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William Graham entered the insurance business 50 years ago, when he joined his father's insurance agency as a sales representative. He rose to become chairman and CEO of the Philadelphia-based Graham Co. He recently discussed changes in the insurance industry over the past 50 years and how independent brokerages like the Graham Co. can compete with larger enterprises with Business Insurance Senior Editor Mark A. Hofmann.
Q: What are the biggest changes that have impacted the brokerage business since you began your career?
A: One of the things, which is a positive, I think insurance companies are hiring brighter and better educated people. When I came into the business in 1962, it was considered pretty good to have a high school education. Secondly, back then, companies provided some formal training, but it was really minimal. Typically, the way someone was trained was to sit at a desk next to someone who made lots of mistakes and then try to replicate what they did. The third thing, when I first came into the business, there were literally thousands of smaller agencies, three to five people at each. There were a lot of mom and pop businesses. Over the years, there has been merger after merger. Consequently, there is just a fraction of the agencies today.
Q: How do independent brokerages such as Graham differentiate themselves from their national and international competitors?
A: I would answer that with one word-and that is results. We have taken over three major owner controlled insurance programs from major national brokers. We were brought in because they were not getting good results. We have excellent people doing loss control and safety—six fulltime people in our loss control and safety department with extensive background and degrees in their specialized areas.
A good example of how we differentiate ourselves through results is a man once said to me, we're going to build a building in four years. What will the loss cost be for each $100 of payroll? and I answered, $3.50. He almost called me a liar. I said I would guarantee it and he said how? I said with my word. He said that's not good enough—he said if you don't meet $3.50, you give up 20% of your fee. I said fine, but you give me 25% if we beat it. He said, ‘we'll have to think about that.' We took over five major projects for this company, and the loss rate for the first year was $1.65. With the last building that we just did, the loss rate was 41 cents. The same thing is true when we're working on other things than wrap ups. We do a detailed analysis and we usually find anywhere from 40 to 100 major coverage deficiencies.
Q: How will the brokerage business look in five years? How will it differ from the way it operates now?
A: I think there will be more and more expense cutting, particularly by large national and regional brokers. This will seriously impact the level of service that will be provided. If you don't have good people, you just can't deliver the level of service customers need. At the Graham Co., we intend to keep spending the same amount on people. We spend about a half million on each person we hire before we even put them to work. We intend to keep investing in better and more people so that we can be more effective for our customers.