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Agency Management: The Great Compromise
Chris Burand defines the great compromise as working smarter, rather than harder. Of course, 12 hours of working smarter is always going to pay more than 10 hours of working smarter, but many people who worked 12 hours per day did, and do, so because they’re not working smart. Again, by working smarter, many agents can generate as much revenue and profit by working 10 hours per day rather than 12. Kemmons Wilson, the founder of Holiday Inn, had a rule for business success. In his autobiography, Half Luck and Half Brains, he advises, “Work 12 hours a day. It doesn’t matter which 12.” When I read this, it gave me pause to think about two things. First, a person who works 12 hours per day must give up a lot of family and friends time. Second, is his rule really applicable to most insurance agency owners? Mr. Wilson later notes in his book that to be very successful, a person must give up a lot of things that many people value. Coors beer used to have a commercial with a question, “Do you live to work? Or do you work to live?” When consistently working 12 hours per day, a person is living to work. In consulting for agencies around the country for the past 15 years, I’ve noticed that, generally speaking, older agency owners were much more willing to work 12 hours a day than younger agency owners today. Maybe this is because the older owners grew up in the Great Depression, perhaps they grew up with a stronger work ethic, or maybe (being almost exclusively men), they didn’t feel that they needed to participate as much in child rearing. Mr. Wilson was also part of this generation. Younger agency owners seem to feel more responsibility for raising their kids, which is a key reason that they’re less willing to spend so much time building their agencies. Even without kids though, my impression is that most aren’t willing to work such long hours. I’m not suggesting that working only 10 hours per day, rather than 12, is a bad thing. However, not working 12 hours often presents two huge problems for agency owners. First, eight-hour days are almost always insufficient and many agency owners of the younger generation seem to think that eight hours should be enough. Agency owners have too much responsibility. If working eight hours per day interferes too much with raising kids, or a marriage, or whatever else, I’m afraid that they must make a very difficult decision. Second, I have worked with a number of agencies in which the younger generation, or their spouse, expects to earn as much as the older generation without working as much. This conflict between desiring, and sometimes demanding, 12 hours worth of pay for eight hours of work can cause tremendous conflict between partners and families. It can also destroy agencies if the owners’ spending habits exceed the agency’s ability to support those habits. Perhaps the solution is for the younger generation to be considerably more effective than the older generation. Few can do this, but it is possible. For example, producers who are selective in whom they write are much more successful. Most producers will sell any living entity willing to say “Yes” or even “Maybe.” Successful producers, however, quit writing those customers who always pay late, are too small (unless they charge a fee in addition to their commission), require excessive service, or are just generally pains in the butt. It’s not unusual to see books increase 20% to 40% when producers and owner-producers do this. To put this in dollar terms, most agents will never run out of writing $500 commission accounts. Even in rural America , $500 accounts are plentiful. Therefore, if an agency’s average account is generating only $300 commission, eliminating a number of $100 accounts and replacing them with $500 accounts (so that the average account size increases to $400) amounts to a 33% pay increase. Yet, when all is said and done, no extra work will result. There’s no more work involved in servicing a $500 account than a $100 account. The great compromise involves working smarter, rather than harder. Of course, 12 hours of working smarter is always going to pay more than 10 hours of working smarter, but many people who worked 12 hours per day did, and do, so because they’re not working smart. Again, by working smarter, many agents can generate as much revenue and profit by working 10 hours per day rather than 12. Another way to achieve this is doing what The Strategic Coach program terms “finding your unique ability.” This means delegation! Delegation is something hard for many agency owners to do. Yet, if one delegates all but the most important responsibilities, profits can rise. For example, the average agency principal makes about three to four times more per hour than CSRs, so why would a principal do work that a CSR can do? Is it not more profitable for the owner to only do the most important tasks? Another way of looking at this issue is considering your attorney’s fees. If your attorney charges $200 per hour, do you want to pay them for typing a letter? The attorney might make more since they charge by the hour, but agents don’t; so the only person hurt by unproductive activities is the agency owner. Working smarter is the key for agency owners looking for the best of both worlds: Shorter working hours and the compensation to match those who historically worked longer hours.

