https://completemarkets.com/Article/article-post/2058/WHAT-MAKES-A-GREAT-FIRM/
What Makes A Great Firmr> ...5-6565, Fax (707) 935-6515, e-mail catherine@oakandassociates.com, or visit www.oakandassociates.com. ...
https://completemarkets.com/Article/article-post/2061/HOW-TO-BE-A-HIGH-PERFORMING-FIRM/
How To Be A High-Performing Firmr> HOW TO BE A HIGH-PERFORMING FIRM by Catherine Oak, CIC, AAI The more effectively you sell, market, and service, the more valuable your agency. The secret to peak performance is employing the right people, in the right positions, based on their talents and the needs of the firm. Every firm must perform four major functions regardless of revenue size or number of employees. These functions are sales, marketing/placement, service, and accounting/administration. Any firm that wants to achieve its growth and profitability objectives needs to manage these functions properly to operate at a high-performance level, which in turn leads to high value. Let's explore how a successful firm should manage these four key functions. MANAGING SALES New sales, which are the key to growth, are measured by new customers, not additional commissions that materialize from renewals. New customers are necessary to replace business that's lost through circumstances both within and outside of the firm's control. People die, move, or go out of business every day. This natural attrition is inherent in the book of business and, for the most part, is outside its control. The rate of attrition in any firm usually ranges from 8% - 20% annually. On the other hand, attrition can come from factors within the firm's control, such as dissatisfied customers, uncompetitive pricing, and lack of technical expertise in meeting the client's needs. Do high-performing firms use different sources than anybody else for new business? Not really. They simply go after new business more aggressively. Often, they don't even depend on the source of new business favored by most independent insurance agents/brokers: referrals. Instead of waiting for new business to knock on their doors, producers and CSRs in high-performing firms vigorously seek out prospects. Everyone working in the firm has a sales personality and is motivated to bring in new business. The producers in these firms are not being paid 'out of sight' commission splits (such as 40% or more for new and renewal business). A producer compensation plan is established that is reasonable for the services performed and affordable so a profit can be realized. Generally, a well-run firm can't afford to pay an average Commercial commission of more than 30% if it hopes to generate a 15% - 20% profit. Some firms pay more than 30% for new business to motivate producers to bring in new accounts. Top producers are carefully coached and given the tools they ...counts, it should be decided who will service the medium to large Commercial accounts and how best to organize this. There are two common options to servicing these accounts in a firm: an alphabet split or the producer/unit concept. Smaller firms generally use the alphabet split concept, especially if there are few producers and if the CSRs are equally competent. In managing an alphabet split for Personal and Commercial lines, it is essential to keep the workloads for the CSRs as evenly balanced as possible, especially if the CSRs are equally experienced. Assistants handling clerical activities should be shared among the CSRs. The producer/unit concept, (in which CSRs are assigned to service and market the accounts of certain producers), is more common in larger firms and very common in national and public brokerage firms. There can be a problem, however, with the producer/unit concept. Often, 'firms within a firm' can develop, resulting in a lack of team spirit. CSRs might be reluctant to help producers in other units if there is turnover or someone is out due to illness or vacation. Producer/units can work quite effectively if either an office manager or Commercial lines service manager is involved in the managing, training, hiring, and firing of all CSRs employed by the firm. PERSONAL LINES ACCOUNTS In Personal lines, we often see the supervisor or manager also handling the firm's VIP Personal lines accounts. The only organizational structure that works effectively in Personal lines is an alphabet split. PERFORMANCE STANDARDS What are acceptable standards of performance of CSRs in the average (versus high-performing) firm? The average commission per account in both Personal and Commercial lines greatly affects the amount of commissions a CSR can handle. In Personal lines, there isn't as wide a spread in average account size as there is in Commercial lines. In Personal lines, it is more common to judge performance based on the number of accounts as opposed to commissions handled. The employee productivity table (at the end of this article) shows the commission and number of Personal and Commercial accounts handled by a CSR employed in the average firm. The table also shows overall revenue per employee, per producer, and per CSR. Our definition of CSR includes managers, assistants, claims people, and marketing personnel, since their number varies greatly from one firm to the next. The key determinant of who is a CSR is whether that person deals directly with the firm's clients. Servicing costs in a firm can be analyzed best by looking at the CSR payroll and operating expenses relative to commission. Typically, firms have servicing costs ranging from $ .30 - $ .45 per dollar of commission. Obviously, the lower the servicing cost the better, leaving more dollars available for selling and administrative expense, as well as compensation to owners and non-owner producers. <
https://completemarkets.com/Article/article-post/873/Pulling-New-Clients-To-The-Professional-Services-Firm/
Pulling New Clients To The Professional Services Firmr>
PULLING NEW CLIENTS TO THE
PROFESSIONAL SERVICES FIRM
by John Graham
It's taken long enough, but the professional services field has discovered marketing or, perhaps more nearly accurately, the value of marketing. So if you're waiting for word-of-mouth to attract new clients, you have a long wait ahead of you.
