AGENCY SURVIVOR: OUT-SELL, OUT-MARKET, OUT-COMPETE!
by Robert C. Smith
Make sure that your agency doesn’t get “voted off the island.”
More and more agency and brokerage executives are asking themselves, “How do I survive the current market?”
A great deal of business has moved from standard markets to alternative markets, often at reduced commission rates and without contingency agreements. The rating base of many accounts is down and customers are buying less insurance.
Agencies that lack the skills and resources to compete are “getting voted off the island.” These “losers” lack sales firepower, company representation, and/or the business savvy needed to compete in a difficult insurance marketplace.
What are the characteristics and qualities of the high performers? Do the agencies that want to survive, but aren’t yet there, have time to reengineer their business? Yes — if they follow these guidelines:
OUT-SELL!
New business for an insurance agency is the brick and mortar of shareholder value, the source of expanding service to customers, the fuel for employment and compensation advancement for the staff, and a bandage for the inevitable organizational misstep. The ability to achieve a predictable and sustainable flow of new business defines the nation’s best agencies and brokers.
Your agency’s ability to hire, train, and retain production talent has become the most significant contributor to your long-term success.
Organic growth from new client relationships is essential to the health and welfare of your organization. Growth of 10% — 12% or less reflects that the agency is “maintaining” its current position. Growth of 20% or more reflects a truly healthy sales organization.
Is it too late to invest in production talent? There’s generally a two to three-year “validation” period for producers. Investments made today should yield breakeven cash flow in two years, and significant returns on investments in four to seven years. Investments in producers require patience, but must take place now, as many firms have more capital than ever to make such investments. If you plan to still be an agency principal five years from today, use the “bubble” of revenues that you’re enjoying to reinvest in producers. If you plan on selling or retiring in the next five years, put the cash in your pocket, but be prepared for a lower valuation on your stock when you do sell.
OUT-MARKET!
The greatest challenge facing many smaller agencies today is gaining access to competitively priced products with standard companies. The shrinking pool of standard markets is pushing many accounts to non-standard and non-traditional providers, often at reduced commission rates.
Many agencies are struggling to retain their books of business and experiencing limited growth in revenues. With some carriers reducing commission rates, agency staff often has to work harder than ever to retain business, which takes them away from pursuing new business.
Despite some exceptions, access to insurance companies and strong relationships with key carriers have never been more important. The survivors of the next few years will continue to reinforce strong existing company relationships and hopefully avoid the rampant use of price-cutting as a sales strategy.
OUT-COMPETE!
Competition focuses on the ability to find competitively priced products in a timely fashion. Many agencies are building their firms around the concept of becoming a “trusted advisor” to their clients (as opposed to a “vendor” relationship). Although price will always be a major determining factor when selecting a broker and carrier, it’s no longer the only, or in many cases not even the most important, criterion. Your agency’s skills in marketing, coverage comparisons, and alternative risk management solutions are contributing to account retention and new business. Great agencies are now in the “creative solutions” business for their clients and insurance is their primary tool.
The most successful agencies often specialize in selling, marketing, claims, loss control, and other value-added products and services. This specialization, especially in marketing with carriers, can result in the ability to move more quickly than the competition. As someone once said, “It used to be that the big would survive. Now it’s the quick that will survive.” When a producer is burdened with all aspects of selling, marketing, and servicing of accounts, they’ll find it difficult to respond to the rapidly changing market and to have the “competitive intelligence” to represent customers. Create internal specialization of activities to serve your clients more effectively.
WHO WILL BE AGENCY SURVIVORS?
The insurance brokerage business in a flat economy is almost a “zero-sum game.” One agency’s victory is often another agency’s defeat. The current market probably won’t cause enough pain to create an exodus of agencies. In fact, statistics indicate that the number of agencies is on the rise after 15 years of decline. On the Survivor TV series there’s only one winner. This insurance market will produce numerous winners and numerous losers.
Robert C. Smith is a principal of Reagan Consulting, Inc., an Atlanta-based management consulting firm that serves the insurance distribution system. He may be reached at (404) 233-5545 or by e-mail at [email protected]. Additional information about Reagan Consulting is available at www.reaganconsulting.com.