Last year was mild for losses and relatively good for economic indicators. Forecasts for the New Year are more complex, with rigorous CAT modeling and more aggressive reserving requirements from the rating agencies and even investment income may be experiencing some tightening. This generally leads to increased competition, price pressures and strong resistance among buyers.

Fundamentals such as reinforcing value, negotiation strategies and anticipating resistance are essential for our staffs to maintain financial performance without damaging key relationships in the short run. 

A client recently had me work with them to prepare their teams for price increases. The concern was that new and existing business would fall off and therefore pressure on the staff to give discounts was expected to be high. Here are some things we discussed which I share with you to consider for a more successful year. While this may seem to have application primarily for underwriting and marketing, other departments need to keep these issues in mind as part of the total package you are delivering in this more aggressive environment.

KNOW YOUR COSTS

Fundamental to managing any book of business is a thorough understanding of costs. With reinsurance going up, investment income being tested, and the cost of booking new accounts increasing, your staff needs to be able to put the factors into perspective when they price business, as well as when they are discussing the rationale for their decisions. 

KNOW YOUR VALUE

If buyers consider your product a commodity, they will naturally window shop. The appropriate buying behavior for non-differentiated services is comparing prices. If your product and service package is truly different, you need to be able to articulate that in terms that are meaningful to the client. What sets you apart? Make a list of why folks should do business with you and include these in your discussions with them

RELATE YOUR PROPOSALS TO CLIENT NEEDS

Relating your value to their needs makes all the difference. A buyer will change their relationship based on 3 things; dissatisfaction with service, perceived cost benefit improvements elsewhere, and new needs not being addressed by the current provider. Determine the buyers’ needs and position your offering in terms of meeting those needs. This will decrease price pressure – no, it will not go away completely, but you have a better chance by focusing on needs and value. For existing clients reinforcing what you are already doing to meet their needs will help keep new carriers away from the door. Make sure you are delivering on your value promises!

BLATANT COMMERCIAL MESSAGE

A lost opportunity, a shame… a lost account, a crime…a damaged relationship, a tragedy. A well trained staff to deal with these issues, priceless. Give us a call to see how we have helped others deal with price issues and how we might support your efforts!

USE OPTIONS

If all else fails and you still need to book business in spite of pricing resistance consider the quid pro quos you might get. In exchange for concessions on your end, what tradeoffs are possible from the buyer/agent? For example you might be more willing to trade concessions now for more lines of business, or more targeted submissions from the agent, joint marketing, and referrals to other agencies in different jurisdictions.

Do not however, rationalize your pricing accommodations in the hopes of making up the deficit on promises of future business. Get firm commitments and remind them of the help you gave.

Remember, revenue at the expense of profitability is a sure path to financial problems down the line.

Keeping all these issues in mind will help you keep your book of business balanced in the New Year.

Balbresky Consulting Services
INSURANCE TRAINING FOR BOTTOM LINE RESULTS
(856) 985 – 0955
pbalbresky@verizon.net
visit our website at
www.insurancetrainingbypaul.com
a member of the Strategic Insurance Solutions Network

Copyright 2006 by Paul Balbresky. Used with permission.