Take a look around at who's marketing what.
Business consultants are marketing mavens. In fact, some of the largest advertisers in the Wall Street Journal are consulting firms. The number of business books authored by consultants keeps climbing. For example, a popular book on the value of chief executive officers is a thinly-veiled promotional piece for a major financial-services firm. A book-length quarterly journal published by a big management consulting company presents an intriguing and attractive mix of fact and opinion to position the company as the expert.
Several of Boston's largest law firms have gone to casual dress codes. Rather than hide this not-so-subtle change, the firms made sure they got national news coverage to recruit eager young lawyers and attract laid-back technology clients. Some more aggressive personal injury lawyers are abandoning their high-priced high-rise offices for shopping malls to be more approachable and accessible to prospective clients.
The walls of restraint are tumbling down. To be sure, stodgy tombstone ads still announce the appointment of partners in law and accounting firms. The debates over 'the ethics of marketing' are mostly irrelevant and marginalized, though.
Some professionals of all types - accountants, lawyers, financial planners, dentists, doctors - believe they're a little above everyone else in business. Some believe the quality of their work is the only marketing that matters.
Actually, marketing is perfect for professional services. That sponsored book has one goal: to make believers out of readers, some of whom will recommend hiring the financial-services firm it touts. The title of the book names the targeted reader - the CEO, the decision-maker who says, 'Let's get this company in here.'
By definition, that's good marketing: creating customers who want to do business with their company and no one else. Effective marketing harnesses the customer creation process.
Successful professional services marketing can be summarized this way: Be perceived as the solution to the problem when the customer has a need. The principles of marketing professional services are all the same for the international firm and the small local company alike. Here are the objectives:
Marketing lets a professional services firm pre-establish a relationship with a client. For example, referrals are rarely based on detailed inquiries into a particular firm's competence. Usually the selection of a lawyer, doctor, or accountant is a low-involvement decision. Someone says, 'I know a great CPA firm,' and that's recommendation enough. Whether the firm has the necessary expertise fails to become an issue.
How many times do people engage a law firm to handle a particular problem without even asking if it has expertise in that field? This process is inefficient and often brings in less-than-optimum clients.
The basic marketing task is to pre-establish a relationship with a prospect to become their professional of choice. Without recognizing it, the prospect has made a buying decision, often long before they have a specific need.
Marketing builds the perception that a professional services firm is the leader in its field. Marketing can be extremely powerful in this area. Clients gravitate to successful professionals. For example, a dentist specializing in implants has impeccable credentials but is less than successful. Another dentist who lacks the experience and credentials of the first one has an extensive implant practice. Why the difference? The second dentist, who has made a commitment to marketing their services, is perceived as the leader in the field.
In professional services, it's essential to be recognized as the expert, the cutting-edge leader.
