Consultants

[crossins]

One of my clients was recently approached by an "insurance consultant". Before even evaluating the insurance contracts, the "consultant" suggested my client go out to bid to other agencies. Of course, we have the account well placed, and service the account well. Kind of made me think that clients working with "consultants" should put the "consulting service" out to bid. Just my 2 cents worth.

[darnovak]

I had that happen to one of my nice commercial accounts once. I ran this by my mentor and he said to me "If you are doing such a bang-up job as an insurance agent/broker, why would your insured seek out a consultant? Isn't that part of the service you provide as a competent insurance person?" regards.

[Shagster12]

This happened to me as well just recently.
The problem is the client is in the position of trying to keep their company afloat and absolutley HAS to get better control of every budget dollar so if the "Consultant" is even halfway convincing the client almost inevitably will agree to give them a shot. The biggest problem is the client is NOT told that the consultant then gains control over ALL the marketing efforts and the incumbent broker is severely hampered from doing a normal marketing job on their own account so, it's likely in the end the so called "consultant" can find a better option out there somewhere and ends up looking good. But they also DON'T represent that fact to the client nor disclose that they get paid by usurping a bulk of the agents commission once a placement is made. In my case once I explained this process to the client his first question to me was "So how do I fire these guys"? My answer was at this point it's too late so let's just see what these so called experts can do! In the end I lost some commission on the account this year but gained the satisfaction of proving to the client that I was already their best representative in the marketplace and the "Consultants" have been terminated and I doubt the client will let anyone else in the door again for a long time to come.
So if you're certain that you've already got the best placement for the client then you might just lose a little commission this time but in the end you can gain a HUGE amount of credibility witt the client when that's been proven to them by an outside source!
My two cents...

[Rainmaker]

Okay here we go! This is not new - the industry has seen periodic 'waves' over the years of consultants approaching clients promising all sorts of things, ie promising audits, promising renewal negotiations, promising all sorts of things that all fall within the scope of services that brokers perform on behalf of their clients on a routine basis. Many of these 'consultants' are HR professionals who decided to get licensed, or former CFO's or controllers that decided to become licensed and 'consult' with the intention of acquiring BOR's on insurance placements and generating a recurring revenue stream for themselves.

I have seen some short term successes - but let me be clear that they have been NON-SUSTAINABLE successes because these consultants find either:

1) an un-educated client who listens to their spiel and buys it - who later regrets their decision
2) an un-attended client who listens to their spiel and buys it - who later regrets their decision
3) a dork who listens to their spiel and buys it - who isn't equipped to evaluate it and reconcile their decision against common practices.

Numbers 1 & 2 can be addressed by brokers. #3 shall we say, '....is what it is' and these buyers will always be around and therefore will always create an opportunity for these so called 'consultants' and that's just part of the deal. Number #1 & #2 you've got control/influence over - #3 none of us have!

So, in summary, yes these things surface - they go in waves, the players usually don't last, educating your clients and attending to them closely is the best way to keep these wolves/charlatans/snake oil salesman away from your book......once in awhile they'll get lucky, and as PT Barnum once famously quoted, "there's a sucker born every minute...." so let those go as 'one-offs.'

Keep your head down and stay close to your book - the wave will pass, I've seen it many times over and over.

[Oldschool]

Question to any of you on the "Insurance Consultant":
Assuming that the “Insurance Consultant” is not an agent for any carrier or a broker for any carrier; how would coverage, or would it, cover advice/consultation for:

