We have an agent who recently struck out on his own and started an agency. He has had a good amount of success and in our last meeting he shared lessons learned in his first couple of years of operations. I was surprised that one of his lessons was, in his own words, “counterintuitive to his initial way of thinking.” He learned that his initial plan to heavily focus on establishing and maintaining direct relationships with carriers was not the best way to reach his agency’s goals and serve his clients.
Understandably, he believed that by controlling all carrier relationships directly, he would have more control over his business and more negotiating power with his carrier partners than if he used third parties to access the marketplace. In reality, he found out that maintaining direct carrier relationships was far more difficult than he predicted.
First, he discovered that he doesn’t write enough business to meet the requirements that the carriers he would like to have access to set out for him. Carriers can be conservative with their new agency appointments. They likely already have relationships with other agents and are not looking to flood a particular territory with new agents who will be competition for their established agency base. He found out that to garner the interest of several of his desired carriers, he needed to commit to large new business premium goals and strong hit ratios. This can be difficult when onboarding a new carrier relationship, particularly in the beginning when an agent is trying to understand a carrier’s true strengths and interest levels. This was especially difficult for our agent, whose targeted businesses were so diverse in industry, scope, and needs
Second, he learned that his negotiating power is limited when dealing with carriers with which he does not have a significant amount of business. Well-established carriers are likely to have long-term agency relationships that they cannot afford to aggravate by offering their best terms to new agents who could disrupt their business. He found out that when he started his direct book with a new carrier that he was essentially told to “take it or leave it” whenever he tried to negotiate terms for his client’s. As an independent retail broker, he had no other producers to help leverage relationships, giving him limited control with access or negotiations.
He clearly spent time reflecting on the dynamics of putting together the best options for his client balanced with the overall goals of building his business. While there are obviously numerous situations where it makes the most sense for him to place a policy directly, the big takeaway he shared with me was that he learned the hard way how much value a wholesaler really provides.
Through our interaction, I found myself considering when it makes sense for agents to focus on working directly with carriers versus working with a wholesaler who is a true specialist.
You should write direct if:
Your direct coverage options are truly best for your client.
Have you scoured the marketplace options recently enough to understand that there are not better pricing and coverage options for your client than the ones you have direct access to?
You are confident in you and/or your staff's ability to serve the client's future needs.
Consider how directly involved you will have to be in the servicing of the client based on your staff’s understanding of your insured’s servicing needs.
Your carrier options include the ability to write the account as their operations develop.
Consider the plans for your client. Will they be expanding their territory? Do they plan to offer different services in the near future? Do they have plans to bring on more skilled (and therefore riskier) staff in the next 12 months.
You should seek a wholesaler when:
There are many clients you can serve well by marketing their account directly to carriers. However, through trial and error, our agent learned firsthand exactly how useful of a tool a competent wholesaler can be to have in your back pocket. Working with the right wholesalers should feel like an extension of the marketing department of your company. If you feel like you lose all control of servicing your client when working with your wholesaler, then perhaps you are working with the wrong one. Ask yourself if you would hire your wholesaler contact as an employee in your own agency. If the answer is “no”, you need to find another wholesale partner.
What’s Next?
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