Marketing pulls clients into the professional firm's orbit. The goal is to be perceived as the professional of choice by client and prospect both. Clients like to act as if they have a close relationship with a professional services provider, regardless of whether they actually do: They refer to 'my' doctor, lawyer, accountant, insurance broker, and so forth.
Marketing helps cement the client relationship. This is essential because professional relationships are more vulnerable now than they were in the past. Accounting firms can't depend on keeping the same client companies for decades, and other professionals have the same problem. To retain your clients' business, you must keep making them feel that engaging your services was the right decision.
The quality of your work is important, of course. But competence alone doesn't build relationships. Client relationships must be reinforced continually, or the client will eventually make a change. Marketing lets you communicate the reasons that selecting your firm was wise.
These techniques can help a professional services firm best utilize a marketing strategy:
Marketing helps create the right identity.Many professional services firms cling to a dull, stodgy identity. Massachusetts attorney Thomas Montminy, whose firm specializes in collections, wanted to ...ic and doesn't get updated often. One firm received an e-mail asking why the usual rotation of articles on its Web site had stopped. The person who wrote the message said they looked forward to the articles and was disappointed not to find them. Of course, the firm began a proper rotation schedule.
An effective Web site carries helpful information, tells visitors about a company, and encourages interchange and requests for information.
The most pressing marketing issue when it comes to Web sites is promotion. A major source of advertising revenue for The Wall Street Journal, for example, is from companies spending millions of dollars attempting to attract customers to their Web sites. Any cost of a Web site must include an adequate promotional budget.
These are just a few of the effective marketing techniques that professional service firms can use successfully. As part of a consistent, unified marketing effort, they attract prospects to you.
Today marketing isn't a luxury for professional services - nor is it an option. It's a necessary element for building a stronger professional practice.
More importantly, an effective marketing program frees professionals to do what they do best - give clients top-quality service instead of squandering time looking for new business.
https://completemarkets.com/Article/article-post/975/AGENCY-COMPENSATION-SURVEY-2/
Agency Compensation Survey 2r> AGENCY COMPENSATION SURVEY by Carol Hammes As of this writing, the government has determined that the insurance industry as a whole has 2.2 million workers who earn an average of $37,864. The Property/Casualty industry employs 1,340,500 people at an average salary of $37,844. The various P/C insurance companies have a total of 634,800 people earning an average of $41,273 per year. Agents and brokers employ 705,700 people and pay an average of $35,000 per year, which includes the return on ownership generally taken out by principals of privately held firms. Although the rate of increase in employment for insurance agencies has been comparable to the nation as a whole in the past decade (3.7%), the Alliance of American Insurers believes that the increase in available agency jobs will steadily decrease until 2005, when it will be only 0....s, the people who hold these positions are also agency principals, so it makes sense that the bonus amounts would be higher. Almost 80% of independent agencies nationwide give both owner and non-owner managers a bonus, with most of them paying on a discretionary basis. Of firms that use some kind of tangible criteria for determining the bonus dollars, a percentage of agency profits is by far the most common, distantly followed by a percentage of agency revenues. More agencies are now treating the agency principals as employees first and owners second when it comes to compensation issues. But the vast majority still uses some combination of performance measurement and ownership percentage to come up with salaries and bonuses. The two major factors cited in determining salaries are the size of the existing book and the ownership percentage, with rural agencies favoring the latter and urban agencies more oriented toward rewarding for sales performance. Management contribution is also taken into account in a large number of firms. Regardless of location, the primary criteria for determining bonuses was percentage of ownership, followed by the size of the book handled and management contribution. For both salaries and bonuses, each group indicated that longevity is no longer a major component for determining an agency principal's compensation. When a commission percentage is used to determine the owner's salary, 33% of the rural firms use the same rate used for non-owner producers, 50% have a higher rate, and 17% have a lower rate. The situation is quite different in the urban agencies, where 68% pay owner-producers the same percentage of commissions as they pay the non-owners, while only 11% have a higher rate, and 21% pay a lower commission percentage. It's hard to understand why any agency principal would want to make less money for handling the same job as a non-owner employee, but it might relate to the need to bring new people along for perpetuation purposes. Unfortunately, not enough agencies have perpetuation plans to help them make such a determination. Only 54% of rural firms said they have such a plan, down from 61% two years ago. And 67% of the urban agencies report having taken care of this most important element of planning, down from 71% in the previous survey. The late Carol Hammes, principal of the Middleton Group, was one of the Independent Agency System’s most widely respected management consultants. She will be sorely missed. Reproduced, with permission, from The Middleton Letter.