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Positioning Is An E&O Issue
The way you position yourself with your clients impacts your E&O exposure. Fast Phil sells cheap, hassle-free insurance. He says, “Just write out the check and I’ll do the rest.” He’ll say that an agent’s job is to make sales, and he’s willing to do whatever is necessary to make that sale. Phil doesn’t worry about making mistakes; he just makes certain that the premium on his E&O policy is paid on time. Across the hall sits Kelvin Scholar, CPCU, CIC, ARM, who has developed a risk-management approach to writing an account. He attends the advanced-coverage seminars, studies insurance contracts, and keeps abreast of the market. He believes that a client should be able to rely on an agent’s expertise. Kelvin can’t imagine ever being sued, since he does such a comprehensive job. Paula Perfect, CIC is an average agent writing average accounts. She tries to target market to keep her companies happy. Paula works hard at renewals, improving coverages, and shaving prices. She’ll never write as much new business as Fast Phil, but Paula makes up for it in retention. She lacks the technical expertise of Kelvin, but her clients trust her; some consider her a friend. Which of these three agents has the greater errors and omissions (E&O) exposure? Which is more likely to be sued for mishandling an account? In today’s legal environment every agent has a significant professional liability exposure, but each agent’s exposure differs. A claim filed against Fast Phil is likely to be different from the one Kelvin might face, and a claim on Paula will be different from either one. Each agent’s claims are determined by their relationship with clients. Positioning Positioning is the act of defining one’s responsibilities in a given role. Individuals adopt a position relative to each role they have assumed in their lives. This definition influences attitudes and actions. Try this experiment: Approach three people who have children and ask them, “What do you believe is a parent’s primary responsibility?” The answers they provide will likely diverge from each other. Parents define their roles differently and take different approaches to raising a child. It’s a tribute to positioning that many people look to parenting experts and adjust their position based on what they hear. Positioning and the Professional In the 1950s, doctors would diagnose terminal cancer and send the patient home to die without ever informing them of the diagnosis. That physician of that era often made life-and-death decisions without consulting the patient. The doctor was positioned as the expert. Faced with similar circumstances, today’s doctor will inform the patient of the diagnosis, discuss treatment options, describe side effects, and recommend a second opinion. This doctor will inform, discuss, describe, and recommend, but leave any decision to the patient. This physician is positioned as a resource. During the past 20 years, we have seen a significant shift in positioning in the medical field. Increasingly, doctors are projecting the image of a resource, rather than that of an expert. Do you think this shift occurred because someone convinced physicians they were not omnipotent? Or do you think it was a calculated move to reduce the frequency and severity of Medical Malpractice claims, a loss-control measure to stem the tide of rising insurance premiums? Positioning and the Agent The insurance industry can learn a lot from the medical profession. The roles of agents also determine their legal responsibilities. Positioning tells the consumer what they can expect from the insurance transaction. It also helps inform clients which responsibilities, if any, remain on their shoulders. Let’s look at an industry example to clarify the importance of positioning and expectations. Whenever Paula writes Property coverage, she becomes involved in setting the insurance amount. Recently, she reevaluated her involvement and was troubled by several questions: How should she determine the insurance amount on a building? Are the replacement cost surveys provided by the companies accurate? What’s the best way to present the figures to the client? Who bears the primary responsibility for having the dwelling adequately insured? Agents take differing positions on these issues. Fast Phil writes Property coverage on the house without ever seeing it, fudging on the estimator, and feeling no obligation to discuss the insurance amount with the insured. He thinks, “After all, what are the chances of having a total loss?” Kelvin, the expert, uses all the resources available, determines the replacement cost, and tells the insured the proper insurance amount. All his years of experience calculating the amount have made him confident that his clients are adequately insured. Paula isn’t so sure of herself. She has read the Marshall Swift press release, which claims that two-thirds of 20,000 homes surveyed were underinsured by an average of 35%. She believes that the underwriter’s replacement cost estimator is an excellent tool for maintaining the integrity of the rating structure. However, she questions its accuracy in determining the amount necessary to place the insured back in a comparable dwelling. She’s been talking to area contractors who specialize in reconstruction, and has visited the local building inspector. Paula is concerned about the law or ordinance exclusion, debris removal, increased costs following a catastrophe, and the figures that show reconstruction costs to be much costlier than new construction. Paula has changed her approach with new Homeowners clients. She now tells them, “I’m not an appraiser, and I can’t tell you the amount of coverage you need on your home. I can tell you the amount of coverage the company requires to issue the policy. And I can tell you the additional issues that you would want to consider. I can give you information, but I can’t tell you the correct insurance amount to cover a total loss. Think of me as a resource, not an expert.” Fast Phil doesn’t discuss building values with clients; Kelvin chooses the correct amount; and Paula discusses issues and leaves the decision to the insured. Each has positioned himself differently in his relationship with his clients. Their clients have different expectations of each agent. Each has a different E&O exposure, which is influenced by their positioning. Four Steps to Take Agents get sued when their clients feel that they’ve received less than they deserve and that their expectations weren’t met. Past legal decisions can inform clients of the level of service they can expect from their agents. Client expectations might also be determined by their agent’s image, which was based on their positioning. Proper positioning is important to the agent who’s interested in reducing the severity and frequency of E&O claims. To establish a position, an agent should take these four basic steps: Determine current position. Whether you’re looking at a particular issue in the industry, such as dwelling limits, or your overall position as an agent, the first step is to analyze what you’re currently doing. Determine how your current actions position you. Are your actions congruent with your goals and values? Or have you simply developed habits that dictate how you approach an issue? You should also analyze your support staff. Are they projecting your position accurately? Are their actions reflecting the philosophy of the agency? Question its validity. During the past decade, the relationship between insurance company and agent has changed dramatically. Have you adjusted your actions accordingly? Or are you operating the same way as you did 10 years ago? Litigation has increased in our society over the past 20 years. Consumers expect more now than ever before. Have you adjusted your business to reflect the changing climate. Revise where necessary.. Review your philosophy of doing business, and you might rewrite your mission statement. Define the responsibilities and adjust your positioning. Make the necessary adjustments in the way you and your staff do business. Revisit regularly. The rapid rate of change makes modern life quite challenging. Anything we learn today might not hold true tomorrow. To keep up with the latest changes, agents must frequently adjust their positions. Fast Phil will never take the time to analyze his positioning, because he’s too busy in the field making another sale. Kelvin, the expert, knows he’s positioned properly and can quote authorities to support his position. Meanwhile, Paula is committed to reviewing and revising her position regularly. This is the only way she can do right by her companies, clients, and agency.

