ACG - Agency Consulting Group

The PIPELINE

A national monthly newsletter for agency principals dedicated to agency management topic

Earning a Living or Running a Business

Why are you in the insurance business? Are you a 'bus driver' or a business owner?

It is estimated that 75% of the 40,000 remaining agencies have revenues less than $250,000 - an astonishing percentage! Most of these small agents are in the insurance business simply to make a living. They hope that their businesses can provide some source of retirement income but they can do little to build or encourage the growth of that value.

These agents are the 'bus drivers' of our industry. They have found themselves on a journey during which they not only drive the bus, but they are responsible for fueling it, as well. Unfortunately, they have never taken the time to either learn how to maintain the bus. Nor have they spent the time to determine where they are heading. They only know that they must keep the bus fueled for as long as they can and drive as fast as they can. Destination is out of their control and they are driving without a map. They only thing of which they are all certain is that they are headed in a Westerly direction, toward the setting sun. Most are aware that they will eventually run out of energy to keep the bus fueled. They hope that someone else will take over the driver's responsibilities and will keep them as a passenger (for a while). But if they don't have anyone on the bus during their tenure, they will seek a 'road warrior' with energy to burn when the driver feels his time is near an end. If the new driver doesn't want the old one as a passenger, the original driver will get off the bus and stay wherever it is that he turned the wheel over to the new generation. Others near the end of their energy will simply look for a place on their journey that looks nice and stop there, looking for another to take his place. Many of these drivers will never find a replacement. Their 'bus' isn't valuable enough, it has been driven into the ground through years of poor maintenance, or the driver is simply asking more than any other driver is willing to pay. They simply stop the bus when they can no longer refuel it and retire. Many a rusted hulk of an agency sits by the side of the road throughout the U.S. today.

Will there be a place in the future for the small agent? We believe there will remain viable conditions for small agents to continue to make a living in rural areas of the country. They will perpetuate themselves and slowly meld together. The melding will be forced by competition from outside the agency system and reducing margins within the system. These agents and their successors will continue to be primarily concerned with earning a living.

Small agents in urban and suburban areas will be able to make a living for the balance of their careers. And they will even see reasonable value due to the appetites of the larger agencies for acquisition of books of business. But the chance of these agents surviving another generation through internal perpetuation is dim. Most have no perpetuators in the agency. Competition and diminished commissions erode the value of these agencies and, if internal perpetuators are in place, they will find it difficult to make a living and pay out the prior owners.

The answer for small agents is 1) to grow, requiring a life-changing shift of attitude regarding the conduct of their business, 2) to maximize their value and find a willing buyer, or 3) to maximize their lifetime income by continuing as agents until they can physically no longer do so.

The choices are different for medium and large agencies. Many of he remaining 10,000 agencies have the same mind-set as the small agents - to make a comfortable living. Their concern revolves solely around finding and writing the next piece of business and retaining the current accounts. They are always busy. Many are considered (and consider themselves) workaholics. But they do very little to develop their business' futures. Regardless of the current size of their agencies, these owners face the same challenges and limitations as the small agents. They will sell to and service their insurance clients but will not proactively develop their businesses.

Changing from the 'Bus Driver' to the 'Bus Owner'

Some business owners have already learned that they can not accomplish their life's goals if 1) they don't know what they are and 2) they are the only drivers on the bus. Some agents are lucky enough to come into ownership of businesses that have already been organized around strategic goals with staff and procedures established to permit the owners to manage the business, rather than to be its only drivers. Others have learned through experience (theirs and others) that they can accomplish more, better and faster through effective management than through personal initiative alone. Of course these owners remain in a productive capacity in sales and service. Driving the bus is, after all, what we enjoy in the business. But they understand that they can get so much further if they carry their own maintenance team, service staff and other drivers, as well. And they understand that if they stop the bus long enough to figure out where they want to go, map the route and conduct preventive maintenance, they will not only get to their interim goals faster, but they will keep the bus in top condition for continued operation by future generations of owners. This makes the bus much more valuable that trying to sell it when it finally breaks down at the side of the road and the owner has no more energy to refuel or repair it.

Other owners instinctively know that their way of driving the bus isn't working any longer. But they have no one to counsel them regarding the changes that are needed in order to convert their management methods to that which will permit them to change their habits. Anyway, they don't know if they will enjoy the changes! What if they take on other drivers and maintenance staff and can't manage them? What if they find that they preferred to drive the bus after all?