https://completemarkets.com/Article/article-post/674/The-Five-Ways-Agents-Get-Fired/
The Five Ways Agents Get Fired!r>Independent agencies and brokerages are facing a growing threat to their middle market Commercial clients. These firms are being squeezed from below by the commodity sellers and from above by the resource providers. Previously, the competition for these larger accounts has been based mainly on price, coverage, and a single relationship. But now, the determining factors in the selection process have shifted with the awareness that price does not differentiate brokerage firms except in the commodity environment -- and this shift is having some dire consequences.
Changing distribution systems have caused our clients to be more selective in the brokerage firms with whom they chose to do business. ...CONCLUSION
As competition intensifies for larger accounts, the successful agent/broker will learn how to match capabilities to buyers' expectations. Hopefully they will not experience the bitter lessons of Why Agents Get Fired!
https://completemarkets.com/Article/article-post/2079/FINDING-A-COMPATIBLE-BUSINESS-COMBINATION/
https://completemarkets.com/Article/article-post/2075/PRODUCTIVE-EMPLOYEES/
Productive Employeesr> PRODUCTIVE EMPLOYEES by Catherine Oak, CIC, AAI The productivity of employees has a great effect on the profitability of a firm. In an insurance agency, personnel costs are in the 50 percent to 70 percent range of each revenue dollar, depending on the firm. Setting standards of performance, delegating work to the next level down whenever possible and recognizing and rewarding good efforts will all lead to achieving a well-run operation and much happier, more productive workforce. The number of accounts and commission volume that need to be handled in order for the agency to be average or well-run should be understood by support personnel, CSRs and producers. Having standards should also alert management to the need for additional staff or realignment of workloads. If expected levels of performance are exceeded, then above-average performance contributions to the firm should be recognized by management and rewarded to encourage employees to achieve higher levels of performance. Two concerns of many employees are: 1. They don't know what is expected of them. 2. They feel that their efforts are not properly recognized and rewarded. PERFORMANCE STANDARDS What are acceptable standards of performance for CSRs in the average versus the well-run firm? The average commission per account in both personal and commercial lines greatly affects the amount of commissions and accounts a CSR can handle. In personal lines, there is not as wide a spread in average account size as there is in commercial lines. Therefore, it is more common to judge performance in personal lines based on the number of accounts as opposed to commissions handled. The employee productivity table below gives an overview as determined by the Oak & Associates database. EMPLOYEE PRODUCTIVITY ... a good job. They will also know when performance falls below management's expectations. When productivity standards are established, management will also know additional staff is needed for the workload, or when workloads need to be realigned using existing personnel. Management should also strive to ensure that work is delegated down to the least costly qualified employee whenever possible. This is called staff stratification and can lead to increased employee productivity. Employees should make a list of clerical, but time-consuming things they could delegate to non-insurance personnel, so management can determine if hiring part-time or full-time clerical support would be cost-effective. Examples include having a CSR assistant, a sales assistant to producers, a marketing or claims assistant or data entry personnel. However, the more automated a firm is today, the less need there is for other personnel, as the computer can easily handle the repetitive tasks in a firm when computer account profiling is complete and when interface with carriers is achieved. RECOGNITION OF EFFORTS AND REWARDS Many employees are concerned about the lack of recognition and reward for their efforts. Today most good employees will not stay with a firm for more than a few years when they don't see a good opportunity to grow and