The new deal: times have changed, and agents and brokers have to adapt to a different kind of market and prepare their clients for a new reality. (Special Report: Agents & Brokers).

Not so long ago the insurance business was a buyer's market. Price was everything, coverage was available to just about everyone, and many areas of exposure that are now explicitly excluded from standard contracts (such as terrorist acts) were implicitly covered. We live in that customer-friendly world no longer. In today's rock-hard insurance market, premiums trend skyward, exclusions are the norm, and even the most worthy clients find some types of coverage difficult to find.

"After 9/11, customers were faced with a more complex insurance situation than most had ever confronted before," says David Kaiser, an insurance agent representing American Family in Oconomowoc, Wis. "Customers are now expected to provide insurers with more complete data about themselves and their businesses, but many know little to nothing about the tremendous changes that have occurred in the insurance business, and how those changes effect them. There are lots of coverage gaps out there now, and for the uninformed or uninsured they can be as devastating as landmines. A good broker or agent can guide his customers away from the danger zones by providing them with accurate information about their insurance options and insisting that they fully disclose any information that may have an impact on that."

Tactics for The Times

The tough as nails seller's market is bad news for the insured. The market is ruled by the underwriter's veto, and nowadays underwriters are exercising their veto power more often and for seemingly less reason than ever before. The market currently in effect probably represents a trend, not a phase, most experts claim. Two of the principal factors contributing to it, the profit pummeling effects of the cruel economy and the shockwaves created in the wake of 9/11, lie beyond the control of the insurance industry. Both have proved stubbornly tenacious, portending that insurance may remain on the rocky road it's traveling now for the foreseeable future.

All of this is forcing agents and brokers in the risk business to realign traditional strategies. Practices are gaining currency right now that were rarely seen in the fat and happy '90s. Popular tactics include canvassing aggressively for coverage and pricing alternatives, carefully orienting customers about the current realities of the marketplace, and working more closely with underwriters and other insurance professionals to get deals done. Many insurers are also taking a far greater interest in their customers' day-to-day business operations and practices, counseling them on matters that if left unattended could result in coverage loss down the road.

"In the wake of 9/11, we have become very proactive with problem accounts with poor loss history and high loss and claims ratios," says Kevin Quinley, senior vice president at Medmarc Insurance Group, an insurer in Chantilly, Va., that specializes in casualty coverage. "We sit down with these customers to pinpoint the causes of problems and try to come up with possible solutions before renewal time."

The best agents and brokers broach the issue of high claims with their customers before it becomes a deal killer, Quinley continues. They create lead-time into each transaction so that when problems are identified they can be resolved with action plans, safety and internal security programs, higher deductibles, and other forms of preventive medicine. The idea bottom line, Quinley says, is to fine-tune such procedures so that they mesh more closely with insurers' expectations.

"This is not a high-tech thing. It's a high-touch thing, a people-to-people approach," he continues. "While you're seeing more of this sort of thing in the risk business, it's by no means standard operating procedure for everybody. But with international terrorism now a reality in the U.S., companies are becoming a lot pickier about the risks they are willing to assume. Agents and brokers must always remain cognizant of that fact if they hope to provide their customers with the highest degree of service.

New Uses for Old Strategies

While it is tempting to describe at least some of the routines outlined above as "new" there's really nothing new about them. According to Independent Insurance Agents and Brokers of America president Tom Ahart, the hard market has inspired some brokers and agents to revive common-sense protocols that should have never gone out of fashion in the first place. One is risk auditing, where customers receive a guided tour of the risk situations confronting their home or business.

Another is the practice of accepting much higher liability deductibles on categories of risk where the likelihood of incident and the potential for financial disaster are relatively minimal. This frees up money for heavy investment in more dicey risk categories where catastrophic loss is a genuine possibility.

"Insurers are looking at areas of risk today they never seriously considered before," Ahart says. "Habitational risks are a huge problem right now, especially in situations where the residents don't own the places in which they live. In this case, a person who slips on an icy sidewalk in front of his apartment building and falls on his backside represents a huge exposure. Should the guy decide to sue his landlord, he stands a good chance of winning the case because judges in this country often look favorably on people in his situation. Restaurants, movie theaters, condo associations, and other public places and institutions all face the same level of exposure. Our society has become very litigious, and the court system inadvertently encourages this when it routinely finds in favor of the plaintiff."

