Risk Management and Sales Partnerships
Sales prevention is the term most synonymous with the perception many have of the risk management process. Only over the past few years of a hardened workers' compensation market have many truly appreciated the investment made in a sound risk management program. Without strong principles, it became apparent that our value proposition or service model would lack one critical component: workers' compensation benefits.
However, there is much more to a risk management department than turning down the next "can't miss" prospect. In general, risk managers are often measured by a metric that has a bottom-line impact on financial statements. The most common example is the workers' compensation loss ratio. With many PEOs participating in large deductible insurance programs, this number has become an important metric. Many, however, fail to appreciate the impact risk management can have on top-line sales.
It is unfortunate that in many organizations so much animosity exists between those individuals who are selling the product and risk managers, who are doing their very best to ensure those individuals have a product to sell. To achieve optimum effectiveness, it seems obvious that these two functions — risk and sales — should share both common goals and measurables. Imagine the collaboration that would occur if both departments were evaluated on sales growth and loss ratio. With that in mind, the following paragraphs will detail some thoughts on how the two departments can work together collectively.
Certain Classes of Business Are Prohibited for Good Reason
Most PEOs have prohibited and pre-approval lists, either self-imposed or mandated by their workers' compensation carrier. The prohibited list details all classes of business, by NCCI code or otherwise, that a PEO is restricted from writing. Sales representatives who seek exceptions waste both their time and that of the risk management department as well. Moreover, each exception uses up valuable political capital with your workers' compensation carrier. Pre-approval accounts indicate classes of business that either the workers' compensation carrier or the risk management department would prefer to spend more resources in investigating. This review would also generally include a pre-inspection by a safety professional. It is unfortunate that many a salesperson will equate this to a physical exam for Key Man life insurance. In fact, it is the perfect opportunity to establish the value of risk management to a prospect and set proper expectations regarding a potential future relationship. Moreover, introducing the risk management professional during the sales process establishes credibility and oftentimes assists in closing a sale. It is also a chance to demonstrate to the prospect that the PEO practices partnership internally — we practice what we preach.
Make the Most of Information-Gathering
While the information-gathering stage for any prospect is significant and time-consuming, the deciding factor for any risk assessor is typically management attitude. Basically, it is an exercise in determining how committed a business owner is in providing for and protecting his most valuable asset, his employees. Certain key indicators are the credit rating of the business, employee morale, employee benefit offerings and contributions, documented safety programs, return-to-work attitude, and so on. While experience modification ratings or historic loss ratios are good indicators, they are only partly a factor in assessing the overall risk of a prospect. Like a work of art, first impressions are generally lasting.
With the transition of the proverbial underwriting pen from the PEO to the insurance carrier, it is oftentimes the decision of the carrier underwriter that is absolute. Sales can enhance the process significantly by ensuring that the prospect is committed to partnering with the PEO and becoming its advocate. Sales should also be willing to walk away from a business that demonstrates poor metrics or attitudes. Much like square pegs and round holes, some businesses just do not make good PEO clients. The prospect that sees value in the PEO should be more than willing to provide information that will assist the risk assessor in making a decision. Too often, sales submissions to risk are incomplete and lack critical information. Imagine going to a studio and seeing works of art half finished. As an example, the same could be said of a sales submission without the necessary loss runs, incomplete descriptions of operations, or lack of explanation for standard exception employees. If there truly were to be a partnership, a sales representative would not place risk management in the difficult position of making a decision or submitting to a carrier with an unfinished masterpiece.
Safety is A Great Selling Point, Not a Necessary Evil
Over the past 10 years or so, we have witnessed a significant transition in the operations of insurance carriers. More often, carriers are limiting the services offered to policyholders. The reduction of services is most evident in the area of safety or loss prevention and the policyholders impacted are generally those paying less than $100,000 in premium. These businesses have become ideal prospects for PEOs. As previously stated, it is imperative that the PEO safety representative be introduced as early in the sales process as possible. Unfortunately, the role of the safety professional, in many PEOs, is generally characterized as that of a compliance or police officer and the function as a necessary evil. Most PEO marketing or advertisement pieces detail the critical components of their value proposition. Included in most are risk management services. With the evolving workers' compensation market, the safety function is oftentimes perceived as a critical component. The PEO's ability to assist in establishing critical components of a safety program including training and monitoring is tantamount to the success of many small business owners. In fact, both the client and PEO are motivated to provide for and maintain a safe worksite. If both sales and risk are motivated to obtain growth and profit goals, why would it not make sense for both parties to partner in the sale and service process and reverse the internal impression of safety as a necessary evil?
PEOs Have Experienced Claims Managers
Claims management is an area where a business sees little value until an employee is injured on the job. Most small business owners have very little expertise or leverage when handling a workers' compensation claim. Moreover, the emotional distress associated with a claim is generally significant and can create a great deal of ill will internally. Most PEOs have experienced claims professionals on staff who either have worked with an insurance carrier or handled claims for larger businesses. These individuals will generally handle the intake of the claim, submit it to the carrier for processing, and act as an unbiased third party during the adjudication of the claim. Most statistics show that an injured party will seek attorney counsel only when they lack understanding of the process. Given the significant premium volume generated by a PEO, the influence a claims representative can have with an insurance carrier is significant. However, it is not the role of a PEO representative to adjust the claim. More importantly, their role is to act as liaison between the insurance carrier, the claimant, and the client. It is in this role that the PEO can walk the claimant through the claims process while allowing the client to focus on its core competency. Moreover, this unbiased third party can remove the emotions from the claim. From a sales perspective, the financial savings for a client can be significant when evaluating both the direct and indirect costs of a claim.
The aforementioned are only a few examples of where sales and risk can partner to demonstrate value to a prospective client and also impact the bottom line. The critical element in the equation is partnership. Mature PEOs will focus on tearing down the walls and rebuilding with a cooperative partnership between the two critical departments. The balance will continue to have entertaining stories to tell during the annual holiday party. As we all strive to implement or maintain Certification Institute best practices for our carrier, it is also imperative that we continue to demonstrate the value of these best practices to our clients.