expand in a firm. Employees can feel dead-ended in firms that do not promote people from within, especially to management and sales-type positions. In these firms, morale is adversely affected when open positions are filled from outside the firm without looking to promote employees. Everyone wants to be recognized, to have people admire and acknowledge them. Money is only one form of recognition. Besides expressing appreciation verbally, other rewards of importance to individuals are time off, more authority, a new title, a parking place, a private office and an employee-of-the-month award. PERCEPTION VS. REALITY Morale can be negatively affected when personnel are not reprimanded for being unproductive, being continually late or absent from work, making an excessive number of personal phone calls and/or not completing tasks on time. The high performers will begin to slow down in those firms where the poor performers are allowed to get away with this lack of respect for fellow employees, clients and with the adverse effect on productivity. Nepotism is also a problem in many firms. Perception is more important than reality. Even when management does not know what is going on or when the employees perceive that management is indifferent toward recognizing efforts or reprimanding poor performance, morale can also be affected. The perception is just as destructive as if it were reality. Lack of proper communication is the cause. Annual performance reviews are extremely important. A standard review form should be used. The reviews should be held on anniversary date of hire, and both the employee and the reviewer should complete the form regarding past performance. The evaluation should be discussed by the two parties, and goals for the next review should be set in writing, including any additional training needed. A mid-anniversary-year performance review should also be held to discuss performance only, without any pressure on management to give a raise. Performance that is unacceptable should be documented in the personnel file, with copies given to the employee. Reprinted with permission from Insurance Journal, May 30, 1994.
https://completemarkets.com/Article/article-post/2631/Successful-Firms-Need-to-Master-These-Techniques/
Successful Firms Need to Master These Techniquesr>In a recent edition of The National Underwriter, Editor Sam Friedman recommended that risk managers begin to explore the capabilities of sophisticated regional and local brokerages. This recommendation was based on recent broker megamergers and the growing lack of choice available to buyers.
For an independent agency or brokerage to take advantage of this opportunity, it should adopt the consultative brokerage style. In particular, its managers must learn the techniques that these sophisticated buyers have come to expect. The stewardship report and the executive summary are two techniques that firms must master to be successful in large accounts.
STEWARDSHIP PROPOSAL
Brokers call it "stewardship"; others call it a mid-year client review. Whatever the name, it's the single most powerful way to protect your renewals against the competition. When executed properly, the mid-year client review provides your firm a tremendous opportunity to:
Cement client relationships for the coming year.
Determine the client's expectations.
Judg...ent will benefit. This could take the form of a simple display. Refer to the body of the proposal for details and an in-depth demonstration of these benefits. After all, the executive summary simply sums up the facts.
Finally, restate what your organization is proposing for the client, the time frames, and your unique qualifications for providing these solutions. Avoid making this closing too sales oriented. As a consultant, you need to be perceived as a partner, not as someone looking for a commission. Use statements such as:
"XYZ recommends this course of action to client."
"XYZ is prepared to implement these actions in the following time frames and with these expected results.
Effective use of stewardship reports and executive summaries is a critical skill that independent agents and brokerages must master. These techniques will allow an organization of any size to improve its perception in the buyer's eyes. The result will be improved success in the large-account marketplace.