USG Insurance Services, Inc. is a national wholesaler and managing general agent (MGA) with 19 offices across the country and the ability to write in all 50 states. Built from the ground up by some of the top executives in insurance, USG continues to expand operations nationwide while providing innovative solutions for the risk management industry. The USG team consists of experts divided not by territory, account size, or coverage who can help meet all commercial insurance account needs. We are problem solvers for all commercial lines coverages and specialize in hard-to-place risks, providing our agents with focused expertise and solutions.

USG Insurance Services, Inc. is a national wholesaler and managing general agent (MGA) with 19 offices across the country and the ability to write in all 50 states. Built from the ground up by some of the top executives in insurance, USG continues to expand operations nationwide while providing innovative solutions for the risk management industry. The USG team consists of experts divided not by territory, account size, or coverage who can help meet all commercial insurance account needs. We are problem solvers for all commercial lines coverages and specialize in hard-to-place risks, providing our agents with focused expertise and solutions.

USG Insurance Services, Inc. is a national wholesaler and managing general agent (MGA) with 19 offices across the country and the ability to write in all 50 states. Built from the ground up by some of the top executives in insurance, USG continues to expand operations nationwide while providing innovative solutions for the risk management industry. The USG team consists of experts divided not by territory, account size, or coverage who can help meet all commercial insurance account needs. We are problem solvers for all commercial lines coverages and specialize in hard-to-place risks, providing our agents with focused expertise and solutions.

USG Insurance Services, Inc. is a national wholesaler and managing general agent (MGA) with 19 offices across the country and the ability to write in all 50 states. Built from the ground up by some of the top executives in insurance, USG continues to expand operations nationwide while providing innovative solutions for the risk management industry. The USG team consists of experts divided not by territory, account size, or coverage who can help meet all commercial insurance account needs. We are problem solvers for all commercial lines coverages and specialize in hard-to-place risks, providing our agents with focused expertise and solutions.

USG Insurance Services, Inc. is a national wholesaler and managing general agent (MGA) with 19 offices across the country and the ability to write in all 50 states. Built from the ground up by some of the top executives in insurance, USG continues to expand operations nationwide while providing innovative solutions for the risk management industry. The USG team consists of experts divided not by territory, account size, or coverage who can help meet all commercial insurance account needs. We are problem solvers for all commercial lines coverages and specialize in hard-to-place risks, providing our agents with focused expertise and solutions.

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