Why an open-brokerage carrier may be the right partner for you
The open-brokerage model can be particularly useful when exploring niche opportunities.
Entering a specialty market can be intimidating. Not only will a producer have to demonstrate expertise in a new niche to business owners seeking insurance coverage, but they’ll also likely have to meet carrier requirements and complete a fair amount of paperwork to get appointed or win the right to sell that carrier’s coverage.
While it is more common for producers to obtain appointments with carriers that outline what they can and cannot do, including binding coverage, collecting premium and more, alternatives are available. An open-brokerage model can provide producers of all sizes a number of benefits including greater flexibility and broader access to resources.
The open-brokerage model can be particularly useful when exploring niche opportunities. While carriers who insist on working with appointed agents may have a variety of stipulations — including but not limited to, volume, growth and loss ratio — open-brokerage carriers will typically partner with producers interested in a niche regardless of book size and niche expertise.
How the open-brokerage model works
The open-brokerage model is best described as a triangular relationship with the client at the top and the producer and carrier each having their own direct relationship with the client. Producers in an open-brokerage model, present their client, the insured, directly to the carrier. This can simplify the process as the agent in this case can submit business to the carrier and the carrier will take on the heavy lifting, including the underwriting process and more.
For example, at Pennsylvania Lumbermens Mutual Insurance Company (PLM), we tend to write high risk and high severity businesses. Our model is centered around that. We have special expertise that enables us to conduct a comprehensive underwriting process for each account. We have unparalleled expertise to consider the risk that the producer likely doesn’t have. So, rather than approaching our agent partners and saying, “Here are the parameters, go sell to companies that meet these requirements,” we meticulously look at every single potential insured to make sure it’s a good fit.
Why work with an open-brokerage carrier/?
Carriers like the open-brokerage approach because we’d prefer not to hand off certain responsibilities, where we have decades of expertise. For the producer, this lessens their workload because business development representatives can take care of the risk assessment walkthroughs, interview prospective clients and underwrite. They can also avoid some of the common logistical steps, such as required connectivity to each carrier’s agency management system.
Working with an appointed carrier can have its benefits financially for agents, but there are some drawbacks. While appointed agents will often get attractive commissions and incentives from their carriers, they are locked into that carrier. We’ve seen appointed agents trapped under agreements requiring them to meet certain thresholds of business. For example, some carriers require 10% of their business to come from one industry and 20% from another, which can be a challenge financially for producers to hit.
With an open-brokerage carrier, this doesn’t happen. Take for example an agent appointed with a major carrier who has a contract requiring them to write $2 million in business. For any additional compensation, this producer would need to hit a certain loss ratio. If you work in an industry that has potential for high severity of claims like the wood niche, and you have one significant loss, that loss could sabotage that contingency arrangement not just for that year, but for the next two or three years.
Alternatively, producers looking to secure business in high severity industries may want to work with an open-brokerage carrier that won’t require loss ratio contingencies and will be more likely to work through significant losses.
Another benefit of an open-brokerage carrier is they often will be happy to just write one account with you. For example, if a small town agent wants to insure a sawmill in town, he or she would be able to obtain that specialty coverage through an open-brokerage carrier without having to produce a full book of business in the sawmill space.
In addition to the financial benefits, the open-brokerage model can help agents build their relationships with clients. In this triangular relationship, the carrier also wants to demonstrate their value to the mutual client. At PLM, our business development representatives and underwriters become deeply involved with our policyholders. We have our business development representatives visiting policyholders frequently to help them develop a strong relationship. Clients will appreciate the level of service provided by the carrier to whom the producer introduced them. In a standard relationship, you may just meet once or twice a year for renewals, but with this triangular arrangement one party is always checking in on the client, maintaining that strong communication.
While the open-brokerage model may not be the norm, it can provide significant opportunity to producers – particularly for those looking to test the waters of a new niche, or grow their business with a little less red tape. With little required to get your foot in the door, why not give it a try?
Steve Firko is senior vice president of business development, loss control & customer service for PLM. With over 30 years of experience in the insurance industry, Firko has held various management and professional level positions with major multinational insurance companies in marketing, sales, business development and finance.
Opinions expressed here are the author’s own.
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