https://completemarkets.com/Article/article-post/1652/PAYROLL-DEDUCTION-EMPLOYEE-BENEFITS-MODULEV-B/
Payroll Deduction Employee Benefits: Modulev-Br> PAYROLL DEDUCTION EMPLOYEE BENEFITS: MODULEV-B THE COVERAGE Payroll deduction employee benefits can involve a number of coverage products ranging from Term, Whole, or Universal Life to Disability Income products and 401 (k) plans. An agent can sell just one of these products on a payroll deduction basis, or a combination of them. The agent can also sell specialized payroll deduction plans such as Section 125 plans (these plans are discussed later in this campaign). The concept of payroll deduction is simple: An employer provides employees the opportunity to purchase these products by paying premiums out of each paycheck. Premiums are automatically deducted from the employee's pay. Most often, these plans are used as a supplement to the insured's company-paid Group plan. The variety and arrangement of plans available depends on the insurance carrier through which the plans are written and the type of plan offered. The agent's role in selling these plans can also vary-from just selling the idea to the employer and then letting an outside enrollment firm handle employee sales and administration to selling and administering the plan entirely alone. Most agents choose the former course because the administration of such a program entails specialized knowledge and much work. The plans themselves vary with carriers, as noted, but, typically, a payroll deduction employee benefit plan will have these features: Several coverages offered, such as Life, Disability Discounted premiums due to the Group sales volume Either guaranteed-issue coverage or liberalized underwriting with no medical examinations required Employee ownership of coverages-the employee owns the policy and therefore can keep it if employment is terminated Spouse-only coverage-an employee need not be enrolled in order to enroll a spouse or dependent Double Indemnity for accidental death Waiver of premium if the insured becomes totally disabled during the policy period Immediate protection-coverage begins immediately upon completion of enrollment forms and authorization for payroll deduction Agents can become involved in these programs on different levels. Basically, there are three options. An agency can design, sell, and administer the voluntary benefits program itself, sell programs that are designed and administered by an insurance company, or sell the program to employers and engage the services of a firm that specializes in selling and administering these programs on the employee level. Each approach has its pros and cons. With the first option, the agent has total control of who talks to the client when, and receives full commission for his or her efforts. But this method also means a lot of work. An agency needs a strong 'back room' staff to handle the administrative work for a program like this. An agent's staff must also know or learn how the enrollment process works, and should work at enrollment full time. Without proper administrative support and knowledge, the program is likely to fail. (You'll find more information on this under the subtitle 'Cons.') Choosing a plan administered by an insurer eliminates some of the work to be handled by the agency, but means no choice of markets and a lower commission to account for the work the carrier is doing. (You'll find more information on this under the subtitle 'Cons.') If an agent chooses to use an outside firm, he or she will again pass on some of the workload, but will also have to share the commission. The outside firm will also have access to his or her client's employees. If they don't do a presentable job, the agent won't look good. The key is to choose the right firm. (More on what to look for in an enrollment firm later in this campaign.) PROS Payroll deduction employee benefit programs offer advantages to the agent, the Commercial client, and the client's employees as well. For the agent, the advantages of selling such a program are added commission income and client retention. According to estimates by firms in the business, a 300-employee group can generate $15,000 in commission income to the agency in the first year. Re-enrollment a year later can add new employees and those who didn't sign up the first time around, which adds new commission to the agency. On those who continue the program, renewals will usually be paid. Most carriers will also pay renewals for the lifetime of the employee's participation, either within the company or on direct bill should the employee terminate employment. An agent can also benefit from a payroll deduction program through client retention. Number one, you're offering a service that many people are talking about these days as costs of Group benefits rises. If you haven't offered it, chances are fairly good that someone else will at some t... cannot pull out at a whim. Once pay is reduced, it is permanently reduced until renewal of insurance. WHAT TO LOOK FOR IN A PAYROLL DEDUCTION ENROLLMENT FIRM As noted previously, the right payroll deduction enrollment firm can be instrumental in an agency's success with a voluntary benefits payroll deduction program. The agent who chooses to use a provider instead of doing the administrative work in-house should choose carefully to ensure that insureds will get the best service. These basic characteristics of a good payroll deduction service provider should help you make your choice: 1. Specialization: The firm should specialize in providing payroll deduction services. It should be well-versed in all the options, including Section 125 plans and their applications. 