complicated than that. Insurance companies like ours base a portion of their actuarial pricing on the performance of their existing book of business. So the ‘technical price’ derived for the various industry codes will have already taken the average of the premiums and losses for the risks therein. Therefore, the higher-priced renewal business within the book is always going to be higher than new business with the same exposure.”

Bob Davies raised his hand. “I know what you’re saying, but wouldn’t it be nice if companies took to offering loyalty-type discounts to commercial clients renewing, as some of you do, in the personal lines’ business?” He swirled the ice cubes in his glass as he looked around at us. “Isn’t it a bit like those cell phone companies that offer huge discounts to users who switch to them from another provider, but who never offer the same deep discounts to their long-term customers?”

“Hold on,” I said quickly. “To make that work we’d pretty well have to re-rate our total portfolio of commercial business every year, and that’s just not practical or realistic for most mid- to high-end commercial.”

Fred Wilson gave me a quick smile. “Good point, Dave. And let me throw in another factor here. At the company side, our actuarial pricing incorporates the expense ratio of our existing commercial portfolio for trending purposes. Price increases on this book of business shrinks that expense ratio, and that can produce improved actuarial pricing. In other words, therefore, new commercial lines’ business may become ‘cheaper’ as your existing portfolio gets to be more expense-thrifty and thus more profitable.”

The waiter arrived at this point with salads we had ordered in advance of our steak dinners. As we began to eat, Harry offered another thought: “What about the question of commercial lines’ accounts with a claims history? Heck, you may recall I lost a couple of those, which your company underwrote, to very aggressive competition. Did that company know something you guys didn’t?”

Fred shook his head. “Remember, it’s pretty certain that commercial lines’ accounts with a claims record have been hit with a rate increase during their time with a company. But over that period – and if the company’s tech people were doing their job — these accounts might well have cleaned up their act, reducing the possibility of future claims. The company on the risk may well have thrown in a small rate reduction for this. However, an aggressive insurer looking to build up his volume reasons that it hasn’t had to pay any of these losses; they look on this account as an attractive addition to its portfolio, and thus go after it with deep discount pricing.”

It was broker Al who spoke next. “Well, I hate to turn this nice dinner into another gripe session, but I get awfully tired of company underwriters who really don’t understand the business they’re preparing quotes for.” He pushed his salad bowl aside. “As professional brokers we’re supposed to know our way around all the manuals and all the rules churned out by the companies we represent. But it seems to me that more and more, nowadays, if we run into problems on a risk and call the company, we’re likely to wind up speaking to some underwriter who not only doesn’t know that particular line of business very well but has zero authority!”

Since I could see that my boss had his mouth full of salad, I turned to Al. “Sure, it can happen, but I’ve also heard the other side of the story from our underwriting staff. Brokers who don’t really understand the commercial lines’ account they own and get all shirty when our underwriters fire some appropriate but pointed questions at them.”

That brought a chuckle from Bob Davies. “I think today’s Broker Liaison Group session got you nicely sharpened up, Dave! But, you know, this whole question of good, effective communication between us and the company underwriting departments is key to us both doing our job well. It really bothers me that some insurers have actively discouraged particular underwriters from dealing with specific brokers. Instead, they’ve set up a system whereby brokers who call in are randomly assigned to underwriters on a rotational basis. The broker has no rapport with the underwriter and the reverse is equally true. In my view, that’s totally counter-productive.”

There was a short silence around our table. Then Harry spoke quietly: “I sometimes wonder if the Lloyd’s people didn’t get it right years ago. As you know, they put their under writers through a long and tough training. But once they prove themselves, they stay in their same positions. They get to know the people they deal with every day – day in and day out, week after week – as well as their strengths and their weaknesses too. These career underwriters stay in their positions and are well paid for their value to the company.”

Fred Wilson nodded, then added a thought of his own. “Well, now that we’re getting it all out in the open, let me tell you something that always irked me when I served my time in underwriting. When we asked a broker to send forward some up-dated information on a mid-size account, we ran into resistance. He’d say: ‘Why d’you need this?’ or ‘What’s the point?’ And at the company end we’d have to point out to that broker that the piece of business in question had been on our books for 25 years, and it was overdue to be updated!”

