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26 August 2016Analysis

Moving from referral dependency to referral independency: a tough but truthful discussion that needs to happen with captive managers

Like most businesses, captive insurance managers have built their client base by the use of referrals, with a heavy reliance on CPAs as their main lead source. As with any referral relationship, the universe is finite, eventually hitting a plateau or dramatic slowdown is inevitable. More recently the captive insurance industry has been tapping into independent insurance/reinsurance companies who broker healthcare insurance as a means of expanding their referral base. While referrals have worked well for captive managers in the past, there is a lot of heavy lifting in forming and maintaining “exclusive” partnerships.

Captive managers need to be moving into a comprehensive lead generating, brand building and client retention model, ensuring the sustainability of the sales pipeline and removing the pressure of having only a single source of leads coming from a possibly inconsistent referral partner.

With a well planned and executed marketing initiative the ebb and flow of leads will not take dramatic dips throughout the fiscal year, like that of referral based leads, since marketing efforts should be continuous if properly maintained. The inconsistency of marketing efforts across the board in the captive insurance industry opens the door for the willing captive manager(s) to dominate the middle market space. The captive insurance industry is a lot like the wild west of the early internet days. No middle-market captive manager has a clear stake in the ground. No brand dominance is visible as yet and no brand can claim superior marketing, sales and operational success without the research and data to back it up and, of course, the publications to help bring visibility of the advancements in the captive industry.

How to get there with limited resources.
Most middle-market captive managers have limited resources when it comes to allocating budget to marketing efforts. Hiring an in-house marketing team isn’t always the answer. At minimum, one must start with a consultant who can provide a “situation analysis” of the organisation. Looking under the hood of the captive manager’s operations reveals not only what is needed in terms of marketing but also uncovers the operational gaps that have long been ignored.

“Captive managers need to be moving into a comprehensive lead generating, brand building and client retention model.”

Many captive managers function like a 10-year start-up company. Keeping client rosters, contact information and profiles for example, on spreadsheets is a recipe for disaster—especially when combined with a lack of true technological procedures in handling and protecting data.

Ironically, these same captive managers form captives that have cyber risk policies as part of the programme. Clients would be shocked to find that their sensitive information is stored on a hard drive in an Excel spreadsheet or PDF without any security other than a basic folder structure and computer password.

Customer relationship management (CRM) software solutions that are basically nonexistent in larger firms hinder the organisation of client and lead data. Executing sensitive operational communications, industry news, regulatory updates, client loyalty programmes and other updates become problematic without a basic CRM solution in place. Marketing efforts suffer because leads that come in whether through phone, referral or online have no way of being handled or filtered other than using email folders and spreadsheets.

As the client base grows so does the need for sales support. While all of this sounds basic and even commonsense, captive managers need to be made aware of how critical placing priority on these initiatives are especially with the change from the Internal Revenue Service tax code section 831(b), making it more attractive for middle-market business and even small businesses to look into forming captives.

With this potential increase in captive formations, captive managers must also realise that the larger insurance companies may want a piece of that pie. Not having solid footing as a brand early on will set the pace for captive managers scrambling for leads and paying higher premiums to advertisers such as Google, thereby reducing the bottom line.

As a side note, captive managers that are seasonally dabbling (this is seen quite a bit) in Google advertising like Google Adwords, are actually hurting what is called their Quality Score. This depends on multiple factors and an in-depth understanding of how Google uses these factors is crucial in how marketing dollars are allocated.

The season inconsistency mentioned above hurts quality score, ranking and ends up costing the captive manager more money upfront since Google sees them as a player who is not serious in this industry. Google’s main priority is to serve the user and if a captive manager is going to be inconsistent about maintaining his presence in Google Adwords then Google will make the advertiser less visible and it will cost them more money to get the click-throughs they desire.

C-level personnel at a captive management firm should not have to take the time to understand the intricacies of Google but at the same time should not mandate season spending without knowing its drawbacks. One of the biggest misconceptions C-level personnel have about Google Adwords is that, if you throw enough money at it, your ad will be placed at the top. There are very few key phrases that are relevant to the captive insurance industry in terms of search popularity.

You can bet that in the near future those key phrases will be in greater demand and therefore, drive up the price of the limited inventory of ad placement. This is but one example of the many issues plaguing the captive insurance industry with regard to marketing efforts. Those at the helm need to be looking for the “unicorn marketer” that can help assess the organisation, both operationally and its relationship between sales and marketing. Once a plan has been established, it is essential that the captive manager remains committed to the marketing effort and that the effort receives the full support from the operations staff. This includes; CPAs, tax attorneys, insurance professionals, business development professionals and administrative staff.

As the marketing landscape evolves, captive managers need a marketing professional they can trust. Leads will be harder and harder to come by if resources (time, money, effort) have not been committed to the marketing endeavour. This industry is picking up the pace and those who are ill-prepared will be left behind.

Stewart J. Severino is a marketing consultant. He can be contacted at: