It's no secret that we have to manage relationships to be successful in property-casualty insurance—and some of those relationships are tricky to manage. One of the best examples is payroll companies. They force us to be double agents. Sometimes we have to work with them, and sometimes we have to work against them.

Payroll companies compete against agencies for workers compensation coverage every day. But there are times where they need us to help them get deals done too, which, if you play it right, can end up serving as an excellent referral source. That's why it's essential to know the best way to both work with and against such companies—because you need to keep them as your friends too.

First, here are three ways to drive a wedge:

1) Have agency-specific value-added services. One of the top wedges you can work with when a payroll company is controlling the workers comp is the proprietary tools in your agency that you can use to compete with what they offer. Payroll companies are notorious for promising everything under the sun: HR services, claims support and more. Yet, they very rarely execute on any of it. Why? Because small businesses typically don't view those tools as vital until they've had a claim and it costs them money.

Going in and talking about the experience modification factor and what you and the tools you offer can do to help a client understand it, control it, and make sure that it stays better than average is a huge wedge that you can drive. Payroll companies are not going to take the time to do that.

2) Offer a better program structure. Offer more favorable program terms, such as providing dividends, and help business owners understand the power of earning a percentage of their premium back based on favorable loss history. In that instance, you're very quickly showing them that they're leaving money on the table by opting for the ease of use with a payroll company.

3) Know your loss cost multipliers. The loss cost multipliers are the last wedge you can drive, and it's an easy one. If you look at an account and it has great loss history and a good experience mod but they're with one of the most unfavorable underwriting companies out of the selection of underwriting companies that a primary carrier has, let them know that you can get them better rates with the same carrier just by moving them to a different underwriting company with better loss cost multipliers. This strategy is a great way to prospect.

How to Work with Payroll Companies

If you're going to work with these payroll companies, you need to know a couple of things because they can be excellent referral sources. Here are two pieces of information you need to know:

1) They have a limited underwriting appetite. While they have a more expanded list of codes they can write in some cases with national carriers due to the sheer volume they place with them, there will be class codes that they will not write. If you can write those codes with your carriers and do so profitably, you'll have a never-ending stream of referrals coming from a payroll rep that wants to write payroll deals, and you can handle the workers comp.

2) They don't compete against other payroll companies. Typically, payroll companies don't compete against other payroll companies. Their competition is often a professional employer organization (PEO). To pull that business away from a PEO, they need more than just the workers comp. They need everything that you can do on the agency side from a claims management standpoint, whether you give them a learning center online, a living handbook or HR resources. 

David R. Carothers is principal at Florida Risk Partners. Carothers was featured in the December 2021 issue of Independent Agent magazine's cover story, “How Independent Agents Can Conquer the Middle Market."