GAIG has an account we have written profitably for 6 years. It is coming up for renewal with one of our largest agents, Brown & Brown. It has generated over $300,000 in premium at an 8% loss ratio. It is a “money making machine” according to our point of contact, Alex.
Alex is one of the top producers at Brown & Brown and has run the agency for many years. When we originally quoted this account as new business, we went out of our way to help Alex move the account to us.
The insured is a construction equipment rental business with some new equipment sales. They rent their equipment to a set group of people on a regular basis. They are required to carry the primary coverage and GAIG is contingent.
The equipment is the leading line of business on the account, but there are some office buildings and shops that are part of the policy. The buildings are all masonry non-combustible and in a protection class 5.
When this account came up for renewal last year, the Predictive Analytics model showed that the previous year’s premium was severely underpriced (65% deficient). However, we were in a tough renewal situation – not only did we not formally discuss the renewal early enough, Alex had just sent us several large builders risk policies, including one that was $400,000 in premium. As a result, we decided to sensitively to try to make up some of the rate deficit but not be too aggressive. We met with him in person 20 days before the policy was up and proposed a 10% rate increase and he had a complete meltdown. We ended up compromising by increasing some of the building values and getting a 5% increase.
We are committed to achieving a better result than last year. This time around we were prepared and request a meeting with Alex 120 in advance to discuss the policy. Additionally, while the PA model once again shows that we are still severely deficient, our internal landscape has had a shift – our management team is now more willing to lose accounts that we cannot get appropriate pricing on.
When we set up this upcoming meeting with Alex we made it clear that we needed to increase our pricing but did not have a chance to get into specifics. Alex pushed back on the pricing increase but also Alex made it clear that he is not interested in marketing this account. This makes sense as he has generally carved out the Inland Marine from other policies and sent them to GAIG – he has shown an appreciation for the specialized underwriting that we offer in this area.
With regard to the pricing increase, he did say he was open to a quote with a higher deductible on the Contractor’s Equipment since we are contingent and their lease agreement requires the renters to carry the primary coverage.
You review your numbers in preparation for the meeting: If you are able to secure a 5% increase (on the current premium of $55,169) the new premium would be $57,927 premium with the same $1,000 deductible and $53,452 with a $5,000 deductible. The PAs model currently has this premium priced at $83,335. That is a 50% increase on the current premium, which you know is simply not possible, but you are getting support, and even pressure, to pass up on premiums that are too highly discounted, which gives you a little comfort walking in to meet with Alex. You have also noticed that a few of your clients that marketed their policies have ended up with you shortly after, or switched carriers for a year or two and then returned.
For reference- This premium makes up approximately 15% of the business that Alex has with us; the property piece makes up 40% of this premium; and, their current commission is set at 15% and they made it previously clear that they would not be willing to do a fee instead.