My father was the skipper of the USS Constitution, which is the oldest commissioned warship in the U.S. Navy. To give you an idea of how cool this is, Paul Revere worked on her copper hull. The ship is steeped in tradition and my father, the oldest living former captain, is planning to be onboard when the U.S. Navy takes her out in full sail this year.

When I think of the headwinds facing brokers today and the opportunity it represents, I can’t help but be reminded of my father’s sailing wisdom.

1. If you don’t know the destination, no wind is favorable.
As you face squeezed commissions from carriers, set a course of action and begin to execute your way to it. This means sitting down, determining how you will get paid next year and creating a strategy. This is not something that can be done on the fly. It requires thought and clear direction from the top as to what is expected.

2. You can’t change the wind, but you can adjust your sails.
Understanding and accepting that you will be faced with less commission, make changes to your business model to take advantage of the new reality. While switching to fee-for-service can be looked at as a negative, it can actually be a very positive move for an agency. First, it will mean less dependence on carriers. Second, it will force the broker to have a clear value proposition. Third, it can stabilize revenue when you add discounts on fees for longer term contracts. If a firm commits to a three-year agreement, you take a percentage from your fees meaning a guaranteed revenue stream from a book of business.

3. You can’t cross the ocean without leaving port.
To get the ship moving, spend some time on planning. As a starting point, we created a sample list of services, including some typical pricing for each service. Evaluate and adapt to your agency’s unique offering to a similar list. Sound strategy and good planning are key—spend time mapping out all that’s required to make the change. Not only is this a sales function but an admin one as well. Is your firm tactically set up to bill a firm this way? Who will do it?

4. Tack when you have to, but keep it between the buoys.
A different model does not mean less revenue. Make the change but have a compelling story as to why you deserve this type of compensation. Our sample list is meant to be a starting point but it should spur a new thought process as you move forward as to the other ways you can help your clients. Large clients are difficult to move to this model as it is hard to justify some of those commissions. Switch all other clients and prepare to be forced to eventually lose some of the revenue on these large accounts. Other brokers will be hammering on these large accounts as fee-for-service takes hold. One thing to note: there are different state laws on how you may charge as a broker. I have attached a sample list of state laws as a guide, but check with your insurance commissioner’s office before you proceed.

5. The sea will teach you what you did wrong.
For those stubbornly hanging on to a commission-based model, there are rough seas ahead. As you form your strategy, practice mock demos and prepare to engage. There is tremendous opportunity for brokers who adjust their sails to go after firms who are doing nothing to prepare. The brokers who lose business will complain about changing times and less revenues. This process takes a while to implement and while they are sitting vulnerable, others will strike relentlessly.

6. The captain’s not always right but he’s always the captain.
This was one of my father’s favorites for many reasons. Change takes leadership, patience and courage. Our industry is facing a lot of change. The brokers who adjust to the headwinds and adapt new strategies with strong leadership are facing a potential era of unprecedented growth. While not an easy course, it is up to an agency’s leader to create the plan, get the crew ready and raise the battle flag.

The time to dig in, work hard and embrace change is now. After all, the cure for all that ails man is saltwater—in the form of sweat, tears or the sea.

Attachments

• Sample list of services with pricing
• Sample list of state laws (Check with your insurance commissioner’s office before you proceed.)

© 2011 Zywave, Inc. All rights reserved.