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Smart Agencies Should Stay On Offense In A Soft Market
SMART AGENCIES SHOULD STAY ON OFFENSE IN A SOFT MARKET by Bobby Reagan and Brian McNeely With no end in sight to the soft market, the question that agency leaders must ask themselves is: “Are we going to play offense or defense?” The answer is going to depend on the agency’s situation — and everybody’s situation is different. The public brokers must maintain their earnings or they will be penalized by Wall Street. Therefore, they will turn to acquisitions to drive earnings growth and focus on cost containment strategies. Private equity firms are also under pressure to generate the same level of earnings to satisfy the returns promised to their investors. However, privately held agencies with no debt are in a far different position. In fact, they have a tremendous amount of freedom and can develop a strategy to capitalize on the soft market. ON THE DEFENSIVE During downcycles in business, leaders across all industries often turn to a strategy of playing defense, which includes multiple cost-containment strategies such as headcount reductions, hiring freezes, and the suspension of discretionary spending. The focus of playing defense is maintaining current profitability at lower revenue levels. The challenge with this strategy is implementing it while maintaining customer service levels and the ability to grow your revenues in the future. This is especially true in our industry. We’re seeing lots of defense being played in the insurance distribution arena—cutbacks in advertising, program development, new producer hiring, bonuses, profit-sharing, professional education, and professional development. The question that agency principals must ask themselves is this: While these cost reductions help maintain the profitability of the business and what effect does playing defense have on the agency’s ability to create value in the future? For example: If your agency decides to cut back efforts in new program development, are you compromising your ability to drive growth in the future? Does eliminating or scaling back bonuses and profit-sharing diminish the morale of employees and result in lower levels of productivity or customer service? If your agency stops investing in new producers—the lifeblood of a growing firm—where will future growth come from? Playing defense isn’t all bad, and good expense management is a hallmark of a successful agency. However, there are opportunities to play offense in a soft market that will allow you to grow and build the agency in the soft market and beyond. PLAYING OFFENSE An agency with a strong balance sheet (no debt, significant cash balances, etc.) is uniquely positioned in a soft market to play offense. This can be a difficult concept to grasp because playing offense likely means some short-term dips in profitability. However, these short-term dips can translate into long-term gains, increasing the agency’s revenue and profitability and value. Here are four offensive strategies to consider in the current soft market: 1. March On. Many agencies have developed detailed business plans that paint a clear picture of the future of their agency. Often, these plans are the result of intense thought and input at all levels of the organization, and are at the forefront of the minds of the employees each and every day. Would deviating from these plans create a disruption and distraction to the agency? If there’s a lot of confidence in and commitment to the plan, why is a deviation necessary? Insurance, like many other industries, experiences cycles. As a result, many agency principals are seasoned veterans who have seen both hard and soft markets. They know that the soft market will bring some short-term profitability challenges. The most successful have also built the business for the long term, understanding that cycles come and go. The key to success is not to panic, but to keep executing and stay on strategy. 2. Keep Competing. A soft market is a great time to compete on new business. Also, in this macro-economic environment, clients are feeling stress and evaluating their own organizations. Given these two factors, getting in front of a prospective client might not be as tough as it has been in the past. This means that you should seize every opportunity to interact with current or prospective clients. Agencies that don’t play offense and show signs of complacency will face a strong challenge from those that do choose to be aggressive. 3. Keep Investing. Continuing to invest during a soft market is the key to exiting the downcycle as a stronger agency. You have opportunities for investments, each of which can drive the growth of revenue and profitability in the long term. Of course, the issue is that you might take a short-term hit to earnings in the short term. As mentioned previously, new producers are the lifeblood of a growing agency. In fact, in evaluating agencies we feel that a Net Investment in Unvalidated Producer Pay (NUPP) of 1.5-to-3.0 percent of net revenues (or potentially higher) is a healthy level of investment in an agency’s growth. If an agency abandons this investment, it will probably harm its ability to grow. There’s also an opportunity to invest in your clients. This investment can take many forms, including adding or enhancing value-added services offered to clients. Agencies playing defense probably won’t be inclined to make these investments. This gives you a real opportunity to distinguish yourself from some of your competition. 