We have the opportunity to see many agencies each year. Some are on the brink of failure and use our services as a last-ditch effort to redeem their business stability. Others see the handwriting on the wall and fear the direction that their business is moving. We are called to facilitate their strategic and tactical plans. Still others are strong, forward-moving insurance businesses that use us for outside advice to bolster their already strong management and progress.
The objectivity of a consultant permits us to take the strengths and weaknesses of many agencies and to identify what has made them strong and what has made them weak. Our usefulness to our clients is the advice that will help them avoid the pitfalls that have consumed so many agents and to try the innovations that have made other agents successful during this volatile marketplace.
Like so many inventions, improvements and business successes, the “keys to the kingdom” are simple common sense solutions to problems that have grown out of proportion for many agents.
When independent insurance agents were alone in the marketplace, their mere presence and their professionalism drove customers to their doors. If an agent was competent, he would be asked to provide insurance by an ever-growing client base. The referral system worked.
State Farm, Allstate, GEICO, USAA, Farmers and many other captive and direct writing companies broke the hold of the independent agent on new sales by providing adequate products and service (or better) and advertising heavily. Advertising works!! Meanwhile most independent agents’ advertising budget consists of their monthly fees to the Yellow Pages.
More recently Internet insurance providers are working on the customers of both the direct writers and the independent agencies by offering to “cut out the middleman” and provide fast quotes, 24 hour service and, presumably, lower rates. This will work with the personal lines commodity products immediately. We have spent many years convincing the public of the standardization of personal insurance products and have not stressed the variables that need the expertise of an insurance professional to identify and help solve for the customers. Will the customers lose something as they flock to the lower prices of the direct writers and Internet providers? Of course. Will they understand this before the uncovered or mishandled loss? Probably not, and most insureds do not have losses, so the lack of proper coverage is always a hidden land mine to them. What they do not know will not hurt them – for now.
Does this mean that the independent agency system should capitulate and be grateful for the “stable” customer base (estimated at 50%) that will not shop unless they have a bad experience with their current agent? Should they become “Quote Mills” for prospects to test the validity of the direct writer and Internet provider claims. Should they resign themselves to losing a percentage of their customers each year?
The successful personal lines independent agencies sprinkled throughout the United States have proven that they can stand toe-to-toe with the direct writers and Internet providers as long as they are selling Points of Differentiation rather than price. The best of these agencies have taught their personal lines staffs a mantra about quoting. Said in many different ways, the point that they stress is always the same:
· WE PROVIDE SOMETHING THAT NEITHER THE DIRECT WRITERS NOR THE INTERNET COMPANIES CAN DELIVER.
· THE DIRECT WRITERS HAVE A “ONE-SIZE FITS ALL” MENTALITY. EITHER YOU FIT INTO THEIR CUSTOMER TEMPLATE OR THEY CANNOT INSURE YOU. (Some direct writers have even turned that weakness into a strength by offering to tell you which other company to access if they cannot give you the best rate – of course most of the referrals are of less than perfect prospects. The company looks like a hero by turning away the prospects they would have rejected anyway.)
· AS INDEPENDENT AGENTS WE HAVE DIFFERENT COMPANIES WITH DIFFERENT PRODUCTS AND DIFFERENT TIERS TO PERMIT EACH CUSTOMER ACCESS TO THE BEST PRODUCT AT THE MOST COMPETITIVE PRICE.
· OUR CUSTOMERS ARE HUMAN BEINGS, NOT A SERIES OF ANSWERS TO QUESTIONS ON AN APPLICATION. YES, WE TAKE A COMMISSION FOR TAILORING YOUR INSURANCE PROGRAM TO YOU, AS AN INDIVIDUAL – SOMETHING THAT YOUR COMPUTER WILL NEVER DO FOR YOU. WITHOUT AN AGENT’S EXPERTISE, YOU WILL ONLY FIND OUT THAT THE CUT-RATE POLICY YOU BOUGHT ON-LINE WAS NOT EXACTLY RIGHT FOR YOU IS WHEN A CLAIM OCCURS.
· QUOTING IS ONLY DONE FACE-TO-FACE WHEN WE CAN MEET AND FIND OUT ABOUT YOUR INSURANCE NEEDS – THERE ARE PLENTY OF PLACES TO CALL FOR PRICE ALONE. (The successful agents have determined that they are much more successful if they achieve a 50% closing rate, and that the closing rate for prospects who come to the agency is often four to five times better than the telephone quotes.)
The other thing that is common among the most successful personal lines agencies is the upgrading of personal lines sales positions. Yes, they dedicate people to personal lines sales. In some agencies the personal lines salesperson is also responsible for the advertising and marketing campaigns that attract new customers from 1) active referrals from the existing customer base, and 2) aggressive local marketing. In the larger agencies, the marketing is handled outside the department and the personal lines sales force is purely dedicated to “wooing and winning” the prospect. As you can imagine it takes a very positive and outgoing personality whose compensation is directly tied to new business sales to be successful in this position. We have seen personal lines sales people earning from $30,000 to $50,000+ on a base salary and incentive basis in urban, suburban and rural areas of the United States. Their success is directly related to two things – their ability to learn the “mantra” and sell it to the prospects (make them feel comfortable, special and impressed to have the professionalism of the agency working for them), and the agency owner’s commitment to the marketing program. If either is insufficient, the effort invariably fails.
The aggressive local marketing is surprisingly successful because most area residents still feel more comfortable and trusting of someone they can touch when the product they are buying is an intangible one (i.e. insurance protection). The direct writers and Internet providers are doing good jobs steering the customers’ concentration away from that nagging issue. The independent agent’s job is to keep reminding them that they can get all that the other entities are offering and more close to home.