In the hard market, insurers are not writing as much of this type of risk as they used to, Ahart continues, forcing agents and brokers to come up with new strategies to reduce exposure. In this case, one practical tactic might be to contract out all snow and ice removal with an agreement that includes a hold harmless clause. Should an accident occur when such an arrangement is in effect, a portion of the financial responsibility would be borne by the contractor or his insurer. In the old days, brokers and agents rarely looked at such situations seriously, but with the arrival of the hard market, many of their customers are insisting that they do so.

"There are other ways that agents and brokers can help their customers cope with the hard market," Ahart adds. "One is to organize them in a captive insurance arrangement, a program in which very homogenous types of risks are grouped together so that the insureds can get better returns and more reinsurance for protection against catastrophic events. The premise behind a captive insurance program is that the group is homogenous and therefore, loss ratios can be predicted with reasonable accuracy. There are many ways to create a program like this based on the number of entities wishing to participate. The program can be set up by brokers dealing specific ally with captive insurance companies or by several traditional insurance companies electing to come together to form a captive and risk-retention group

When in Doubt...

Good communication plays a prominent role, particularly in interactions occurring between underwriters and the agents and brokers who work with them. Underwriters hold the keys to the kingdom in the insurance business, and these days they are pressing for higher customer quality, and deeper coverage restrictions.

They're also getting fussier about industry protocol, claims Robert Howe, managing director for Marsh Inc. in New York.

Some underwriters are reluctant to accept broker-manuscripted forms, Howe says, preferring documents drafted in the lingo of the insurer. This is especially true for property insurance underwriting, which over the past couple of years has become significantly more insistent on the use of standardized policy language.

Like many leaders in the risk industry, Marsh has become proactive in its effort to connect effectively with underwriters to provide clients with better insurance products they want and need.

"One of our strategies for managing for this market has been to enhance client satisfaction through process improvement." adds Marsh Chief Quality Officer, Lloyd Reid. "Beginning about 18 months ago, we began to make a conscious effort to improve the quality of our submissions to the marketplace. This was in response to underwriters' requests that we provide them with more detailed information and more comprehensive loss histories."

In a hard market, insurance is marketed more broadly, Reid continues. Underwriters see more submissions now and have less time to spend on them. Caution is often exercised for the sake of expedence alone. If an individual submission is not complete, the underwriter may put it aside and not refer to it again. These days, the mission and motto of underwriting seems to be "when in doubt, throw it out."

Underwriters have submissions to burn, and if a proposal is not immaculate. it's not uncommon to simply dismiss the offending document and move on to the next.

"We have a very clear understanding of how the underwriting process works, and we do whatever is necessary to ensure that underwriters get back to us," Reid explains. "We've poured a lot of effort into tweaking the quality of our submissions, and so far these efforts have paid off in spades. Many of the underwriters we regularly work with have told us that our recent submissions are the best they've ever seen."

Educating the Masses

An educated consumer is an underwriter's best customer, says Frank Wenger, director of risk management service for R&R Insurance Services Inc., a regional broker exclusively focused on the risk business, home-based in Waukesha, Wis. According to Wenger, the current state of the insurance marketplace has made it incumbent on agents and brokers to make certain their clients are doing the best possible job-in house to control risk.

"We believe the greatest value we can bring to our customers, apart from coverage itself, is to teach them how to he a more attractive prospect for a carrier," he says.

"We educate our customers at length n that topic. We want them to know the underwriting processes involved in separating wheat from chaff, in other words the criteria used to distinguish promising prospects from unacceptable ones. Once we identify the positive characteristics underwriters are looking or, we encourage our clients to put into practice in-house measures that will make them look good. We start by converting top management to our vision, and then we encourage them to implement those procedures down the chain of command. It can be a challenging process but the payoff is well worth the effort."

D. Douglas Graham can be reached at [e-mail].