Are You Prepared For The Future? It's Here!

Consolidation within our industry is going much faster than we anticipated a few short years ago. The number of players is shrinking, and those remaining-specifically the risk bearers-are standardizing certain segments of the insurance product so they can better manage the product and its related risk. This push to simplify delivery reduces the need for a professional agent. Between rapid consolidation and product standardization, the marketplace will become increasingly competitive and self-limiting.

As the underwriters fight to survive and determine their target market in this dynamic environment, they're forced to take a short-term view on financial gain. At the same time, they're developing long-term goals on such issues as managing their relationships with independent agencies and the optimal ratio of agency-generated and direct-to-consumer business.

This all results in continued pressure on the mid-sized agency to operate efficiently and cost-effectively. The entrepreneurial sales organization must develop pragmatic strategic goals that are based on a sound financial premise and that support a solid, realistic business plan.

Developing such a plan may seem daunting. Begin by answering some fundamental questions-this will give your plan a solid foundation.

• Do you and/or your firm have what it takes to succeed in the future business environment?
• Can you perform at a level that meets the expectation and demands of your plan?
• More importantly, do you want to?

Let's face it, you have only two options if you want to be a player: Determine whether you have the talent, guts, and capital to grow and re-create your company so it can remain independent, or acknowledge that you don't have these key elements and restructure your firm into an attractive asset for a merger or acquisition.

Either way, business excellence is necessary. Your brokerage business is under pressure to grow through acquisitions, internal growth, or mergers, but you can't ignore the impact of such growth on your company's culture or profitability. This brings to mind the classic definition of insanity: continuing to do the same thing over and over and expecting different results.

You must choose your direction intelligently and realistically. For you to have a reasonable chance to succeed, your direction must mirror your commitment to your chosen option, and your assessment of your resources must be rigorous and realistic. To help make this pivotal decision, let's examine a few of the marketplace factors more closely.

In addition to industry consolidation, carriers are raising their level of minimum acceptable volume and their expectations for professionalism, good communication skills, high-quality work products, and the capability to be Internet-friendly. Hit ratios and business demographic requirements are constantly changing. For example, I recently attended a meeting with a large national carrier's top executives and agency principals from around the country. Someone commented that agencies are engaged in the same process as the insurance companies-analyzing who will survive and aligning themselves accordingly. There was total agreement on this point, and one of the carrier's executives indicated that one of their top priorities was developing a plan for moving forward, because only a proactive position would assure their survival.

In addition, passage of the Financial Services Modernization Act of 1999 means insurance companies will acquire or develop the resources needed to compete for business with domestic and overseas financial service providers, banks, and brokerage operations-creating a controlled cross-selling array of services.

As this happens, insurers will develop a proprietary sales force or align with agencies that have the demographic spread, knowledge, resources, and ability to deliver fully-integrated financial products and services.

For agencies, this marketplace is just as dynamic if not more so. This year, industry analyst Marsh Berry predicts that agencies with receipts of $1 million to $5 million will control 37.2 % of the market. By 2010, agencies will have less than 19 % of the market. Over the same 10-year period, agencies with revenues exceeding $5 million will see their market share jump from 49% to 77%.

(Source: Marsh Berry issue 6, 1999, "Forget Y2K - Prepare for the 2KO's - Assumes Market Plan Growth of 8.6%." Reprinted with permission.)

By now you might be wondering, "What does all this mean to me? I'm doing well, and I'll adjust. I always have." Remember the earlier definition of insanity-doing the same thing over and over, and expecting different results. Insanity only begets more insanity. There is a compelling need for change.

Our agency's experience illustrates this point. When our revenue was $1.5 million we recognized that we needed to either grow or merge to perpetuate the agency, its value, and our stability in the marketplace. We elected to grow aggressively-and we did, during hard and soft markets-until our revenues topped $6.5 million. Still, it wasn't enough.

An alternative solution materialized-as the saying goes, timing is everything. USI approached us to become their charter agency, and we seized the opportunity. USI's meteoric rise from nonexistence to being the fifth largest insurance brokerage in the United States (and the sixth largest worldwide) in five years is well known. For us, the result of our decision was just as phenomenal. In a few years we were able to grow our agency from $6.5 million in revenue to more than $20 million.

The issues and decisions we faced years ago are the same ones agencies face today. Now, however, the stakes are much higher and the urgency greater. This makes the issues more compelling, the decisions as risky-and the outcome equally rewarding.

Starting today, your planning process must include getting to the heart of these issues as you choose whether to grow your agency or prepare it for merger or acquisition. Begin by asking yourself these questions:

It's easy to manage things; the challenge is to effectively lead people.

Are you ready and willing to "let go"-to hire people who are smarter and more skillful than you, endow them with your vision, and give them the authority to act on your business plans?

As you carefully weigh the answer, consider your responsibilities to your family, your partners, and your employees. The path to success might seem clear, but it's often littered with failures and requires absolute commitment and a clear focus.

Can you maintain your proactive service to your clients, including appropriate financial commitment, without limiting your offerings to a narrow group of products?

If you can answer the above questions positively and without hesitation, you have an exciting and enviable challenge ahead as you begin your journey to create a thriving, competitive independent agency.

If not, that's okay, because your future will be equally challenging-but in a different way. You'll be charged with developing your agency to its maximum capability and profitability so it can be merged with or acquired by the ones creating the organizations of the future. Your sales- and relationship-based organization, with its talent and vitality, will be the cornerstone of the next generation of independent agencies.

I believe the answer to the question of whether you should grow or merge may already be in place, regardless of whether you realize it, and I suggest that tomorrow does offer opportunities and incredible challenges. But one thing is clear-there's no room for the status quo.

If you agree that the question of whether to grow or merge has to be addressed without delay, you need to create and implement your business plan now. Here are some of the major steps in this process:

• Assess the strengths and weaknesses of your leadership team. Determine how to make them part of the solution. Share your vision, give them a clear understanding of the process, and make sure they're committed to success. You might have to make some painful decisions, but if you're not willing to take the first step, don't bother to put on your shoes.
• Survey your staff. What do they think of the organization? How committed are they to your new vision? What do they think needs to be fixed to implement your vision?
• Lay out your plan for success, and communicate, communicate, communicate!
• Actively measure, monitor, and hold yourself and your team accountable each step of the way.
• Review your plan continuously and be ready to adjust it as necessary. Accept that this is an ongoing process.
• Finally, enjoy yourself. Don't be immobilized by fear of success or failure. Likewise, don't use fear to motivate people-this is a fatal trap.

In my 40-year career, I've observed clients, insurance agencies, and companies lose sight of a critical ingredient-people. The synergy of a team that's focused on its purpose and dedicated to one another's well-being is more powerful and important to the long-term success of a business than any other factor. Your leadership, backed by an empowered organization, has limitless potential. Your clear and rational vision will enable that potential to be realized.