What producers want: few agencies contract with only one or two carriers. A recent survey sheds light on the reasons for this practice and on how carriers can gain an advantage over competitors.

Insurance companies often say they want to make it easy for agents and brokers to do business with them, but a report released in November 2003 by Celent Communications found that the vast majority of carriers don't give independent producers the right suite of products, services and technology to meet their needs.

The Boston-based consulting firm found that despite insurers spending lots of energy and money, most independent producers have relatively few favorite carriers. Instead, they spread their new business across three carriers of more. Some 61% of survey respondents said they were appointed to six or more carriers, and Best's Review interviews with agencies revealed that some use 15 carriers of more.

Differentiating themselves among independent producers has long been a goal of insurers, but achievement has been elusive. "The difficulty is in the complexity and the breadth of products and services," said Craig Weber, who authored the report," Independent Producer Survey: Technology, Services & Other Drivers of Carrier Choice." "Carriers are trying to cover a lot of market and distribution channels, all with different needs. The problem is identifying those needs. There are competing demands, and you have to prioritize carefully," Weber said.

Policy application status, for example, is very important to producers, but providing it requires access to data that may reside on many different company systems that have evolved over the years, Weber said. "Insurers are getting better at understanding what their channels want, and it's clearly a priority, but with competition for information-technology dollars and time, it's difficult for them to focus on one channel over others."

The report identifies underwriting speed as a high priority. It ranked second in importance to life producers, behind product pricing, and third in importance to property/casualty producers, behind product pricing and product features. But as Weber pointed out, speed is tied to fewer life underwriting requirements, and less underwriting means insurers must price higher to allow for the mortality differences.

"Most carriers I speak with admit they could be doing more, which is why carriers were quite interested in the report," Weber said. "Distribution is the industry's 800-pound gorilla." The Celent report suggested that carriers offering the right mix of products and services "can make loyal partners out of their independent producers, while those that do not will see their independent producers spread their business across multiple carriers."

Coverage Stability

Many agencies express high levels of satisfaction with their carriers despite having contracts with so many. Tom Ahart, president of Ahart, Frinzi & Smith in Phillipsburg, N.J., said that while companies overall offer similar coverages, most cover certain niches and provide different endorsements in their packages. He said his agency, which writes about half commercial and half personal in its mostly property/casualty business, uses up to 15 carriers and can have brokerage agreements with others. The agency has 15 employees and writes about $9 million to $10 million in annual premiums.

Ahart said he notices a big difference in how stable insurers are in their coverages. "Companies that write nationwide have a tendency to get in and out of products," he said." Regional companies have a better idea. They go into niche markets, where they are competitive in their programs, both product- and price-wise. If ratios go south, they'll tweak their coverages. National companies might stop writing the line altogether and cancel the business they had written." Ahart said he favors regionals for those reasons, but added that every agency has to contract with at least one national in order to write coverage on companies that conduct business across the country. Some super-regionals are now able to handle this business, and national insurers are trying to figure out how to deal with them, he added.

Above all, Ahart said he values being able to talk with claims personnel and underwriters "who have the authority to do things," and to build relationships with them. Second, he would not deal with a company that does not offer good information technology, including quotes and underwriting online. Financial stability and high ratings are also important to him, he said.

Ahart's firm buys its own agency-management software system and integrates with carriers. Interoperability is getting better--much better than five or 10 years ago, he said. "The carriers gaining ground are the ones that can mesh agencies' systems with their own," said Ahart." Larger regionals have done a really good job, but it's the hardest for the small regionals."

Stepping In to Help

Eustis Insurance and Benefits, a 58-year-old New Orleans-based agency with annual premiums of $70 million to $80 million, used to do business with 30 carriers. Now it is down to 17, mostly because of mergers in recent years, said Don Beery, vice president and partner. The company writes a wide range of property/casualty insurance, and its benefits group writes life and health. The mix of carriers "usually gets changed for us," said Beery, who added it's best not to drop carriers "because you never know when they'll become a factor and start writing things you have a need for." When a carrier stops writing in southern Louisiana, the agency is often able to keep clients happy through help from its other carriers, Beery said.

"We have outstanding relationships with a few carriers we consider gold," he said. "We're in the top tier of agencies nationally. They think we're important to them. Occasionally, they'll bail you out; they're helpful when you need them to be." Carriers each year demand greater sales volume and better loss ratios, Beery said.