Small Commercial Lines
There are still many fools in our industry that believe that commercial lines products are more insulated from attack by the alternative marketers than personal lines. Yet our own companies support efforts to market niches and associations both directly and through agents. This is only a hop, skip and jump away from direct written association programs offering BOP policies through their association’s websites at rates far below that currently offered.
Small commercial lines are actually in greater danger than personal lines. It is, in many ways, the virgin market for the direct writers and Internet providers that personal lines was in the 1950’s and 1960’s. They are simply seeking the homogeneous groupings that will permit them to mass market the products in the same way they do in personal lines.
Small commercial lines carry a burden that personal lines no longer bears. Most agents still over-handle and over service small commercial lines to the point that they are not profitable. I know that this is sacrilege to the agents who believe that service is all they have to sell, but reality must be faced. Every agency who has not concentrated on providing service for small commercial lines commensurate with the income generated by it is losing money in that part of their agency.
That does not mean that small commercial lines should be disregarded and left to the direct writers and Internet providers (who, by the way, administer their small commercial lines at a profit). What it means is that agents have to learn to both sell and to service small commercial lines differently than they sell and service large commercial lines. By the way, there appears to be no common definition of “small” commercial lines. The size groupings vary by territory and by agency. Some agencies may consider account premiums less than $10,000 as “small”. Others may consider accounts less than $5,000 as “small”, and still others consider accounts less than $25,000 as “small”. It all depends on where you live and how you sell.
The sales techniques that seem to work best in the agencies whose small commercial lines continuously grows and throws off profits is to mimic the direct writers. Individual small commercial customers, like personal lines customers are invited into the agency to discuss their account with a new business specialist. These agencies concentrate more on their closing rate than on the new business itself because they know if they can achieve a 50% closing rate, the only question is how to market to drive more prospects in the door.
Like personal lines, the “mantra” is learned and sold to every prospect. If all they are looking for is a low quote, they probably are not going to buy from you, and if they do buy from you this year, they will be looking around again next year. If you can establish a relationship and make the small business-owner feel like they have your staff working for them, you will diffuse the urge to shop (as long as you follow through on your promises).
A commitment to sales is the greatest belief present in successful commercial lines agencies. They market hard and constantly through professional marketers (not CSR’s or producers cold calling and sending letters). They track and gauge the success of every marketing campaign on a monthly basis and change them often to make them more successful. While you can never out market the direct writers on a national level, it is easy to out market them within your local selling territory.
The other significant difference between the successful and unsuccessful small commercial lines agents is their dedication to niche and program marketing. They will have objectives each year to develop a new niche that can be marketed through their carriers. And the carriers are enthusiastically supporting those efforts.
Large Commercial Lines
The competition for large commercial lines (however you may define that) comes from a different direction. The large corporate agencies are concentrating their marketing efforts on the marquee accounts in every territory. The agencies created or bought by the financial institutions are also targeting these accounts. The most successful independent agents in large commercial lines have professional sales management, professional, dedicated producers, and professional and constant marketing to bring them to the same marquee accounts targeted by their competitors. The field of play is even for the independent agent who maintains strong, close relationships with its carriers through a professional marketer and hires and maintains only the kind of producers that the agency owner would be proud to represent him. The failure of most agents is that they simply do not know how to hire and manage producers. The incentives are insufficient and the owners’ support (management and financial) is not strong enough.
This is a realm that should be entered only by those agents who have the staying power to do it right. Many agents that try (and fail) repeatedly to break into large commercial lines simply do not have the background or skill to do so and would be better served concentrating on the medium and small commercial marketplace
The country’s most successful agents are converting their service staff’s compensation program to an incentive basis (while still maintaining the integrity of salaries) to reward service departments for retention and book of business growth.
Service managers are professional managers whose job are to train, coach, and counsel and monitor their staff to assure that service is provided in an excellent (and standard) fashion and that every CSR is not a kingdom unto themselves. Managers are also second levels of problem-solvers. Managers NEVER – NEVER – NEVER service books of business, themselves.
The successful agencies evolve service standards and strategic plans, to form common service cultures that permit the agencies to manage service relationships in a way that never even tempts customers to shop. These agencies are almost religious in their fervor to:
Do it right.
Do it right the first time.
Tell everyone how good you are.
If we make a mistake, catch it, admit it and make it right – before the customer gets upset.
It appears that the country’s successful agencies no longer run as ‘seat of the pants’ operations. Whether large or small, these agencies have Financial Managers and rely on the budgeting process to guide their spending habits.
On a year-by-year basis they allocate a specific percentage of revenues to the key expenses (staffing and marketing) and judiciously track the success of their Tactical Plans before spending outside of budgets.
The key to successful agencies financial success is the concentration that the agency owners place on the operating statements and balance sheets. Not surprisingly, every successful agency knows its operating results and balance sheet liquidity ratios on a monthly basis. The first is the measure of operating success and the latter gauges the health of the agency.
Any agency, large or small can become successful IF the agency owner has the desire, commitment and intestinal fortitude to do the right things. Whether those things mean upgrading staff, enhancing management or spending money ahead of results, only those truly committed can succeed. The ‘flash-in-the-pan’ agents who hook onto an “idea of the month”, pursuing it until too many roadblocks are encountered or until the next “idea of the month” is identified, would be much better off simply maintaining his book of business (replacing lost business) and earning a living until it is time to perpetuate. These “Status Quo” agents earn good livings and avoid the stress of change. However, there are a number of agencies headed by “Young Turks” who are seeking the path to success. If they follow the routes already created by the successful agencies in the United States, they, too, can build a successful and profitable organization. The end of the independent agency has been grossly exaggerated IF the agencies are willing to change to meet the challenges of the future.