Staying solvent in a down cycle

08:16 AM CDT on Sunday, May 20, 2007

Making money in good times is not terribly challenging, kind of like playing tennis with the net down. But how do you succeed in a prolonged downward cycle?

Randall Goss, who was a football player for Southern Methodist University in the 1970s, still projects a strong presence. He's the owner and driving force behind U.S. Risk Insurance Group Inc., the country's seventh-largest wholesale broker of commercial insurance.

U.S. Risk is an intermediary between retail agents and insurers. The "vig," to borrow a casino term, for such action is $500 million in annual premium dollars.

The insurance business moves through downward and upward rate cycles. Since the cycles are not tied to interest rates, the stock market, housing, employment, energy prices or the like, they are unpredictable.

In the decade affectionately known as the '90s, national insurance rates dropped each year - 11 years in a row.

Defying this prolonged drought, U.S. Risk averaged a 15 percent annual compounded growth rate in premium revenue during the same period. Here's how:

Innovate. Mr. Goss challenged his employees to develop new products and redefine older concepts. U.S. Risk brought new insurance products to market that no competitor was offering, such as employee practices insurance when discrimination lawsuits were becoming de rigueur.

By offering new products, U.S. Risk avoided having to compete on price. It also expanded into areas as soon as they heated up: energy, technology, environmental impairment, medical services and privately owned jails.

Product redefinition has many virtues.

Consider a product unrelated to insurance: Nyquil Nighttime Cold Medicine. Before it first appeared, plenty of cold medicines jockeyed for a dropper's share of the market.

But Nyquil created a new market: nighttime cold medicine, and it dominated this redefined market segment for a lengthy and profitable period. Mr. Goss's strategy is the same.

Avoid risk. Counter to its name, U.S. Risk does not bear risk. It creates and sells insurance products, but relies on respectable insurance carriers to write the paper and bear the risk of losses.

Whenever U.S. Risk makes a sale, it does so with virtually no downside. The commission goes to the house and stays in the house.

Offer incentives. Mr. Goss indulges in a series of creative games, competitions and other ways to recognize top achievers - anything and everything ethical and logical to motivate employees to close quality sales.

If a broker writes a new account, he or she gets to ring a bell heard throughout the office. Whoever sells the most keeps a coveted trophy until the next quarter, when the trophy is again up for grabs.

As a broker's volume ascends to certain thresholds, a higher percentage of commission dollars goes into his or her pocket.

Team sales are encouraged, and when brokers work together to make a sale, they each get 75 percent of the commission for a total of 150 percent - joint sales are so important that the company uses its own funds to subsidize the commission by 50 percent.

These not-so-discreet signals reinforce what's important at U.S. Risk - increasing revenue volume. Enterprises that are timid about emphasizing sales should not be surprised by tepid results.

Expand. Always opportunistic, Mr. Goss targets problem brokerages, buys cheaply, then cures the problem.

Access to U.S. Risk's top-rated insurance carriers and innovative products is typically a significant step up for these targets: One recent acquisition improved its hit ratio from closing one out of seven sales to one out of five, a direct result of having superior carriers and products to sell.

Service, service, service. To Mr. Goss, service means speed, responsiveness and knowledge of markets and insured industries.

Retail agents - U.S. Risk's customer base - migrate to service-oriented wholesalers because it makes their job easier and makes them look better to customers.

Service to the third power, as we call it, is a big differentiator. It's an anti-competitive device that enhances customer loyalty even as it avoids price competition.

Readers who wonder why their businesses have grown lethargic need look no further for advice. Product innovation, service, hardy sales motivation and strategic expansion are the keys to keeping a business alive and well.

As Mr. Goss is fond of saying, "Things that aren't growing are usually dead."

Pauline Graivier is president of Dallas-based Verbal Communications Inc. Rob Hoffman is a partner with Gardere Wynne Sewell LLP. (U.S. Risk is a client of Gardere's.)