MANAGING CARRIER RISKS IN YOUR BOOK OF BUSINESS
Written by Carey Wallace, AgencyFocus
As an insurance agency owner, managing risks within your book of business is crucial for ensuring long-term success and profitability. With so many places facing hard markets, it ' s essential to adopt strategies that safeguard your top and bottom lines while providing excellent service to your clients. In this article, we will explore three key areas that can help you effectively manage risks and actualize your agency ' s potential.
ALIGNING WITH MULTIPLE PARTNER CARRIERS CAN HELP DE-RISK YOUR TOP AND BOTTOM LINES
One of the most effective ways to manage risks within your book of business is by aligning with multiple partner carriers. When it comes to best practices, there are some ways to manage your placements to ensure you aren’ t overly exposed during market cycles. Relying solely on one carrier exposes your agency to significant risks, such as limited market options, and vulnerability to market fluctuations. By diversifying your carrier relationships, you can reduce these risks and enhance your agency ' s stability.
If one carrier is more exposed to adverse market factors or decides to change its underwriting guidelines, your agency won ' t be as affected because you have more than one market to rely on. This strategy can help protect both your top and bottom line, ensuring a more consistent revenue stream even in challenging market conditions.
Takeaway: It’ s easy to double down and maintain a high velocity of new business with one good carrier, but working with multiple partner carriers allows you to spread your risks while providing options for your clients. Best practices recommend the 80 / 20 rule that approximately 80 % of your business should be placed within the top 20 % of your markets. For smaller agencies this is often only a couple, so if one carrier underwrites a large portion of your clients you may need to review your production strategy to spread your risk. If one carrier underwrites considerably more than your agency ' s profitability goal, that should be an indication that if a carrier changes its underwriting appetite your profitability could be at risk.
Aligning with the right carriers also helps to optimize profit sharing. No one should ever advocate for steering clients with the purpose of better profit sharing. It is considered unethical to not offer your clients the preferred option available, and it is illegal in most states. However, concentrating your efforts and placements with a few carriers that align with your client’ s needs provides you with economies of scale to optimize potential profit sharing within your normal placement process with your partner carriers.
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