Travis Davis Shares His Insights
Many readers of Cascade Business News are business owners. This is why I have asked Travis Davis to be my guest columnist this month as I believe he could possibly be of significant benefit to you. His background is quite interesting as he initially pursued a career as a Civil Engineer and spent 15 years working in this field before realizing his calling was elsewhere. Today he is a Commercial Insurance Broker with PayneWest Insurance and applies the engineering principles he learned while designing and constructing buildings– to advising business owners about risk management and navigating challenges from an insurance perspective. He’s a true commercial insurance expert.
Travis and I have crossed paths several times when working with mutual clients because in addition to guiding people at or near retirement, my firm also specializes in guiding business owners who are looking to sell their companies in the next 1-5 years. Travis’s expertise has been valuable and he’s just a good guy. I also admire how passionate Travis is about making a positive impact in our local business community. He serves on the Bend Economic Advisory Board, the Bend Chamber Advocacy Council, as well as supporting the Bend Venture Conference each year.
Here are some words of wisdom from Travis:
These days technology seems to be taking over our world in so many ways; changing how we interact with each other and bringing the marketplace of the world to our fingertips. I’ve heard predictions for over a decade that technology is going to lead to the death of sales, brokers, and service providers of all sorts. Look no further than the disappearance of travel agents over the last two decades. Do-It-Yourself online bookings now represent over 85% of all travel reservations. Is that a preview for other service business models such as insurance, banking, accounting, investment management, and the practice of law? There is an App for each one available for my iPhone today. Are these industries doomed to a similar fate?
As a commercial insurance broker who loves what he does – serving business and nonprofit clients by helping them make important risk strategy and risk finance decisions – I certainly hope not! So then, why do the vast majority of us book our own hotels and flights today? I believe the question is ultimately one of value. Once the technology was available to compare flights and hotels and read online reviews, consumers had all of the information they needed to make the purchase directly. As it turns out, travel is just not a complex purchase and the advice that you receive from Instagram is likely just as helpful as the advice from a travel agent. Travel agents had little value outside of the access to bookings.
What then will become of the professional service providers waiting for the technological axe that will bring the end to their (my) existence? Surely, they are doomed as well? In so far as they fail to bring value to their clients, I say yes. The question we each must answer as we look to avoid the axe is this: am I creating unique value for my clients, am I sufficiently expert in my field to help them make the best decisions?
In the insurance industry, technology is both enhancing traditional insurance delivery and attempting to completely disrupt the status quo, and I am an eager fan of both endeavors. Society will surely benefit from this innovative spirit, as it has from countless innovations before. For now though, I see no better process for buying insurance than exploring the questions below.
Broker versus Agent?
Brokers are not limited to offer products from one insurance carrier, whereas Agents work for a single carrier and can only sell those products. This doesn’t bring into question the ethics of agents, however, it is a recognition of the limited market access and product selection available to them. To serve all types of clients, agents will either have to say “no” to a lot of potential clients, or they’ll have to work hard to fit square client pegs into round underwriting holes.
Credentials and Niche Expertise.
Does the broker you’re considering invest additional time in becoming an expert in their field? Do they have specialized industry knowledge applicable to your business or situation? The right insurance broker can become one of your most valuable business resources, but only if they have the expertise and you bring them into your circle.
Product Based or Risk Based?
Do you get the feeling that the broker across from you understands the risks in your business? Do they offer suggestions for reducing risk and enhancing safety, or do they talk only of products and pricing? Are they comfortable discussing self-insurance options for some risks, or the possibility of transferring risks via contract or other means; or is the insurance policy to only tool in their arsenal? The best brokers know that the best way to affect the long-term cost of insurance is to reduce overall risk and they therefore offer resources to help clients address those risks before or outside of insurance. This risk advice is a large component of the overall value offered by insurance brokers.
Market Access.
Even with good intentions and the best risk advice, no broker is complete without carriers willing to offer coverage. The best brokers have enough clout in the marketplace to warrant deep carrier relationships. This gives them the leverage to solicit the best policy terms (including pricing!) and also to demand the claims attention that every policyholder deserves when the unfortunate event happens to them.
Price, or Price?
Price really does matter. The key is to define which price matters. Is it the short-term cost of an insurance policy, from the perspective of a buyer who gives only 30 minutes a year to their insurance program? Or is it the long-term cost of protecting your business or your personal balance sheet from the potential hazards, considered by a thoughtful buyer? The question buyers should consider asking their broker is how do the best-in-class peers lower their cost of insurance coverage over a period of three, five or even ten years?
The Other Price – Broker Compensation.
How does your insurance broker get paid? Really, it’s worth asking. The vast majority of brokers are compensated for their work by insurance carriers who pay commission out of the premium from policyholders. Different lines of business and different carriers have different commission schedules, but a safe assumption is that the commission is between 8-18%. This is the industry norm and generally accepted by insurance buyers and brokers internationally, but it isn’t the only way. If your broker is a licensed insurance consultant in the state you operate in, and both the state and carrier allow it, your broker can place coverage without commission and can instead charge a fee for their services. This adds transparency to the broker value proposition and more perfectly aligns the interest of the broker with the interest of the client. After all, when your insurance premiums increase due to market conditions or adverse loss experience, should your broker receive additional commissions?
Outlined above are key considerations in the broker selection process, which is what I recommend all insurance buyers undertake to some degree based on the complexity of the situation they are in. Determine what is important to you and what your risk tolerance is and then ask a lot of questions. Who do you interview? Ask your discerning friends and trusted business associates who they use and why. By starting with a referral and personally interviewing those candidates with the questions above, you’ll be using the best process I can possibly recommend. Once you find an insurance broker that you trust, give them full access to your current insurance program and ask them to construct a recommended program with options to either take more risk (less insurance) or transfer more risk (more insurance). Then ask questions about all of those options, including asking for how policies will respond to potential loss scenarios. Lastly, once your values are aligned and a plan is made, it is finally time to let your broker shop for the best terms and the best pricing to achieve success.
~Travis Davis
David Rosell is President of Rosell Wealth Management in Bend. RosellWealthManagement.com. He is the host of Recession-Proof Your Retirement Podcast and author of Failure is Not an Option — Creating Certainty in the Uncertainty of Retirement and Keep Climbing — A Millennial’s Guide to Financial Planning. Find David’s books at local bookstores, Amazon, Audible as well as the Redmond Airport.
Securities offered through Valmark Securities, Inc. Member FINRA, SPIC.130 Springside Drive, Suite 300, Akron, OH 44333 800-765-5201 Investment Advisory Services offered through Valmark Advisers, Inc., a SEC-registered investment advisor. Payne West Insurance is unaffiliated with Rosell Wealth Management, Valmark Securities, Inc. and Valmark Advisors, Inc. Rosell Wealth Management is unaffilated with Valmark Securities, Inc. and Valmark Advisors, Inc.
