Back in 1993, buried deep on page 208 of The Buyers Guide To Business Insurance (which is offered free to readers of this blog, by entering your information on the right side of the page at http://icrs.biz/blog), we wrote the following:

“The agent may feel justified in offering the client an attractive quote, while still withholding the best value possible for commission reasons….The agency may elect to present a higher-priced proposal from its favorite company to give itself a larger commission, or for other self-serving reasons. With the insurance market blocked, the agency is fairly well-assured that you will be forced to accept its proposal and pay a higher than necessary premium.”

The above was one of the primary reasons I originally felt the book had to be written. And, the original version of the above passage in the book was much less delicate and politically correct. They made me take out comments like “Insurance brokering is much like cattle ranching. Once they have you as a client, all they have to do is keep you fenced in, and milk you regularly.” That was called sensationalistic journalism by the political correctness gatekeepers of the publishing industry. However, it was, in fact, an entirely truthful statement, and more accurately represents how I feel the insurance industry works.

As an example of what goes on in this industry, take a look at the joint press release from New York’s attorney general and insurance department at Corpwatch.org. It appears one of the world largest brokerages, Marsh, got caught with it’s hand in the cookie jar. I suspect giving back $850 million was less painful than having to apologize for “unlawful and shameful conduct”. It reports Marsh steered its clients to insurers with which it had lucrative payoff agreements, and that the firm solicited rigged bids for insurance contracts.

Notice the word steered. Isn’t that a term from cattle ranching?

An insurance company underwriter just provided a workers compensation insurance quote to a broker for one of my clients. The broker was kind enough to pass it along to me in its entirety, and the contents provide some stunning revelations about the true nature of the insurance industry.

Quotation A is provided by the underwriter, and it has some very competitive numbers. The underwriter also provides Quotation B, which is 2% lower than quotation A. The underwriter comments to the broker that he is authorized to use the lower Quotation B, “if necessary”.

In this case, that 2% represents about $2,000. Do you feel it’s necessary that our client save that $2,000? I certainly do. In another example that happened last week, we witnessed an insurance company reduce a quotation by $20,000 in the face of authentic competition from another company. They published one quote in writing, then a week later published a second (coverage-identical) quote that was $20,000 lower.

I am not making this stuff up — It happens all the time. You need to take specific, methodical actions to get to the true “bottom” of the market. Otherwise, what your broker or insurance company is telling you is a “rock bottom” policy quote may be very, very far from it.

So how do you get to the bottom? For starters, read my book (subscribe for a free copy at http://icrs.biz/bookoffer/ or by clicking the eZine subscription on the right-side pane of this blog). You can also read the tips in this blog, or even call or email me for advice… whatever it takes to get your premiums down to where they *should* be, not where your insurance company and broker want them.

Unfortunately, the insurance market is an odd bird in that it doesn’t normalize pricing automatically through competition as is the case with other markets. With insurance, you’ll need to give it a little push to help it along. That happens to be something that I love helping companies do.

- Don

I was recently the featured guest interviewed on the show “Business Success Tips,” a podcast format program, produced by the good folks at NetCastCentral (http://www.netcastcentral.com).

The show, which enjoys a worldwide audience with podcast distribution via Apple’s iTunes network and the Libsyn.com syndication network, focuses on topics relevant to entrepreneurs and small business owners, and has recently been getting as many as 40,000 downloads per episode.

On the episode (#71, Business Insurance), I discuss the challenges facing commercial insurance buyers and business owners/managers, and how the default practices of the insurance industry make things difficult and expensive for them.

If you are interested in checking it out, here are a few links where you can find the show:

• Apple iTunes (opens iTunes application)
• Libsyn Syndication Network (select episode #71, Business Insurance)
• Direct MP3 Download (warning — file is around 30MB or so)

- Don

I advocate that those of you employers with employees driving company vehicles strongly consider subscribing to the California DMV’s Employer Pull Notice (EPN) Program. Under this program, employers are notified when their employee drivers receive citations, which can often help you to identify problem drivers before they start having accidents and become major company liabilities.

General information about the program can be found at the following link:

http://www.dmv.ca.gov/vehindustry/epn/epngeninfo.htm

The program application can be found at the following URL link:

http://www.dmv.ca.gov/forms/epn/inf1104.pdf

We recently learned that this program only applies to employers who allow employees to drive company vehicles. So, if your employees are driving their own vehicles, the DMV Pull program doesn’t apply to you. Also, although California is one of the pioneers of this type of program, other state motor vehicle departments have similar programs, so if you’re not in California, be sure to visit your state’s DMV Web site to see if they have one in place.

- Don

It occurred to me while watching the movie The Perfect Storm recently that the insurance industry itself is a perfect storm of insurance buyer-hostile conditions. However, instead of the effects of tidal waves and flipping boats, we have hundreds of millions of dollars being wasted annually by businesses on their insurance premiums.

So what, you ask, are the conditions contributing to this “perfect” confluence of circumstances? Here’s a short list of the forces converging to work against you (which will in turn help you realize why skillful attention to controlling insurance costs is so rewarding):

1. Insurance companies and brokers generally favor extracting as much money as they dare from each transaction, while minimizing their costs by performing as little service as necessary to take that money (in the form of commissions).

2. Insurance is complicated by nature. It is common knowledge in the industry that most buyers don’t understand their own policies, and have no clue about how the insurance marketplace operates. Undereducated buyers are much more likely to overpay for products and services.

3. People hate dealing with insurance as much as taxes and laundry…sometimes even more (refer to #2 above). The more you neglect to control purchasing, the better the industry likes it.

4. He who controls the info controls the deal. Brokers control mountains of information that they’ve collected on your business, and only dole back out to you the minimum amount necessary. Brokers do not want you to have all the information you need to take matters into your own hands.

5. Brokers routinely lock out competition at every opportunity. If you are not well-informed, astute, and paying sharp attention, you have likely failed to create authentic competition in your policy quoting process (and no, unfortunately, having a broker who gets quotes from more than one insurance company does NOT ensure competition, as I recently discussed here). The more your broker commands your options, the less likely you will enjoy the best the market can offer.

6. There are hundreds of schools and training facilities all over the world that teach brokers clever ways to increase control over your insurance spending. To avoid being victims, buyers need to learn the skills necessary to counter such attempts to control their accounts, and to force the market to function fairly and efficiently for them. 

7. The government is expected to protect the public from abusive practices of bullying industries. Of course, this fails miserably, because the government cannot stop a storm of this magnitude (and not to mention one with such a large congressional lobby). Individual firms must defend themselves by applying sound buying practices that are proven to counteract the ever-present perils in the insurance buying process.

8. Competition is what normalizes prices in markets and keeps them efficient. The forces above regularly converge to sink competition and to minimize your options. They channel you into passively accepting your fate and into writing the next check.

We can’t promise you a smooth and safe ride in this storm. We can only help you prepare for the coming events, provide you information normally obscured from buyers, and help you navigate more wisely to avoid the worst of it.

- Don