4. What’s New? Another offensive strategy is to differentiate yourself from the competition. Are there new products or services that you can introduce? New markets you need to add that will allow you to pursue new clients or serve your existing clients better? New hiring and recruiting strategies you can use that will allow you to attract more talent? CONCLUSION Each of these strategies must be well thought-out and planned. Aggressive spending without an eye toward the long-term benefits can be detrimental to your agency, especially if the benefits never materialize. If you decide to play offense, you must evaluate the returns of your investment in the form of increased revenue and profitability. The market will improve, and when it does, what you do today will impact your future success. Some of the best times to take a step forward are when your competitors are taking a step backward. Agencies that play offense and are built for sustained revenue and profitability growth will be the ones that exit the soft market in a stronger competitive position and with a higher firm value. Bobby Reagan ([email protected]) is president and CEO, and Brian McNeely ([email protected]) is a consultant at Reagan Consulting Inc., an Atlanta-based management consulting firm that developed and produces the “Independent Insurance Agents and Brokers of America Best Practices Study.” For more information, go to www.reaganconsulting.com. Reproduced, with permission, from the National Underwriter.

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Playing Team
During recent months, I've been asked to do a number of workshops on team building. These principles cover the basics. The team comes first. A recent Men’s Health magazine interviewed Navy SEALS about what’s critical to their success. They said that the most important thing was understanding that the team comes first. Because we live in a society that prizes rugged individualism, this can be a difficult concept to grasp fully. Often, the most difficult challenge for management is the employee who’s productive, but not a team player. Is it worth keeping the Prima Donna at the cost of destroying the team? That’s the question. You know the answer. Teams need leadership and a sense of direction. What are the vision, mission, and goals for the team? Who’s in charge of communicating them and making sure they get accomplished? Is the person in charge a good leader, or just someone with the most experience? Are they motivating or demotivating, by nature? Do they spend most of their time praising or criticizing? All team members must lead by example. Can you honestly say that you gave it your best today? Do genuinely care about other team members? Are you committed to constant improvement of your skill sets? Do you enjoy playing team or would you rather be a solo flier? One of the things I teach is understanding the “processional” effect of our actions. For example, how we treat a team member impacts how they treat clients, customers, and their own family members. Are you fully aware of your processional impact? Treat each other with respect. In his book Blink, Malcolm Gladwell talked about how graduate students were able to see the “thin slice” of information that would determine whether the marriage of a couple in therapy would survive or not. Their conclusion: The single most important factor in the chance of survival was whether the couples treated each other with respect — even though they disagreed. Having respect toward team members is paramount. It makes no difference whether you’re the head chef or the dishwasher. This means you follow the Golden Rule and treat team members the way you would want to be treated, no matter what their position is. Eliminate the fear. What are the fears present in your environment? Perhaps there are new team members and you’re concerned that they won’t respect your “way of doing things.” Perhaps you’re the new team member and you’re concerned that the old team members won’t respect the “best practices” you bring with you. Perhaps the fear is that you’re of a different age, sex, religion, or sexual orientation from other team members. Will they be inclusive of your differences? Are you inclusive of theirs? Perhaps the fear on the team is that if you try to contribute a suggestion, it will be shot down and ridiculed every time. Fact is, every team has its fears. Eliminating them will guarantee increased teamwork. Know what it means to “win.” How are you keeping score? What benchmarks are important to team success? Is it getting the project out on time? Is it increasing client satisfaction? Is it winning some type of excellence award? Are you playing win/win and generating more winners than losers on your team? Reduce your commitments to writing. We can’t assume that others play team the way we do. Include your team commitments in the employee manual and put them on the wall. All the above is plain common sense. What’s lacking in most environments is the discipline and commitment to following these powerful guidelines.