2. Exceptional References: The firm should be able to provide references from carriers, agents, Commercial clients, and individual insureds. 3. Good Service: This is an absolute necessity. Check references and ask about quality of service. 4. Multiple Carrier Access: More than one carrier should be available through the firm, and these carriers should be top-rated and reliable. See the following section on 'How to Choose a Payroll Deduction Carrier' to find out some of the qualities that constitute a good carrier in this market. Ask the service firm about the characteristics of the carriers it uses. 5. Procedures: The firm should be able to provide you with step-by-step procedures that are followed for the enrollment, reenrollment, and persistency processes. 6. Automation: A computerized system should be in place to help the firm efficiently administer any size group, and all paperwork between the insurance company and the employer should be screened through the firm to detect and correct any errors or omissions. 7. Flexibility: The firm should be flexible as to the size of group it can handle. Some handle as few as two or three lives. If the firm's lowest threshold is more than 25 or so, that's going to narrow your prospects down considerably. 8. National Operations: A firm that operates nationally will be able to install a program anywhere across the country, opening up possibilities for Commercial clients with branches in more than one location. 9. Administrative Capabilities: The firm should take on as much of the administrative work as is possible, relieving your Commercial insured's personnel department of the burden. Payroll deduction service firms will vary in the types of services they provide, so check this out carefully before signing any agreements. This administrative work includes billing, re-enrollment, correspondence, and much more. 10. Easy-access Service: Individual insureds should be provided with a toll-free or local telephone number they can call when any policy service problems or claims arise. A full client service center should be in place at the firm's office. This prevents insureds from having to deal directly with an insurance company's office, and prevents you, the agent, from having to deal with problems you're not equipped to handle because the service firm has provided all administrative and policy support to that point. WHAT TO LOOK FOR IN A PAYROLL DEDUCTION CARRIER If an agent chooses to use an enrollment firm to provide payroll deduction services, that firm will usually provide the carrier for the coverages. The agent in this situation need not go searching for a carrier, although it's still wise to know those qualities that constitute a good payroll deduction carrier and to question the enrollment firm if these qualities aren't apparent. When looking for a carrier to provide products for the payroll deduction market, and perhaps to provide service on those products as well, an agent should keep in mind that this is a specialized market that requires some specialized work and service from carriers. When choosing a company, the agent should consider the following points: 1. You should mistrust a carrier that will give out guaranteed-issue coverage carte blanche. A carrier who is solidly in the market will require prior underwriting approval beyond a maximum guaranteed-issue threshold via a request form. 2. The carrier should have previous marketing expertise in this area from previous case experience. 3. The carrier should prepare the preliminary bill after applications are submitted. This saves the agent work and cuts down on the probability of errors. rdan
https://completemarkets.com/Article/article-post/2346/CHANGING-ENVIRONMENT-MAKES-HIGH-VALUED-AGENCIES-EASIER-TO-RECOGNIZE/
Changing Environment Makes High Valued Agencies Easier To Recognizer>CHANGING ENVIRONMENT MAKES HIGH VALUED AGENCIES EASIER TO RECOGNIZE by Robert Smith Stories are starting to circulate around agency/brokerage meetings, 'Did you hear what the ABC or XYZ Agency sold for?' Some of the multiples being discussed are actually accurate. However, many describe an inflated price or fail to address the earn-out elements of the transaction. Despite the partial truths about value, the prices many acquirers are willing to pay for the best agencies are higher today than in many years. But the value of many agencies hasn’t increased significantly, while the value of good agencies has grown dramatically. Acquirers have created the potential for bidding wars for quality agencies. Agencies that are profitable and growing with a strong management team command significant prices in the marketplace. Firms with these characteristics, however, are also the very agencies that control their future because of the way they run their business. The prices paid for many agencies are quite high compared with both historic multiples and with many under-performing agencies. But when you consider the opportunity for the acquirer to leverage the operational and intellectual capabilities of the acquired firm, the price paid for the quality agency is usually quite reasonable. What are the business characteristics of high-value firms and what steps can an agency owner take today in order to position the agency