The changing marketplace is presenting several new pressures and challenges for the owners of independent agencies. The successful agency principals of the future need to be able to anticipate change and build into their organizations a capacity for continual adaptation as outside forces affect internal considerations.
CONSOLIDATION
Virtually every agency principal has faced - or will in the near future - the opportunity to merge, acquire, or be acquired. The most important thing to remember during the decision-making process is not to panic. A business combination with fear as the underlying motivation is almost always guaranteed to be ugly.
Owners must jointly understand the strategic position and needs of the agency in order to determine whether an acquisition, merger, or sale will help accomplish their objectives. They must also individually assess their personal goals. How long do they want to work? How hard do they want to work? How much money do they need for retirement? For example, if the majority of the owners only want to work for another couple of years and have already started to slow down, they shouldn't be thinking of buying an agency with 65-year-old principals who have no younger producers to effect their own perpetuation plan.
An acquisition or merger might be financially appealing (a steal) or provide the opportunity to quickly increase volume, but unless it contributes long-term value to the agency and its individual owners, it'll be a mistake.
ADDING VALUE
A second major challenge for agency owners is to figure out ways to provide better value so clients aren't tempted to go elsewhere. During a soft market, clients look primarily at the cost of placing the risk with a certain agent or company. In a harder market, they'll want ease of doing business, along with - or perhaps even more than - price.
Time is at a premium for most people, whether they're obtaining insurance for themselves or for their company. The Internet and overnight shipping have made them accustomed to getting what they want quickly and generally correctly. Firms that want to write insurance in the future must be accessible and efficient, as well as knowledgeable, or they'll face being left by the wayside. Few consumers will care if the agency has been in business for 50 years or if everyone working there has a professional designation when the policies they purchased arrive two months late and are incorrect.
To improve quality and efficiency, independent agents and the companies with which they do business must find a way to better integrate technology into the process of selling and servicing customers. Companies need to take the lead in driving automation by making it easier for the agent to transfer data and by reducing duplicate entries, a main cause of errors and lost productivity.
It used to be that more than 90% of what came into an agent's office had an error on it. The percentage has been reduced to 70%, but this simply isn't acceptable. The time wasted checking things, correcting errors, and sending second could have been used to conduct a risk management review of an account before renewal. To provide the type of service the consumer of the 21st century demands, agents must be more than distributors. In addition to selling insurance, they need to be consultants, a point of reference for risk transfer advice. They can't do that if they must spend their time on unproductive tasks.
PERSONNEL MANAGEMENT
The third and perhaps greatest challenge agency principals are facing is to shift the emphasis in personnel management. It's essential to establish and maintain a team of dedicated professionals who are capable of and interested in participating in the agency's success. They need to have a high level of energy and good computer skills, understand basic business concepts, and be willing to continually enhance their training and education.
Old Mary and Old Harry may have been instrumental in helping you start the agency, but times might have passed them by. Management teams in profitable and growing agencies focus not on past participation and longevity, but on the potential for future contribution to the organization. Making that change is difficult and often personally gut-wrenching. But it's better to deal with the problem head-on rather than to jeopardize the agency's future for the sake of loyalty.
It takes careful planning, constant vigilance, creativity, and no small amount of luck to build and maintain an effective team of motivated employees. Agency managers have to focus on setting objectives and rewarding people for accomplishing those goals, both individually and as a group. Use a results-oriented approach, making decisions only after a careful review of the results you hope to accomplish by hiring a particular person or establishing a new policy, procedure, or compensation system. Will this course of action give you what you want, or is there some better way to achieve that end? Decisions should be made with the big picture in mind, not merely as a response to a temporary crisis. A written strategic plan with growth strategies and personnel and perpetuation objectives will help agency principals keep a broader perspective. But it's how you use that plan to develop the agency team that will determine your ultimate level of success.
The agency's success in team building will depend on the management's ability to hire the right people; compensate based on performance; communicate the agency's goals to the employees, showing them how they can participate in accomplishing them; involve the producers and staff in procedural decisions that affect their ability to service the customers; and stimulate positive motivation through providing personal recognition and professional growth opportunities.
Perhaps the most elusive part of the team-building process is the creation of an environment in which the employees are motivated to help the agency accomplish its objectives (while of course making lots of money and furthering their own goals). Providing motivation is particularly challenging while trying to manage producers and marketing personnel during discouraging soft market conditions. No matter how well they do on a presentation, they often lose a prospect to pricing competition. Worse yet, that competition might have come from one of the agency's own companies. Now that agency staff have developed tough hides and an ability to find that lowest price, the ballgame is changing.
Look at a roster of employees and determine how long they've been in the insurance business. Chances are that at least half, if not more, of the employees and producers have never experienced anything other than a soft market. They'll have no idea how to proceed as premiums flatten and then rise. All of the selling and marketing skills they've developed will need to be tweaked or perhaps even changed dramatically. While the prospect of higher premiums and commissions can provide a certain amount of motivation when compensation is based on commissions, a massive retraining effort is essential if they're to be in a position to cope with the new conditions. Otherwise their effectiveness and motivation will drop.
Just like most of the underwriters in the insurance companies, agency personnel have to be taught how to truly underwrite a risk. Time management skills must be addressed to make sure that the appropriate priorities are dealt with. Producers and CSRs need to understand that despite swings in the market, this is still a relationship business. Integrity and honesty with prospects and customers is essential to establishing long-term and profitable accounts.
When the market tightens even a little, everyone in the agency is affected in one way or another. There's more servicing work, because more documentation has to be gathered and transmitted. Procedures for new business and renewals probably have to be changed. Anyone in contact with commercial insureds may get an earful when the renewal premium goes up rather than down. Agency managers can't afford to let the employees deal with all of this by themselves. Proactive management of the people and the issues has to be a top priority.
To manage the people, step up formal communication on what's happening in the marketplace through meetings and internal e-mails. Set aside time to have short agency or departmental meetings to discuss specific topics and to bring up problems. Take employees' concerns seriously, and respond either by fixing what's bothering them or by explaining why nothing can be done about it. Buy lunch or throw a party when a new large account is written, when monthly goals are achieved, or when everyone has to pitch in to reduce a backlog situation. One of the best things a manager can do in periods of change is to stay in touch with the mood and put out the small fires before they become big.
Managing the issues should also be a collaborative process. The people who are performing sales, marketing, and service functions in the agency must be given the opportunity to provide concrete input on how the transactions should now be handled, and by whom. Procedures that are determined solely by agency principals, managers, or the computer vendor are often inefficient and create extra work and morale problems. To develop and maintain a positive interactive spirit, particularly during times of stress, it's essential that management clearly and openly recognizes the positive contributions that everyone in the agency can make. Team building has to be a democratic process.