Beery, who started his career in 1969, said he values most the ability to communicate with an insurer in a timely way. He also appreciates the ability to submit applications electronically or through faxes. Eustis worked with contractor Applied Systems to develop its own agency software, and it is among the few agencies that uses scanning. Beery said Eustis soon will be paperless.

Nottingham Insurance and Financial Services, an 87-year-old agency in Hamilton Square, N.J., contracts with 16 insurance carriers. About three-quarters of its business is property/casualty, nearly all commercial lines; the test is financial services and group health. The agency employs 30 people and has about $35 million in revenues, said Jack Blair, agency president.

Many of Nottingham's carrier relationships are long-term, and Blair said any new carriers have to provide a product or program different from what the agency can already offer. Beyond that, Nottingham assesses whether it can meet the growth goals and premium requirements of a new carrier and whether the carrier's products are "heads and shoulders above the rest," The company will change its carrier mix only once every few years, when something dramatic happens in the marketplace, Blair said.

Blair ranks product features as an important part of what insurers provide. They have enabled Iris agency to retain old business and sell new business based on a product's ability to provide coverage, he said. Price has been especially important to commercial buyers during the hard market, he added. But underwriting speed is also an advantage to insurers that can provide it, Blair said. He mentioned proprietary quoting programs that enable same-day service and single-entry data programs as advantages that "create a flow of business" toward a carrier. And on more complex accounts, Blair said he appreciates having a person respond "within the time frames you need."

Nottingham has its own management software and uses software from carriers. In fact, software programs provided by Nottingham's 16 carriers are all different. "The ones that are easiest to use are the ones that get the first look," he said. "They will get the most opportunities." Compatibility with the agency software varies depending on the tasks, and companies are at different levels in the support they provide, Blair said.

Different Needs, Different Carriers

Greg Bailey, whose firm works as an intermediary between independent agents and about 30 life insurers, said that some carriers are very good at marketing, sales concepts and presale support. Others are "fantastic" at certain underwriting niches. Bailey's firm is Financial Brokerage Inc., Omaha, Neb., where he is vice president of marketing.

"There are also some very good at cheap term insurance, but by and large, they are not good at bigger permanent insurance sales," he said. "Certain carriers have underwriting turnaround times of as short as a week, while others take two or three months. We take all that into consideration when recommending products and services to producers."

Some insurance carriers will not offer independent producers a contract of their own, Bailey said. Instead, these producers must work through organizations like Financial Brokerage. But some smaller carriers only offer contracts to individuals, Bailey said.

Financial Brokerage's marketing staff is organized to work in one of three product lines: long-term-care insurance, life insurance and annuities. The firm "scrubs" applications to assure they are in good order, scans them, and submits them electronically to carriers that accept them in that form. "Then we do proactive case status and management," Bailey said." Our staff follows up each week on each case."

As part of his job, Nashville-based Bill Wilson talks with many agents and fields thousands of agent questions. He said the Celent study seems to be "right on the money." Wilson is director of the Independent Insurance Agents and Brokers Association's virtual university, which offers online courses and provides an "ask an expert" service.

The report's high rating for product price is no surprise to Wilson, who said pricing is always an issue. Underwriting speed also merits its high ranking. Wilson said speed appears to have increased in personal lines underwriting. "Because the rating is simple, you can do things online," he said. "The result is more timely quotes than in the past." In commercial lines, however, Wilson reported that underwriting has in some cases slowed due to the greater complexities of commercial insurance and lower staffing levels. "Insurance companies, like agencies, are doing more work with fewer people," he said. "The bottleneck is in the staffing and training."

One major plus has been a broad acceptance of e-mail, which has alleviated a problem some agents and brokers have experienced in trying to reach carriers' professionals. "Underwriters are more responsive to e-mails than to phone messages," Wilson said. "At first, it might have been the novelty, but now, even after several years of using e-mail, independent agents and brokers are still getting quicker attention."

Today it is common for agencies to use their own software management systems and those of their carriers, said Wilson. "When automation took off in the early 1980s, a lot of the insurance companies were funding it, and the agencies were using these stand-alone systems," he said. When agency management systems came on the scene, agencies integrated them with those of carriers and moved away from autonomous industry systems, he said.

Pricing Instability 

Perhaps the most difficult adaptation agencies must make today is to the pricing instability in the property/casualty industry, Wilson said. "It's hard to explain to insureds why their $50,000 premium is jumping to $85,000, even though it's often because the product was underpriced and they have been enjoying low premiums for years," he said. "A price jumps, then stabilizes, then competition appears and the price plummets. It's just difficult for an agent to explain why the price goes up and down. If you go back 30 or 40 years, consumers didn't look at the industry as they do today. It was more stable then. What really grabs the attention now is that the price can fluctuate so much."

