Like most entrepreneurs, I'm a salesman at heart, and I love watching people sell, especially when they're trying to sell me. Aside from the entertainment of seeing how others play the game, I usually learn something along the way. That has certainly been the case over the past few months, as my partners and I have been shopping for a new insurance broker.
I have to admit that I approached the process with a certain amount of sympathy for the contenders. I can think of few sales more difficult than selling your services as an insurance broker to a company like mine. What we're buying is service, pure and simple. Since we're looking for a new broker, not a new insurance provider, the product--that is, the insurance itself--is exactly the same no matter who represents us. The policies will come from the same large insurance company, Chubb (NYSE:CB), we've been using for years. Even so, every brokerage we talk to will intimate that it can get us a better deal. "We see you have Chubb," its reps will say. "We've been representing Chubb for 25 years, and we have some pricing power with them."
But that dubious claim isn't going to win our business. We're looking for the best service we can get, which, frankly, is a guess. We won't really be able to judge the new broker's service for a couple of years. In 20 years, we've had only four insurance brokers. Whenever we've hired a new one, we've thought we were upgrading our service, and yet none of them turned out to be quite right. One, we discovered, was what I'd characterize as integrity-challenged. The others just didn't provide the level of service we needed. That's what happens when you have to base your decisions on gut feelings. Even if you do a good job of checking references, you still make mistakes, and they can be costly. But what's the alternative?
As for the prospective vendors, they don't have many tools they can use to capture our hearts and minds. Whether they get the account depends mainly on how well prepared we think they are, how closely we think they listen, how experienced they seem to be, how well we think they will take care of us, and how much we like them--all factors over which they have limited control. As I said, it's a hard sale.
Then again, we're a substantial piece of business, worth several hundred thousand dollars a year in premiums--enough to attract the interest of almost any broker. The first step was to put out feelers and get recommendations. The managing partner of our accounting firm suggested one brokerage. Our bank wanted us to consider its insurance subsidiary. I approached a contact I have at Marsh, one of the industry giants. My partner Sam knew someone at a firm we'd interviewed before. A publisher friend--not Inc.'s publisher--asked me to include one of his advertisers. That came to five candidates, which seemed like enough. We sent each of them summaries of our current policies and began scheduling meetings.
One of the initial revelations was that we had two glaring problems with our coverage. The first group we met with pointed out that each of our six buildings was insured separately, which could cost us a lot of money in the event of an accident. Let's say we were hit by a tornado that caused $8 million worth of damage to one warehouse. (This isn't completely far-fetched. Brooklyn was hit by a tornado last year. Go figure.) If each building was insured for $5 million, we would have to pay the remaining $3 million out of pocket. We could avoid that fate by covering all six buildings in something called a blanket-limit policy. Our current broker had never mentioned that such an option existed. The second problem had to do with our lack of certain types of coverage--such as for wind damage. We could have had it at no extra cost. We simply had to ask.
I found it interesting that all the candidates identified these problems--all, that is, except for the last firm we interviewed, the one recommended by the publisher. Like the other groups, it sent in a team of people, including the man in charge, a young woman who would be our direct contact, and a guy who made the main presentation--and quickly demonstrated that he wouldn't listen to a word we said. We'd ask a question, and he'd ignore it. We'd tell him we weren't really interested in everything his firm could do, and he'd keep right on running through his prepared script. Finally, I said, "OK, but you looked at our policies. What do you think?"
He seemed taken aback. "We didn't get your policies," he said.
"You got the same packet we sent to everyone," I replied. "It included a summary of our policies. What would you do with them?"
"Well, that depends," he said. "We haven't had a chance to study them, but I'm sure we can find things that need to be corrected."
It became clear that he and his colleagues hadn't done a stitch of work to prepare for our meeting. I thought the head guy was pretty sharp, and the woman was perceptive enough to cut short her remarks in response to my comments, but we certainly weren't going to use a firm whose people didn't care enough to come prepared. Afterward, I called the head man and said, "Listen, you're not going to get the account, and--out of respect--I want to tell you why. That's what I'd want someone to do for me." I explained why we'd disqualified his firm. He thanked me, and we parted on good terms.
The bank's insurance subsidiary was another story. Its representatives were excellent and had done their homework, but none of them had been around very long. That's a common problem with a giant company. You're always dealing with new account representatives, which means constantly rebuilding relationships. Just as you're beginning to feel comfortable with a new person, he or she is gone. We didn't want to have to go through that with our insurance broker, so we crossed the bank's brokerage off the list.
We might have eliminated Marsh for the same reason, had its people not done something very smart: They let us in on an industry secret. "We're very transparent," said the leader of the team that came to see us. "We pride ourselves on that."
"OK," I said, "but what does that mean?"
"For example," he said, "when we send you a bill, we show you what the insurance company is charging you for the policy and what exactly we're getting, as well as any fees we've added on. You can see exactly what you're paying for. And we also give you the choice between paying us the standard rate or having a negotiated fee."
"A negotiated fee!" I said. I didn't know it was possible. "You're saying we can pay you more money or we can pay you less money. That sounds like a pretty easy choice."
"Well, it's true that, in the beginning at least, you'll be paying us less than the standard fee. But we'll monitor the work we do and see how much money we save you. We'll take another look at the fee after a year." He indicated that, for an account our size, the initial fee would be about two-thirds of their standard fee.
Marsh was the fourth group we'd interviewed, and the others hadn't said anything about negotiating fees. Neither did the last group--until I said, "Well, you negotiate fees, don't you?"
"Yeah, we negotiate fees," the head guy said. From his tone of voice and body language, I deduced that his firm did it only when forced to, which I could readily understand. I figured that the biggest accounts had probably begun to insist on it. After all, much of the work required to service a policy is redundant. A huge policy doesn't require twice as many man-hours as one half its size.
Nevertheless, I had to give Marsh credit for spilling the beans. Its transparency kept it in the running, along with two other groups whose people had impressed us with their experience and professionalism. Though substantial firms in their own right, they were smaller than Marsh, which gave them an edge. With either one, we wouldn't expect to deal with constant turnover of account reps. Besides, I generally prefer to be a large fish in a small pond. The question was, Would the smaller firms negotiate fees?
Our initial inquiries suggested that the answer was a reluctant yes. In that case, we would probably have gone with the brokerage recommended by the managing partner of our accounting firm. The firm Sam brought in would have been fine as well, but my partner Louis Weiner, the company's president, preferred the other group, and he was the person who would be dealing directly with insurance issues. For that reason alone, I would have sided with him. As it happened, I was leaning in that direction anyway, and I liked the idea of doing a favor for our accountant, who I knew would return it.
But then, just as we were getting ready to make our decision, things took a twist. A private equity firm we had been talking to came up with another brokerage that we had to consider. Why did we have to consider it? Well, that's part of another story that I'll be telling you next month. Let's call it "The Offer: Part 10."
Norm Brodsky is a veteran entrepreneur who also writes The Morning Norm at Inc.com. His six businesses include a three-time Inc. 500 company. His co-author is editor-at-large Bo Burlingham.