10 Mistakes That Threaten Insurance Agency Survival

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Selling insurance isn't easy. Agency principals, producers, and staff can still reap rewards, but their ranks are thinning under pressure from lower premiums, reduced commissions, and greater demands from carriers and clients. Add to this the ever-increasing expense of technology.

The formula for a great insurance career used to be simple: 'Work hard for 20 years building the book of business, and the book will take care of you for the 20 years after that.' Not anymore. Industry professionals who thought they'd wind down their careers hitting little white balls are instead pounding the pavement. Agencies' former hallmark, stability, is gone. Client loyalty is a myth, carrier relationships can be tenuous, employees change jobs quickly, and competition is relentless.

Although this paints a bleak picture of the industry, better products and changing client needs create impressive opportunities. Unfortunately, many agents limit their business' potential by not fully exploiting the new opportunities.

Here are 10 mistakes insurance agencies make that limit their long-term success:

1. Embracing technology reluctantly instead of enthusiastically. Many agencies still don't have transactional filing capabilities, which is essential for efficient customer service. They have yet to provide E-mail access to all employees, which places them at a distinct disadvantage with Personal and Commercial lines customers. Customer and prospect management applications such as ACT!, Maximizer, and Goldmine drive home the importance of structuring the prospecting and sales processes. Prevent a weak link in the survival chain by investing continuously in technology.

Backroom technology is a separate issue-but a serious one, since the move to Web-based interfacing offers a solution to long-standing compatibility problems.

2. Neglecting to take Personal Lines seriously. Personal Lines cover the overhead and keep the doors open, yet they take a back seat to revenue-heavy Commercial accounts. CSRs, unlike others in the agency, are expected to fill a dual role by also acting as Personal Lines producers. Is it any wonder that Personal Lines are so price driven, when prospecting and selling is not a separate position?

3. Failing to build market segments. It's said that all business today is niche business. Customers want to deal with experts, not generalists. Yet producers operate in response to the pet programs of carriers-restaurants, oil-heat dealers, day-care centers, metal-working firms. They may create a frenzy of quotes trying to land a few pieces of business, but this method is nonexclusive and carrier dependent. Few stay with a particular segment for more than a few months, which suggests that something's amiss.

An agency builds a niche to own it and gain a competitive advantage. This may require a proprietary product, prospect research, and a well-defined long-term marketing strategy, all aimed at building a specialized book of business. Creating a series of niches or market segments can help transform even an average insurance agency into an innovative organization.

4. Neglecting to integrate Life and benefits with their overall Property and Casualty business to become single-source providers. Just having an arrangement with a Life and benefits organization isn't good enough-this is about serving customers, not splitting commissions. Customers today want a single-source supplier. An agency that isn't is considered inadequate-and it is.

5. Prospecting ineffectively. Insurance organizations generally pounce rather than prospect, looking for a 'live one.' This creates a constant stream of proposals but not much new business.

Prospecting is a serious business function. It requires careful identification of prospects, development and implementation of an ongoing cultivation plan, and consistent follow-through. This way, an agency can cultivate a substantially larger number of qualified prospects and build relationships with them over time. This all translates into new business.

6. Failing to recognize insurance as a knowledge business. 'Does your insurance agent know something or sell something?' The answer may seem painfully obvious, but it isn't. Most insurance agencies are knowledge-based organizations requiring a high level of expertise to solve risk problems for customers. The average agency has enough accumulated knowledge to deal with almost any insurance issue. Customers need to know this if insurance is to be more than just another commodity, with price as the only differentiating factor.

7. Failing to inform and educate customers. Customer commitment is not about a round of golf or a birthday card. In particular, most agency newsletters flunk the 'news test.' Instead of offering helpful information, their articles are contrived sales pitches or thinly veiled gimmicks to quiet E&O fears. As a result, the customer feels conned.

A customer-oriented agency keeps people informed. It's generous with its expertise to establish credibility and a high confidence level. Whether in business or personal life, rapid change affects individuals and companies. Their risk issues deserve attention.

8. Losing their focus. Browse through any insurance magazine, and you'll see ads offering sure-fire ways to make $1 million. Agents are in constant hot pursuit of the next sales gimmick or the magic bullet. They attend seminar after seminar looking for an easy way to make more sales. In Alice's Adventures in Wonderland, the little lock runs around saying, 'I'm looking for the key to unlock me.' This is the insurance agent story.

This inability to remain focused is harmful. Attracting new business takes longer today than it used to. Customers don't want to make mistakes, so they don't make quick decisions. Staying with them produces results.

9. Communicating ineffectively. Customer communications from agencies usually range from poor to impossible. Make your letters and E-mail to your customers friendly and easy to understand. Don't call people 'insureds' or use jargon and stilted phrases such as 'please be advised' and 'per our conversation.' If specific policy information such as policy and reference numbers is required, put it in the body of the letter, not at the top. Don't assume that insurance is too complicated for your customers to understand, either.

10. Allowing distance to develop between agency principals and customers. Staying close to customers isn't good advice-it's the best advice. Yet agency principals tend to lose customer contact, leaving it to producers and account-servicing staff. Courting carriers, attending professional meetings, and strategizing the agency's future are important; still, the core book of Commercial Lines business benefits from an agency principal's experience. Distancing yourself from the producing function creates a dangerous 'rearview mirror' mentality-you approach today's client issues with solutions you used back when you were an active producer.

An agency can make mistakes in other areas, such as management and finance, that threaten its survival. But working on these 10 areas will help you prevent significant limitations to your organization's ability to thrive during the next decade.

John R. Graham is president of Graham Communications, a marketing services and sales consulting firm specializing in the insurance industry. He is the author of The New Magnet Marketing (the revised and updated version of his book Magnet Marketing) and 203 Ways to Be Supremely Successful in the New World of Selling. He writes for a variety of publications and speaks on business, marketing, and sales topics for company and association meetings. He received the APEX '98 Grand Award in writing. He can be contacted at 40 Oval Road, Quincy, MA 02170 (800) 659-0069; fax (617) 471-1504; E-mail [email protected], Web site www.grahamcomm.com.
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