First, let me offer a quick introduction. My name is Michael Weisbrot, a proprietor of JW Bond Consultants, Inc. and Vice-President of Marketing & Commercial Bond Programs.
About once a month I get a call from a bonding company department manager looking to discuss new ways to increase our agency’s book of business with them. With the recession, the calls have increased substantially.
I decided to write this blog post about my experiences, as it is often hard to see the forest through the trees. That old saying very much holds true when it comes to agency and bonding company relationships. In my opinion, those working on the carrier side often get stuck thinking too much inside the box (I am sure they would have a lot to say about what is wrong with agents, but they can post that on their blogs). Surely this is largely due to the conservative nature of suretyship, but times are changing and the way we do business must as well.
With that said, I would like to layout what I (from the agency side) see as sureties mistakes when trying to drum up new business:
1) Copying your competitors
Obviously it makes good business sense to try and emulate what is working for your strongest competitors. However, it isn’t always as simple as finding out what other bonding companies are doing and copying them. What incentive are you giving your agents by offering more of the same? Think of it this way, you are knocking on agency doors saying, “We want to give you the same thing you already have, at the same commissions. All you need to do is disrupt your clients by having them complete new agreements.”. In other words, from the agent’s perspective, they get an increased workload, no incentives and they will lessen their book with their other carriers (making the next commission tier farther away).
Should you copy another sureties program, be sure to offer an incentive to the agents strong enough to make moving a book of business worth their while (and their clients). Copying verbatim is a sure way to see lackluster results.
2) Fear of Innovation
To put it simply, it is the innovators that get the lion-share of prosperous programs. Take Western Surety’s Fast Track program for example. From what I hear, it is one of the most profitable portions of their book. A simple credit based contract bond program for small contractors up to $250,000 single/aggregate (currently).
To be perfectly honest, the creator, John Alkire, originally started the program with Contractor’s Bonding & Insurance Company (CBIC) at a $50,000 limit. He later joined Western and brought his ideas with him. Mr. Alkire had the wisdom to know when he brought the program from CBIC to Western he had to offer an incentive to his agents. Therefore, he increased the program limits by 50% to $75,000! This created a good incentive for agents to want to use Western rather than CBIC (see point 1).
About 10 years have passed and there have been numerous copycat programs with subtle differences. It seems that the copycats are now playing a game of catch-up to see if they can take a piece of the pie.
3) Risk Aversion
I understand this isn’t the best economy to be trying to convince carriers to take on more risk, but hear me out on this…Credit scores throughout the country are dropping like rocks and surety applicants are getting declined in higher numbers than ever before. The majority of carriers are continuing on with the same underwriting they have for years (if not stricter). Clearly, this results in a drop in premium revenue, which is when we agents get a phone call.
Fortunately, there are several sureties that saw the opportunity to write a very large book of commercial business that was being thrown out with the bath water. It doesn’t take long in the surety industry to realize that you can’t write these applicants without a much higher premium rate. How much higher? About 15x higher! The traditional commercial surety market rates are still around 10M, while a high risk commercial rate is around 150M.
I have heard a lot of proponents to such programs stating, “You can’t build the losses into the premium, you can’t charge enough.”. I’m not sure these skeptics know how high the rates are for high risk programs, but we have seen them successfully work for years, often beating out loss ratios of traditional surety. I think anyone would have a hard time arguing that someone with a 600 credit score is 15x more likely to cause a claim than someone with a 650 score (a common cut-off score for credit based programs). Let’s face it, credit scores can easily swing 50-100 points per month depending on how much credit an individual is currently making use of. In addition, I would also like to point out to the naysayers that while traditional suretyship underwriting is suppose to be done with 0% losses, it has not been done on a large scale to date. High risk programs are simply acknowledging that losses are always built in and adjusting accordingly.
I am not saying everything under the sun should be written, but it does seem logical to look at widening your underwriters viewing windows of what applicants should be considered.
4) Proprietary systems
It seems that every phone call I get from our sureties as of recent, their proprietary web based systems get brought up. They are all relatively the same with subtle differences. They all also have the same shortcomings:
- Streamlined – Really? For who? They certainly don’t make less work for our agency. Keep in mind, we usually submit to 2-3 carriers that might be a good fit. That requires us to manually re-type the application 2-3x for each application.
- Great for Mom & Pop – Larger agencies are not a good fit, as we see upwards of 100 new applications per day. Hiring additional staff to make our sureties lives easier doesn’t sound like a good business plan for our agency.
- Confusion – With each system being slightly different, it would require that our agents learn the ins and outs of each. We currently have about 16 carriers.
- Assumptions – Would you believe that several surety systems automatically book a bond upon quoting it? Perhaps we have a better rate with another market, or perhaps the client goes with another agency. This would create an accounting nightmare for both sides.
- Errors – While most systems have their kinks worked out, you would be amazed at some of the problems. Not too long ago, we had a major carrier tell us, “Don’t apply for _______ bonds in the system. It will approve them when it shouldn’t.”.
So what should sureties do for medium to large agencies? Give us detailed agency authority guidelines. Larger agencies understand the surety business well enough to know what should and should not be written. Our agency thrives on authority. It allows us to quote clients with greater speed, which we find to be vital to our agency’s success. In fact, nearly all the business we write is now through agent’s authority.
5) Old Habits Are Hard To Break
It’s funny to see the difference a couple of years make. Not too long ago, most of our carriers scoffed at applications coming in the from the Internet. We were told countless times that they are more likely to be fraudulent and there was an increased risk of claims. One carrier told us, “Don’t send us Internet business, it’s garbage.”.
I am happy to say that they were flat out wrong. Loss numbers are right in line with paper applications. As for the carrier that told us Internet business was “garbage”, in a recent meeting they told us, “We now accept Internet business and see it as the future of the industry.”.
Fraud is actually easier to track. With today’s technology, we can stamp each application with the location it was completed.
Our agency is focused heavily on IT, in fact we are offering free agency automation software to the industry in 2010 called Surety Bond Pro Tools. We have put a great deal of resources towards the project, which has been several years in the making.
So what am I getting at? Don’t be afraid of change. Ultimately, technology will win out and be implemented. Once again the companies at the forefront will be the biggest winners.
So what do all of these suggestions have in common? Offer something different!
If you are going to copy others’ successful programs, then make sure you vary it enough to stand out.
Don’t be afraid of creating a new program. Do your research to give yourself the best chances of success, but don’t put a good idea to rest that can truly be a game changer.
Don’t be too risk averse, doing so could keep you from large profitable portions of the marketplace. You’re an actuary, so do the research and find out what needs to be done to write the business.
Remember, automating the surety side doesn’t necessarily mean the agency side will run more efficiently.
I always have an open ear to any surety that is willing to be creative and offer something new to the surety marketplace. If you want to discuss further, please feel free to contact me to discuss. Should you want to discuss opportunities for Surety Bond Pro Tools, you can do so using the contact pages on either site. Our surety sponsor list is getting filled quick, so doesn’t hesitate, as we are offering exclusivity to sureties willing to meet certain terms for our agencies using the software.
Thanks for reading my perspective. Please add yours in the comments below!