(1) If consultant, on behalf of the client, put together insurance quote specs and directly contacted various insurance agencies to seek out quotations based on what insurance limits to quote, and what carrier to choose? In other words if the consultant shopped insurance on behalf of their client, chose a carrier, and the insurance following a loss was not adequate, how would the E&O coverage respond?
(2) What if multiple clients in a geographic area collectively had this experience, wouldn’t this be considered “one loss” and the E&O limit then based on just the one “occurrence” limit?
(3) What if the carrier then went insolvent following a CAT loss and it was the carrier the consultant advised? Would E&O cover the insurance loss….that is pick up where the insolvent carrier left off?
(4) If the advice was given, say 2 –years ago, and then a client suffers an insufficiently advised loss 2-years later, how would the E&O respond?
(5) If the consultant acting (via a contractual arrangement between the consultant & the client) “bad-mouthed” or “defamed” insurance agents via email, blogs, or any print, would E&O cover both client & consultant to defend?
(6) If consultant took a “grandfathered” carrier relationship a client enjoyed and convinced client to move to a new carrier, then the newer carrier withdrew from the market (or became less competitive), and then finding that going back to the prior carrier was not available again; would the E&O policy cover the additional premium expense incurred by the client future forward over what the client may have once paid (when that client was with the prior/grandfathered carrier)?
(7) If states or state insurance depts. don’t regulate insurance consultants; what guidelines does an E&O carrier require of an Insurance Consultant in terms of scope of work performed?
(8) Does the E&O just “defend” the consultant, or can it also pay for the monetary loss a client might have as a result of poor advice?

Thought you might find these questions challenging! I look forward to anyone's response!

[Rainmaker]

Sure I have a response:

THANK YOU 'oldschool' for asking such brilliant questions! Perfect, flawless....way to go. All critical facets to consider.

I would like to add an addendum to my earlier post on this issue, as it relates to brokers 'preparing for' or better yet .... successfully dealing with issues like this that arise from a competitive standpoint. I will do it along the trajectory of employee benefits but there are laterals to p/c which I believe readers will surmise and can convert and adopt to their own practice specialties and nuances that exist with carrier marketing and placement policies within their own states.

So here it is:

There was firm in the SF Bay Area whose marketing schtick as a consultant was to approach employers and have them sign a letter 'authorizing them to negotiate the renewal' with the assurance that because they were a consultant, they could negotiate the renewal more faithfully than the incumbent broker could because the higher the renewal the higher the broker's commissions would be.....i.e.: 'what incentive could a broker (being compensated by commission as a factor of overall premium) have to lower the renewal?' So this consultant actually made a pretty good dent, believe or not, in getting some pretty nice employer groups to sign the letter, and in some cases an actual BOR......much to the chagrin of the local brokerage community, and, when they approached one of my clients with this 'schtick,' - me as well!

So I called the carriers I had my client's placements with and asked, 'what exactly are you going to do now that you've received this 'authorization to negotiate renewal' letter?' - which to be honest I had not seen before in my career at that time. The response: " when we get a letter like this, we do a 'lock out' which means that we issue our manual rate and do not allow either the incumbent or anyone else to negotiate down the renewal on behalf of the client." So basically, this approach PENALIZED the client because no one, not even the incumbent (me) could negotiate down the renewal rate - much less the 'consultant' providing the so called independent/sterile/client centric position as advertised on behalf of the client.

So what to do?????? A lot of brokers in my area just griped and complained - and lost clients to this consultant.

Screw that!

I called EVERY carrier on my marketing list and asked the same question, got the same answer, and asked them if they could send me an e-mail or letter stating their lock out policy when they get an 'authorization to negotiate renewal' letter. All of them agreed and sent these letters, because, of course, they were responsible as carrier reps for stating their company's policy - so that was easy.

So then what?

Several more times during the course of the following years, my clients would be approached by this consultancy (they were very active and aggressive marketers) with this 'schtick' and I would immediately send the carrier rep's letters to my clients clearly demonstrating that this approach would remove the ability to negotiate down their renewal! In every instance my clients called the 'consultant' and told them NOT INTERESTED and thanked me for providing this information to them from the carriers.

What's the moral to the story? These 'shticks,' 'schemes,' whatever you want to call them come up ALL THE TIME and ALWAYS WILL over time. I'm going to quote the Boy Scout's motto: "Be Prepared."

With a little preparation, research, documentation, securing third party resources validating your position, or more accurately - how things actually work in the insurance industry, you will never be caught off-guard and be able to quickly and decisively defend against these attacks against your book of business.

Fini.