CHANGING AGENCY-COMPANY RELATIONS
by Bobby Reagan
On January 26-27, 1998, Reagan & Associates and the Independent Insurance Agents of America (IIAA) sponsored the First Annual Best Practices Symposium. In attendance were many of the 180 agencies whose operating results are included in the 1997 Best Practices Study. Although more than 1,000 agencies are nominated to participate, only the results of the top 30 agencies in six revenue categories are included each year. The study, which looks at the business practices of leading insurance agencies and compiles their confidential operating data to create benchmarks, has become the standard by which other agencies measure, evaluate, and contrast their performance.
In addition to honoring all the agencies included in the Best Practices Study and the agencies having the best overall performance in each category, the purpose of the Best Practices Symposium was to honor the seven insurance companies sponsoring the study: The Chubb Group, CNA Insurance, Crum & Forster, Fireman's Fund, Kemper Insurance, Travelers Property/Casualty, and USF+G. Each of them received an award, which stated that they were 'demonstrating their commitment to their agents, the independent agency system and the pursuit of excellence.' These companies realize that they cannot work in a vacuum but must work together with their agencies to improve the Independent Agency System and raise the standards by which agents conduct their business.
In my opinion, Best Practices has provided one of the most positive forums for constructive dialogue between the nation's leading insurance companies and agencies. We're living in a time of dynamic change that is affecting the way agents and companies do business. Unfortunately, some of the changes taking place throughout the industry are creating frustration and uncertainty.
At the heart of this uncertainty is a basic question: 'What is the future of agency-company relations?' Strategically, companies are addressing this in a host of different ways. Many have initiated Preferred Agency Programs. Frequently, companies are looking for larger volumes from fewer agents. Some companies want to model themselves on AIG, while others want to replicate Cincinnati and its successes. Some feel that the answer is lower commission rates, while others are pursuing Service Center approaches. Some companies are moving to a niche or target focus while others feel the answer is multidistribution channels.
It's difficult to know the ultimate wisdom of any of these strategies, but abandoning the traditional agency distribution system is not the answer.
Many people have drawn incorrect conclusions from some operating characteristics of the agency-company distribution system. The duplication of effort between agents and companies, and the facts that one-fourth to one-third of the activity between agents and companies is spent correcting errors, and that it takes months to get a policy or endorsement issued, are considered to be a fatal indictment of the distribution system itself. But, it's amazing that we've been as effective as we have in spite of these deficiencies. We have a huge amount of room for improvement. If we can address these issues, the profitability of the business for insurance companies and agencies will dramatically improve while at the same time positioning the independent agency distribution system to provide a better product at a lower price.
The relationship between agents and companies should be taken to a higher level. Historically, agents and companies have expected far too little from each other. We need to raise our sights.
Agents and companies can dramatically improve their operating efficiencies and become much more effective businesses and trading partners by developing new systems and procedures based on creative thought, progressive strategies, a willingness to step out of their comfort levels, and a willingness to improve communications in both frequency and substance.
It's well within the reach of insurance companies and agencies to increase their productivity and operating efficiencies by more than 50% in the next three to five years. This has to happen if both agencies and companies want to remain viable and achieve their individual objectives.
The answer is not to throw the baby out with the bath water. The agency distribution system has a lot more that's right about it than wrong. Belief in the system, though, should not suggest that we can ignore the problems, any more than recognition of the problems should lead us to abandon the system. We need honest and open dialogue. We need to recognize that the relationship between agents and companies is not based on competition. Individual success will come through collective success.
Clearly, what's needed is leadership-from the leading insurance companies and agencies-on issues such as how to improve operating efficiency and the effectiveness of the distribution system, and how to serve the consumer better.
The Best Practices Study, the Annual Best Practices Symposium, and the broad range of Best Practices initiatives, workshops, and programs can all provide a positive stimulus to find ways to develop and enhance the quality of relationships between agents and their companies. We greatly appreciate the commitment of the companies supporting Best Practices and the commitment of the Best Practices agencies who are demonstrating their leadership by helping to redefine the levels of performance and success by which our industry will be known.
This article is reproduced with permission from The National Underwriter, P/C Edition. Bobby Reagan, CPCU, is president of Reagan & Associates, Inc., a management consulting firm working in the distribution end of the insurance business.