National Underwriter - November 7, 2011

THE INDEPENDENT AGENT
LIBERTY MUTUAL

DIETZEL: We call it a hypocritical market, and what I mean by that is when there is new business on the street, there is still a tendency among carriers to throw out rational price models. So we’re still seeing some significant reductions—though there are fewer examples of this than there were a year ago.

For existing business, those accounts that have had losses are absorbing rate increases. Those accounts that are clean are not getting more than 5 percent deductions.

so dependent on the rate premiums.

E ROUSSEAU: With rates for new business being so attractive, how do you prevent accounts being “poached” by new brokers who say they can get a client a better deal on premiums?

COLLINS: Our account retention has been 96 percent, historically. So fortunately, the majority of our biggest clients have been with us for a long time—they’ve gone through other soft markets with us. They have grown up with us. So they are not as susceptible to being [enticed] by another broker who calls and says I can take 25 percent out of your premium—which is true, they can do that.

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E BRYANT ROUSSEAU: Let’s start with a nice, gloomy question. What are your biggest worries in terms of emerging trends with the potential to have a seriously negative impact on independent commercial agencies? What keeps you up at night? What is the existential threat lurking out there?

GREG COLLINS: I completely agree with Bob on the hypocritical part.

Every carrier is still looking to expand market share, and in order to differentiate yourself today, you still have to be competitive on price for a piece of new business. We know the carriers are talking more about trying to hold the line on some of the renewals, but we are still seeing on average a 5 percent decline.

So from the rate standpoint, it still remains a very difficult market. We expect to counter that [with an approach] where

E ROUSSEAU: In these tough, extremely competitive times, what are the biggest advantages of being an independent broker versus a large, publicly traded one?

ROBERT DIETZEL: My biggest fear is a sudden change in the marketplace. I’ve been through one—a sudden hardening. The myth out there is that insurance brokers make more money when the market gets hard. But when you are focusing on accounts of our size and the transparency of revenue, you are working a lot harder for less, honestly. And do my employees have the capacity—not only the time, but the energy—to deal with a sudden change in the marketplace? The impact of a real hard market on the capacity of my folks’ ability to add value is scary to me.

COLLINS: It is a great time to be an independent broker. We don’t have to meet the requirements that a publicly traded company does, which gives us an advantage. We can look into the future, settle for lower margins and make investments in our company [without the pressure of quarterly earnings reports]. There is going to be a lot of dislocation in this business, and we’re going to see more opportunities for really good people to come the way of the independent broker.

E ROUSSEAU: The fear of a sudden hardening— the perfect segue to my next question. Where is the market right now in terms of pricing? Have we hit bottom? Is it starting to harden?

E NON-COMMISSIONED OFFICERS: Digital subscribers, click Play to watch Greg Collins discuss how his firm’s salary-only approach to compensating producers helps foster teamwork—and how he manages to lure top performers from commission-based brokers.

the fee for services is primarily what the compensation structure is, so as not to be

DIETZEL: Small has served us well in this market. As you said, Greg, the larger brokers are trying to manage their margins. There is a lot of consolidation going on out there. Some agencies have actually changed their names four times in the last five years. I just want to be able to be their business-card printer. This [turbulence] is good for a very stable agency like ours.

Also, we can make longer-term decisions because we are in control of our own companies. We can take advantage of some of the market changes that maybe a