The greatest change required of 'bus drivers' is to gain a sense of introspection and to figure out what they actually want out of life. This is the most difficult thing that most agents have ever had to do. It is easier to be "busy" than to analyze who we are, where we're going, and where we want to go with our lives. Those agents who will not take this time to analyze their futures will be doomed to let the future manage them. They may end up in a nice warm, comfortable place when they run out of gas for the last time. Or they may end up in a cold, uninviting location that they would rather have driven through than called their final destination. Their futures will not be in their control.

The tool for the life-changing introspection is the planning process. That process needs a counselor who is skilled in the business of insurance agencies in order to safely guide the agency owner toward the path that he has chosen. Why? Well, how many bus drivers who recognize their failures are also skilled enough to solve their problems, themselves? You may inherently feel that something is wrong with the engine, but can you even properly analyze it, let alone fix it? You may know that there are better ways to operate the bus (you see other buses that look and act much better than yours pass you every day), but does looking in the windows of a few other buses now qualify you to change yours? Most agents would never consider treating themselves for physical illnesses. They consult specialists, even if they recognize that the agent, himself, must assume final responsibility for his own well-being. Similarly, when you address the future of you business life, you should use a specialist to assist you - but you must understand and control the process yourself. Never follow another man's path, regardless of his success. You may not want his goals as your own.

The introspective process of guided planning will clarify how you would like your business to operate and where you would like to complete your part of the journey. The Strategic Plan will develop how to get from your current situation to your final goal. This is a difficult transition, in itself. However, the hardest part is yet to come.

Inevitably, if you find that you need to become a business owner instead of simply earning a living, you will have to learn delegation, empowerment, management and control. Delegation takes some of your responsibilities and shifts them to others in your organization. This is difficult because you may like some of these responsibilities. Empowerment means that you give your employees the authority to accomplish tasks as well as the responsibility to do so. Management and control are sometimes used interchangeably. However, they are different concepts. Control means that assigning others both the responsibility (delegation) and authority (empowerment) to accomplish a task does not mean that you walk away from the matter completely. Control is the oversight that you maintain as the business owner to assure yourself that the matter is being handled properly. No, this does not mean that you second guess your employees! Their decisions may not even be the same as yours. However, there are usually no single right or wrong ways of handling a situation - only different ways. When you are in control, you know who is assigned to a task, where that person is in the process and, when it is complete, you know the outcome.

Management, on the other hand, is both a fine art and a science. The most rudimentary management involves the management of people, finance and workflow. Managing people is the determination of systems and procedures that will accomplish your organization's goals and the understanding of whether or not the employees are adhering to those standards. These could include processing standards, marketing standards and sales standards, but may also include service standards, as well. People management involves the creation and implementation of sales and retention plans and programs. Financial management is the management of cashflow and of income and expense. Creation and implementation of budgets are an integral part of financial management. Workflow management is the understanding of what comes in, what goes out, and what is left in your agency in terms of transactions. This is important because this is how the customer views your service standards. These basic management tools becomes the owner's MIS (Management Information System) and gives him the "pulse" of his business.

More advanced managers learn in real time what students learn during MBA course work. Flow diagrams, control charts, tree diagrams, Customer Satisfaction Surveys, Gap Analysis, Kano models, the PDCA cycle, Improvement Deployment Models, brainstorming, Affinity Diagrams, Interrelationship Diagraphs and Pareto Charts are just some of the tools that can be taught to manage a business properly. These systems take much of the guesswork out of management. Empirical data is created to understand the reality of your operations instead of relying on "gut feeling" and politically motivated direction by the players in the agency. These methods should not be employed without capture of the Strategic Planning process and the rudimentary MIS (as described above). However, in concert with proper planning, these (and other) management tools provides the NEW, professional manager with an awesome array of information with which to correct and direct the course of his business.

The "life-changing" transition from an individual insurance producer to a professional business owner and manager will be very distasteful to the classic sales personality. However, if the business owner is not able or willing to transform himself (or herself) into a professional manager, the owner has been relegated to remaining the "bus driver" for the rest of that owner's career. The owner would be well served to connect with a professional manager in order to maximize the agency's value. Those owners who can (and choose to) enhance and transform their careers can find themselves in the role of agent. manager and business owner and will avoid the fate of the "wage earner" agents. The successful manager will develop the business into a 21st Century version of the successful insurance agency of the 20th Century. It will not look quite like our agencies used to look, but it will both earn the owners (and employees) a strong living and a fruitful retirement income through perpetuation of the business.