WHAT MAKES A GREAT OWNER?
by Catherine Oak
If the role of an owner was treated like any other position in an agency, what would the job description look like and what are the key characteristics of the person to fill the role? Catherine Oak suggests that you use the same skills and talents developed for hiring employees when looking for a new partner or a perpetuation candidate.
The average owner of an independent insurance agency has spent most of their career in production. At some point, when their book of business was large enough, they either started a new firm or became a new partner in their current agency. Most owners have excellent production skills.
There will come a time when most agency owners will need to consider bringing on a new business partner. It might be related to a merger; or perhaps a key producer is requesting ownership in the agency. So, what’s the best way to screen and evaluate potential new owners?
THE ROLES OF THE OWNER
For purposes of this article, the term “agency owner” applies to the unique responsibilities associated with ownership, and does not include other roles, such as production. Often, an owner usually is the largest producer in an agency.
The primary role of an “agency owner” should be handling the strategic management of the firm. Strategic management means the big-picture issues, such as major decision-making, corporate vision/leadership, and agency planning. The smaller the agency, the more hands on the owner will need to be.
The specific tasks of an agency owner include: Strategic management of administration and operations, financial affairs, automation, market relations, sales, market placement, and client service. Some agencies might also have a program business department or a Life/Benefits department that would also require an owner’s attention. If an agency has more than one owner, these tasks should be split up.
In most agencies, a lead employee or a manager should handle the day-to-day tasks. For example, the accounting department should prepare all financial statements and management reports, as well as provide a summary of the results to the owner in charge of financial affairs. The owner need only review and analyze the results and report back to the other owners, if any, together with providing any recommendations.
Another area in which owners sometimes get too involved is personnel. Assign the day-to-day issues involving human resources or workloads to an office manager, department manager, or lead employee. When it’s possible to delegate these activities, owners should only be involved with major issues, such as hiring and firing, making sure that annual reviews are performed, and supervising the overall structure of the service departments and distribution of workloads.
THE REQUIREMENTS
What type of personality, talent, and characteristics should a great owner have? The goal of every agency is to create new sales, service its clients, and make a profit. Within these parameters, all owners should have some fundamental characteristics.
A great owner must have a sales-oriented personality. Although the owner doesn’t always have to be a producer, they need to appreciate production. Without such an understanding, the owner would have priorities that could be detrimental to the firm. As a rule, great producers make good owners.
In a similar fashion, a great owner needs to have a true appreciation for client service. Problems usually arise if the owner focuses on new production, while neglecting existing clients and downplaying the importance of the service staff.
The last common trait that all owners need is an entrepreneurial spirit and vision. In other words, the owner must act like “an owner;” they need to feel responsible that things are running smoothly, new sales are increasing, retention is high, costs are controlled, and the agency is moving in the right direction.
For those who start their own agency, this trait usually is fairly strong. However, the entrepreneurial spirit might be weak in a person who moves up the ranks in an agency and becomes an owner because of the size of their book or duration of employment. Owners who lack this spirit tend to become nothing more than stockholders in the agency; rather than being active owners in the broad sense of the term, they seem to retain an “employee mentality.”
A “great owner” should also be a well-rounded individual with great life experience. Knowledge of a variety of aspects of the industry will enhance their management skills.
An owner also needs to have excellent communication skills and leadership traits. Keep in mind that most owners have had no leadership or management training; however, many of the specific skills an owner needs can be learned on the job.
The “great owner” will have most of these characteristics. The rest can be filled in over time.
HOW TO REPLACE AN OWNER
When an owner is hoping to retire, it might take two or three people to replace their role, skills, and knowledge base. Although there are good administrators and good producers, very few people are cut out to be great at both. Running an insurance agency today is far more difficult than ever. Not only do insurance companies demand more from the agency (better underwriting, a higher level of professionalism, etc.), but so do employees; they’ll be quick to leave if they don’t feel satisfied or appreciated.
Turnover is far higher than it used to be. As agencies grow, they often need a person to handle human resource issues under the supervision of an owner. It’s essential for the owner to understand and comply with a myriad of constantly evolving rules and regulations. Because wrongful termination and sexual harassment suits are commonplace, many agencies buy Employment Practices Liability insurance to protect themselves against such litigation.
WHO FITS THE ROLE?
Because management involves such a wide variety of skills, it’s difficult to find one person to fit all these roles perfectly. Agencies that have more than one owner have the advantage of splitting up the roles or rotating them periodically to allow some variety in who runs or manages what.
Most owners feel comfortable in dealing with markets, since they’ve usually been doing so already. Less favored roles include financial management and human resources, probably because few owners have experience in these areas. “Great owners” however, are willing to take on all roles, and when necessary, educate themselves to improve their skills.
Agencies that are looking for a perpetuation candidate, an acquisition/merger prospect, or just evaluating an employee as a new owner should follow the usual hiring process:
- Know your agency’s expectations and needs.
- Create a list of characteristics required of that person.
- Interview the prospect to see if they meet the established criteria. Failure to meet these criteria should be an automatic exclusion from ownership.
Reward good producers with deferred commissions or ownership in their book instead. If they prove themselves to have management and owner potential later on, the agency can use deferred compensation or vested interest in their own books to offset the cost of the stock.
CONCLUSION
Reviewing the issues in this article will provide insight into the “big picture” of agency ownership. The key is to understand all the options, think long-term, and keep a clear head.
Catherine Oak, CIC , AAI and Bill Schoeffler, CIC and, are partners in the consulting firm, Oak & Associates, based in Northern California. The firm specializes in financial and management consulting for independent insurance agencies, including valuations, mergers acquisitions, clusters, sales and marketing planning as well as perpetuation planning. They can be reached at (707) 936-6565 or by e-mail at [email protected]. Reproduced, with permission from Insurance Journal.