Snow Trees And Agency Growth

If agencies are like trees — forced to grow to survive among the other trees/competition — growth is essential.

One morning last winter, I awoke to a snow-covered world. A thick, heavy spring snow covered the trees and grass. Beneath each pine tree was a circle of dry ground; the bigger the tree, the bigger the circle.

I was looking at the larger circles thinking that because the big trees’ branches prevent moisture from falling close to the trunk they have to send their roots out far to search for water (tree roots generally go out rather than down where I live because we have no soil — just rocks). I asked myself: which came first: Did the roots expand first, enabling the limbs to grow wider, or did the limbs grow wider, forcing the roots to follow?

This “chicken and egg” question applies to agency growth. On average, the larger the agency, the bigger their average account size. This is a fact. Every study and set of benchmarks shows that larger agencies write, on average, larger accounts.

Source: Growth and Performance Standards 2002-2003, Academy of Producer Insurance Studies

So, do agencies get bigger because they write larger accounts or are bigger agencies forced to write larger accounts? This question is important for two reasons. First, it affects how agencies grow. Second, it impacts profitable account acquisition.

Like trees that need large roots to support their growing branches, as an agency grows, it can’t keep servicing small accounts in the way that it could when it was small. Because small accounts generally consume as much time and effort as larger ones, an agency must grow its accounts larger to support the agency’s growing size.

However, most agency owners, producers, and employees don’t want to act snobbish toward smaller accounts, or to throw away revenue. They often feel a sense of communal responsibility to these accounts. But agency size and account size are like gravity: Indisputable. As an agency grows, its average account size will increase. If it doesn’t, the agency will probably fail. This relationship is inevitable. Agencies that accept and adapt to this reality will enjoy greater success.

To adapt to this fact of life, agencies can use several strategies:

• Minimize small accounts:
  • Eliminate them.
  • Sell them.

• Service small accounts differently:
  • Use a Service Center (company or in house).
  • Have account executives, rather than producers, service and work all facets of the accounts.
  • Don’t encourage producers to write small accounts.
  • Don’t pay producers for writing small accounts, or at least pay them less.
  • Mandate a minimum account size.

• Write larger accounts:
  • Work current accounts where it makes sense by cross-selling them.
  • Use coverage checklists to make sure that customers are being offered all the coverages they need. While providing better protection for your customers, this will also increase your average account size.
  • Take away excuses for not working large accounts. Because people tend to keep working within their comfort zone, producers can easily find “reasons” to keep working small accounts. Whatever those excuses might be, work to remove them.
  • Get to work. As managers, this means taking a more proactive approach to sales and sales management.

As agencies grow, they require bigger accounts. This is a fact. If you want to grow, you need to service small accounts differently and write larger accounts. How will your agency do this? How will you keep your larger accounts from leaving as other growing agencies also focus on large account development? Growth must occur — the only question is how.