Six reasons why you should consider an independent insurance brokerage

An interesting article in Bloomberg Business Week (Oct 21-27, 2013) revealed that the 27-year survival rate for community banks in the United States were significantly higher than for larger banks. Furthermore, smaller banks had significantly less bad loans by any measure as compared to larger banks.

Answering “why” leads to an curious explanation that strongly parallels what’s currently happening in the insurance industry. According to experts, smaller banks appear to have the advantage because they have access to “non-quantitative” information (a fancy way of saying that they know their customers better.)  As a result, these smaller banks understand the local community better and are responsive to their client’s needs (e.g.: unique things happening in the community: the flooding here in Alberta or hail storms causing major damage etc.)  Smaller banks are more grounded in the local community, they base decisions on their intimate knowledge of the local community and not from head offices far removed. Theoretically, larger banks are too far removed from the client (despite the fact that they could presumably mine more sophisticated data, hire more expensive talent; or spend more money on promotion).

Here are some challenges of bigger brokerages:

  1. Head offices are typically far-removed from the majority of the communities that they serve (e.g.: some companies are headquartered in one country and operates worldwide.)
  2. Low rate of retention. (e.g.: when a company has 50,000+ employees, you’re probably going to have multiple account executives cross your path, which can be frustrating as a client.)
  3. Difficulty complying with regulations in the countries/communities they operate within. (e.g.: if the Tier-1 brokerage is HQ’d in New York, they’re not necessarily going to be on top of regulations in Olds, Alberta.)
  4. Management shuffles. (e.g.: It’s no secret that insurance is highly competitive industry, with companies competing for talent. Management shuffles can really affect how a company functions.)

Company representatives from Tier-1 brokerages urge clients of a certain size to only avail themselves to their world-wide capabilities, claimed only to be accessible through them. But here’s why considering smaller may be a better option:

  1. They are closer to the community in which they conduct business and therefore, more sensitive to the needs of clients.
  2. They historically enjoy a higher rate of retention, meaning that fewer turnovers translate into stronger relationships between clients and account representatives.
  3. They have the same access to the speciality markets in locations such as London or New York.
  4. They typically have employee-owners.
  5. They have an intimate knowledge of client’s needs and understand the impact of their decisions. Whereas further removed Tier 1 firms often make decisions that impact their clients without considering repercussions.
  6. They often have the ability to make decisions quickly, whereas larger outfits typically have to delay until head offices can review.

There are other factors at play when considering a smaller outfit over a larger one, but the overall conclusion is that bigger isn’t always better. Consider the seven points listed above; it’s not by accident that smaller outfits like Rogers Insurance and Irridium have continued a steady trajectory of growth, while large international firms have been met with challenges in the Alberta. Think local and consider brokerages that have employees living and working in the community. By partnering with a smaller brokerage you’re not missing out on capabilities or reach; but it does promise an improved partnership with people who have an acute understanding of your needs.

*Photo: Rogers Insurance joined clients at a post-flood relief “Thank you” party – they even brought an ice cream truck! (Read about it here.)

This post is advisory in nature. It is offered as a resource to be used together with your professional insurance and legal advisers in developing a loss control program. This guide is necessarily general in content, and intended to serve as an overview of the risks and legal exposures discussed herein. It should not be relied upon as legal advice or a definitive statement of law in any jurisdiction. For such advice, an applicant, insured, or other reader should consult their own legal counsel. No liability is assumed by reason of the information this document contains.

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