Wilson calls the property/casualty business of the 1960s the "cartel days," when state and regional rating bureaus produced pricing that was consistent industrywide, and competition among insurers was based on service. Wilson said the emergence of the Insurance Services Office had the effect of consolidating the rating bureaus. "Now things are usually price-driven," he said. "Pricing now is better for the consumer, but we have a much more volatile market than in the 1960s."

While survey respondents identified underwriting speed, product features, pricing and new-business and underwriting support as what Celent describes as "drivers of carrier choice," Weber said these may actually be "basic table stakes" for carriers. In other words, a carrier must provide them to be in the running for a producer's business, but they are "by no means enough to win it," Weber said. Items further down the scale, including two that are technology related--support for agency management systems and marketing and sales support--may soon become critical differentiators, he said.

Overall satisfaction with technology is quite high, however. The survey found that 72% of property/casualty respondents and 79% of life/health respondents said they are "very" or "somewhat" satisfied with the technology support provided by their carriers.

Celent invited about 23,000 independent producers, agency principals and customer service representatives to complete a 15-minute survey. A total of 689 in life/health and 914 in property/casualty participated.

Importance of Carrier Choice Drivers

Agents ranked post-sale customer service and policy turnaround time as
the top decision-drivers when choosing a carrier.

                                                      Very     Somewhat
                                                 Important    Important

The carrier's ability to provide my client             73%          24%
service after the sale
Carrier's ability to deliver policies quickly          55%          43%
Commission rates                                       52%          43%
Availability of good Web-based tools provided          53%          42%
by the carrier
The level of marketing and sales support               41%          50%
provided by the carrier
Ability to interact directly with the carrier          46%          35%
through my agency management system
Commission cycle time                                  21%          55%

                                                       Not
                                                 Important    Total

The carrier's ability to provide my client              4%     100%
service after the sale
Carrier's ability to deliver policies quickly           2%     100%
Commission rates                                        5%     100%
Availability of good Web-based tools provided           6%     100%
by the carrier
The level of marketing and sales support                9%     100%
provided by the carrier
Ability to interact directly with the carrier          18%     100%
through my agency management system
Commission cycle time                                  24%     100%

Source: Celent 2003 Independent Producer Survey

Tools Available and How They Are Used

Most agents have a Web site and use an agency management system,
but few use laptops, PDAs or tablet PCs.

                                                    Every
                       Don't    Rarely    Once a      Few    Once a
Technology              Have       Use      Week     Days       Day

Agency Web Site          20%       10%        9%       6%       24%
Agency Management        19%        5%        6%       3%        8%
System
Proprietary Carrier       4%       16%       15%       6%        9%
Web Sites
Cell Phone               12%        4%        7%       1%        5%
Contact Management       32%        8%        7%       4%       13%
Software
Desktop Computer          7%        1%        2%       0%        1%
Document                 32%       10%        8%       5%       15%
Imaging/Scanner
Laptop Computer          49%        7%        4%       3%       10%
Handheld                 69%        2%        4%       1%        5%
Device/PDA
Tablet PC                92%        1%        1%       1%        3%

                       Several
                       Times a
Technology                 Day    Total

Agency Web Site            32%     100%
Agency Management          59%     100%
System
Proprietary Carrier        49%     100%
Web Sites
Cell Phone                 70%     100%
Contact Management         35%     100%
Software
Desktop Computer           89%     100%
Document                   29%     100%
Imaging/Scanner
Laptop Computer            28%     100%
Handheld                   19%     100%
Device/PDA
Tablet PC                   3%     100%

Source: Celent 2003 Independent Producer Survey

Number of
Carrier Appointments

Most agents report they do
Business with six or more carriers.

2 to 5 carriers       33%
6 or more carriers    61%
1 Carrier              2%
Don't Know             4%

Note: Table made from pie chart.

Source: Celent 2003 Independent Producer Survey

Tools Used for New Businesses Data Entry

The majority of agents use agency management
systems for new business data entry.

Carrier's proprietary
electronic application on
local computer                9%
Carrier's proprietary
Web site                     14%
In office software such
as MS Word or Excel           7%
Online aggregator             1%
Agency Management
System                       69%

Note: Table made pie chart.

Source: Celent 2003 Independent Producer Survey