We all joined in a good-natured laugh at that. The arrival of our steaks brought a short silence to our table. But Harry chimed in just as we took our first bites of the meat: “Hey you guys, there’s another side to this story! I got a call just last week from a company–“

He glanced quickly at Fred and I.

“Not your company, I’m happy to say. But they were asking me to provide them with renewal information they should have had on their files for the past eight years! When I pointed this out to the underwriter, he got all hostile and said something like: ‘You can never have too much information on any risk.'”

Bob Davies took a bite of his steak, then spoke up. “For my part, I’ll never fully understand why an insurance company can somehow completely disregard the competitive forces at work in our marketplace and will refuse to budge on the renewal quote for a very attractive piece of commercial lines’ business. As a broker, I’ve sometimes gone hoarse trying to convince a senior underwriter or a manager that his company is going to lose a first-class account unless they show some pricing flexibility. But they don’t move, and away flies a choice account.”

Before Fred could reply, I couldn’t resist firing back: “Bob, I’ve heard this story in different forms over the years. Remember, I served in underwriting before I went out on the road. And I wish I had a dollar for every time I had brokers come back at me on a renewal demanding major rate cuts because ‘the competition is fearsome’ or, ‘we’re definitely going to lose this account unless you cut your rate’.”

Harry opened his mouth to speak, but I carried on. “And we used to hate it when some brokers wouldn’t give us the opportunity of reviewing the price-line on a choice piece of business, but would simply move it to a competitor – then tell us after the fact.”

Harry nodded and waved his steak knife in the air. “Okay, I’ll grant you, it does happen. And sometimes it happens for the wrong reason – like the broker is looking to build a relationship with a new company he’s acquired. So he pushes that choice piece of business over to that new company at the expense of the incumbent insurer because he’s already got a comfortable volume with them.”

He took a quick drink of water, then continued. “But let me toss the ball back into your court. As a broker, it’s getting damn near impossible to keep track of the constant changes in our companies’ marketing strategies and their different appetites for business. Just when we’re getting comfortable with a company’s appetite for certain classes — they change it ‘because of market pressure and changing conditions’. A whole new plan is announced. They don’t want as much of that class of business any more, or they’ve decided to go after a tiny niche segment of that market. Sometimes companies arbitrarily change the rating on certain risks because they’ve decided that they can’t make money on this class of business. But the rating is now so out of whack with the rest of the market that you’re suddenly not competitive any more.”

The waiter arrived at our table with a pot of coffee. After we each had a cup in front of us, my boss spoke out. “Well, we’ve aired a lot of the problems we have in common, and there’s still a lot of ground we haven’t covered.”

He looked around at our broker friends and favoured them with a sly grin. “We haven’t even touched on the problems we face in getting you brokers up to speed on our updated computer systems, on making you warm up to the concept of web-enabled business, or on the serious heartburn you give us when you decide to submit a complex piece of new commercial business for renewal a couple of days before the policy expires.”

Bob Davies set down his coffee cup and patted my boss’s arm. “Well, I agree not to bring those skeletons out of the closet. We won’t even mention the problems we face in having to master yet another wrinkle in your computer system, with new rules for downloads and uploads. Or those fantastic new marketing programs that are cooked up by your people without any input from the folk who’ll have to make it work – like us. And of course we won’t mention companies increasing claims reserves at the end of December, so it puts a potentially large dent in our contingent profit commissions —“

As if on a signal, we all held up our arms in unison and a sudden silence fell on our table.

Then Bob Davies began to chuckle. “What a bunch we are,” he said. “We spend the whole day in your company boardroom, arguing about all the problems we face in this business of ours. Then we come here to relax, and what do we do? We spent another couple of hours talking about this business and all the problems we give each other!” ll nodded. Then Fred Wilson looked around and smiled quickly. “Right,” he said briskly. “Brand new topic. What’s wrong with our hockey team?”