for the future? How does a local or regional agency make the decisions that will enhance its value? Although there are a variety of features common to the best firms in the nation, the most prolific buyers of agencies have identified a number of characteristics that are vital to them: High valued firms continually reinvest in their production force. The agency/brokerage business remains a sales and service business. Acquirers have identified sustainable new business and predictable account retention levels in the best firms. Many agencies arrive at a point where the production force is tapped out, burned out, or ineffective. When a potential acquirer begins discussing the value of the agency, management realizes the importance of growth to the value of the firm, to the insurers it represent, and to the overall corporate culture. A Midwestern firm was growing at a modest 2% rate when a local bank president asked the owners if they’d like to discuss an acquisition. The bank was publicly traded and sensitive to the impact of the buyout on its earnings. The agency could deliver an earnings contribution that would support a premium price in the first year after acquisition through aggressive expense reductions. However, when the bank realized the impact of the agency’s anemic revenue growth on its ability to sustain earnings growth at a level consistent with the bank’s, it discounted the price it was willing to pay for the business. High-value agencies engage in automation strategic planning. Leading agencies develop a focused and balanced approach to automation. These firms regularly find themselves on the leading edge of technology that works. The purpose of automation is to create improvements in productivity, client service, and information management. Some principals make the initial investment in computer technology, but don’t change their way of doing business to maximize the value of this outlay. Many firms have made automation purchases only to be ensnared in a maze of duplicate systems and procedures. The lack of standards for operating in an electronic environment leads to minimal, if any, improvement in the way they do business or serve their clients. An agency in the Southeast recently bought a new automation system. The purchase required new hardware and software, as well as a substantial amount of training to standardize workflow procedures. The firm’s stress on consistency and standards allowed it to maintain revenue growth rate without hiring new staff. The result: an increase in revenue per employee in the year of the automation conversion. High-value agencies run their business like a business. Most local and regional agencies are family owned and/or closely held. The principals of top firms recognize the 'duality' of their relationship with their agency — as both investors and employees. As investors, principals are entitled to economic returns based on the risk associated with their investment. As employees, they deserve appropriate compensation for the job they do. Even though their total paycheck reflects both investor returns and compensation for their job, the principals of top agencies are well aware of the difference between the two. A firm in the Southwest had three principals who began the agency at a time when they were all totally committed to work. They also paid themselves equally because of their common devotion to the firm. However, as time went by, one of the principals grew increasingly disinterested in the business. When his partners wanted to adjust compensation for each of the owners based on their relative contributions to the firm, the partner who had lost interest vetoed the change. Failure to address this issue led to a significant inequity in compensation and ultimately forced the sale of the agency at a price much lower than it would’ve been worth otherwise High-value agencies are developing an Internet strategy that, as often as not, is a sales strategy. Although many local and regional agencies won’t conduct a s...iness online, most high-value agencies are creating an Internet strategy. The Internet can be used to sell products and services, provide marketing or service information, and/or reinforce existing client relationships. Local and regional agencies should focus their Internet strategy on the areas that add value to their existing and future client relationships. An agency in the Mid-Atlantic region developed a franchise program that focused on businesses in 22 Eastern and Midwestern states. The firm put coverage and application information on its Web site so that franchisees could download the appropriate information and return it to the agency for further underwriting. As a result, the penetration rate on the franchise program came in twice as high as the initial projections, with retention rates of nearly100%. The changing environment has created an immediate payback for many of the investments and business practices that define the nation’s best agencies. Owners and managers of these high-value firms are making decisions today that will maximize the value of their businesses. This article originally appeared in The National Underwriter, Property/Casualty Edition, and is reproduced by permission. Robert Smith is a Principal with Reagan Consulting, Inc., an Atlanta-based management consulting firm that serves insurance agents, brokers and companies, as well as financial institutions. Please send your comments to tom@reaganassociates.com.