Posted on 16 Jun 04
As the market changes from hard to soft, Contingency Contracts can make or break an insurance agency. According to consultant Chris Burand, “There is a growing storm brewing as companies have changed their contingency contracts to reflect the prior hard market. Agencies may be finding their contingency income dropping dramatically if they don’t take action now.”
Chris is featured in an in-depth interview on this topic in the monthly audio CD program for the insurance industry: Audio Insurance Outlook. (Subscription information is available at http://www.soundmarketing.com/OutlookPB.htm.)
Plus, as Chris recently wrote to us about his contingency analysis program:
The Contingency Contract Analysis® Service
This service provides the information agents need to make the most of their contingency contracts, including placing business strategically (though never, ever to the client's detriment!) and negotiating the best terms. Given our industry's current situation, I believe this is a very important service to consider.
During the hard market, negotiating contingencies was difficult. The market though is turning soft quickly and we have a perfect storm building that will wreck agencies' profits if agents don't negotiate and carefully navigate their contingency contracts.
Here is what has occurred: Many insurance companies got jealous, envious, or greedy regarding the amount of contingency bonuses agencies made the last two years. The most obvious example of this is several carriers triggered their stability clauses.
A change having a more far-reaching effect is many carriers have modified their contingency contracts. The trend is to stop giving agents credit for moderate success. Agents now have to have significant growth and very good loss ratios to earn a good contingency. Companies have increased the barriers because they believe agents should not get credit for 5% growth when rates are increasing 10% and they should not get credit for a 55% loss ratio when the industry had one of its best loss ratios (for contingency calculations) in at least a decade. The companies changed their contracts in anticipation these conditions would continue and now the market is turning soft, very fast, faster than the companies can change their contingencies. Therefore, the contingency contracts agents have now are designed for a fairly hard market and yet the market will be quite soft. This is the worst of all situations.
I believe agents that act now may have an opportunity to negotiate their way out of this situation, at least partially. Agents also have time to begin favoring those companies who do not have hard market contingency contracts in a soft market.
Time is short though. Get the information you need to strategically manage your contingencies with a Contingency Contract Analysis. I strongly encourage you to act now!
Burand & Associates, LLC
Web Site: http://www.burand-associates.com