• Ensuring that Wholesalers Are Safe

    Dec. 1, 2010
    Sometimes in a business career, you develop an expertise and then suddenly find yourself in an entirely different industry. Does that past expertise matter?

    Sometimes in a business career, you develop an expertise and then suddenly find yourself in an entirely different industry. Does that past expertise matter? It certainly did when Lance Malone joined Dallas, TX-based Standard Supply & Distributing Co. as COO.

    Malone, former CFO of an insurance company, admits that when he entered the HVACR business in 2000, it was a new industry for him. Under the tutelage of Standard Supply's president and former HARDI president Bill Shaw, he not only learned the business but was drawn to the Insurance & Risk Management Committee given his background.

    "I found an area of expertise that I could bring to the HVACR industry, and Bill [Shaw] urged me to participate in HARDI and other industry organizations," Malone says. It was a perfect fit.

    Malone will be the first to admit that insurance topics aren't the type of subject that raises someone's blood pressure, but most recognize its importance.

    "It's a significant expense to cover physical and human assets and to protect them," he says. According to Malone, that coverage can amount to several percentage points of gross profit, and while some of the larger wholesalers might have an innovative insurance program in place, smaller firms generally have fewer options.

    The role of the committee is to provide, through HARDI, both access to and information about insurance and related products that they might not otherwise get on their own, according to Malone. "We are not selling any products, but we can provide information and options that their local representative frequently won't," Malone says. He notes the obvious: Most insurance salespeople will favor their most profitable products whenever recommendations are necessary.

    The information-sharing aspect of the committee is as important as the programs. The committee keeps abreast of changes in the industry that might affect wholesalers. Examples include potential changes in the last health care reform bill that took up the bulk of its efforts.

    "We advocate against policies that might be harmful to our businesses," he says.

    Does Malone have a wish list for the committee?

    He offers a polite, yet blunt, assessment: "I don't think we get the level of participation that we should, and it might be because members are not completely aware of the programs and benefits we offer as an organization."

    Some insurance professionals "are not always the best at conveying information because they are professional sales representatives and not specialists in how insurance businesses operate from inside the insurance company," Malone explains.

    As an ex-insurance executive, he also concedes that relationships drive the industry. He notes, however, that many wholesalers often fall back to their local broker for coverage when better options exist. Malone suggests that it is worth asking why the broker has not brought opportunities, similar to the one's HARDI offers, to the wholesaler in the first place. "Does the broker lack the capacity to offer these programs, or do they have [financial] motivation not to present other options?

    "I would ask why they didn't get the information or the best price from their local broker the first time around,"Malone advises.

    While the world of insurance can be complex, Malone's view of his vision for the committee is crystal clear: "I want to help every member of HARDI to ensure that they are properly protected against the risk inherent in our business at the lowest cost possible."

    One HARDI member, Indianapolis, IN-based Gregory & Appel Inc., offers several programs under the auspices of the committee.

    The company offers two separate programs for HARDI members. One is traditional insurance that is a proprietary policy (through Travelers) and the other is a captive program. Brad Dumbauld, vice president, notes that what makes his firm different from most competitors is that it has had a specialty in distributor-related businesses for years. "We know the distribution field," he says.

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    Dumbauld is working toward recruiting enough members under the traditional program that would eventually result in a dividend program for participating members. “We want to gather enough HARDI members together who understand that our risks are less than other industries and use that to gain lower rates and potentially generate dividends,” he explains.

    The other option (a “captive program”) is a self-insurance program whereby participants, in essence, own their own insurance company and receive back some of the premiums in the form of a dividend, Dumbauld says.

    A captive program requires a minimum number of companies to create a critical mass for acceptance. HARDI members, however, would already qualify because one exists for distributors under a relationship with Affiliated Distributors, a nationwide buying group. Companies that would gain the most advantage under a captive program are those that spend at least $100,000 per year on insurance.

    “A captive program can allow members to earn back up to 60 percent of their premium, and on a percentage basis. There's a risk component, but it's often much less than the reward component,” he says.

    Whether it's a traditional program or a captive program, the key lies in marshalling enough members to join and to use their numbers to gain discounts or drive dividends on what is now just an expense, Dumbauld explains.

    Another offering by HARDI is a group medical insurance program through Oak Brook, IL-based Veritas Risk Services.

    The company offers a way to help significantly reduce a distributor's health coverage-related costs, says Doug Truax, managing partner. A captive program is able to reduce those costs, through individual risk retention, limited risk sharing and high-quality service partners, according to Truax.

    Because members tend to be like-minded with regard to health benefits, their company can limit the downside of risk, Truax says.

    He also notes the impending deadline of Jan. 1, 2011. It is important to enroll beforehand because that's when most policies go into effect. “If any HARDI members would like to learn more about our captive program, I would be happy to speak with them,” Truax says.


    Lance Malone, COO
    Standard Supply
    [email protected]

    Brad Dumbauld
    Gregory & Appel Inc.
    [email protected]

    Doug Truax
    Veritas Risk Services
    [email protected]