Insurance agencies grow and mature like all other businesses. Most insurance agents seek more growth and profit as a way of bettering themselves, their other owners, their employees and their clients. A larger agency has more people, facilities, companies, and system capabilities. But every agent finds significant barriers as they grow. Simplicity evolves to complexity in organization and in all other things as the business gets larger. Yet we continue to seek growth and profit. During our 20 years in consulting Agency Consulting Group, Inc. has identified several ceilings above which an organization can not grow without severe hardship – or extensive changes. We call these points the Glass Ceilings because we can see the benefits of growth beyond them but we can’t seem to break these invisible barriers.
Ceiling One – The Million Dollar Mark
Most agencies begin with one or two people who know and can sell insurance. As they get more clients (and more money) they find the need for support to avoid them becoming bogged down in the clerical aspects of agency operations. So they hire assistants. These employees become administrative assistants and are trained to support all of the activities of the agents.
Eventually, one assistant becomes two, then four, then eight. By they time the staff of the agency has grown past four or five people we see the presence of some supervision. Jobs become more specialized (even if they are not designated as such) with some employees specializing in personal accounts and others specializing in commercial accounts. By this stage, the agency evolves its first non-service employee, usually the bookkeeper (and usually a relative of the agent).
At eight to ten employees the work is further segregated into clerical, technical (insurance) and administrative tasks and we see supervisors arise or get appointed by the agents. However, the supervisors are generally expected to “earn their keep” and service a part of the book of business, as well as informally manage others.
When an agency is small, the owners worry about paying their bills every month. By the time the agency reaches $1 Million revenue agency staff has blossomed to 10 to 15 people. Unless the owners have spent unwisely, they are earning comfortable incomes and are no longer worried about whether or not they can pay their bills. They feel like businesspeople more than like traditional insurance agents because they spend significant time on carrier, personnel, civic and other non-insurance issues. They worry because the last few hundred thousand of growth was painful and they feel they are losing control of their clients. They may have begun receiving sidebar chides from clients about their getting too big to pay attention to their customers. The other warning sign is that clients who have never marketed their insurance are beginning to do so. This could mean that the personal relationship is deteriorating. The agents begin to realize that the control of their customers is in the hands of the staff, not their own, and that they aren’t controlling the staff very well.
The agency has hit the $1 Million Glass Ceiling. The owners would like to be larger but something is getting in the way. Employees are presenting problems with quality (and/or quality) of work. Customers seem to be leaving faster than when the agency was small and in direct control of the owner. More expense is being incurred and less money is dropping to profit and the owners don’t quite have a handle on why.
The $1 Million level in an independent agency marks the stress point at which it must convert from the “Mom and Pop Shop” to a professional insurance agency business. A number of things must happen beginning with the growth of the owners. Agents are taught insurance. Some are lucky enough to be taught proper sales methods. Few are “taught” how to manage. As agencies grow, many owners assume that they are managing properly citing the growth and profit as proof. But small agencies like most other small companies in the U.S. make money in spite of (not because of) their actions. While agencies are small marginal growth is extremely profitable. You don’t need a (or another) support person when you add five or ten accounts. Most of the marginal revenue becomes profit. But when you build a large staff to support the hundreds or thousands of accounts that you must service, you also build a substantial overhead. People spawn the need for office supplies, computers, phones and space. The owners know that they need these things, but have never learned to control them.
To break through the $1 Million mark an agent must begin to formally Plan and budget. The owners suppose that they want to continue to grow and prosper, but they have never analyzed their strengths and weaknesses to find out what makes their business different from those of their competitors. The first Strategic Planning Process is a real eye-opener. If facilitated properly, it helps the agency owners define their Mission (business goals) and Vision (personal goals for their business). It helps the owners create Strategies defining what the agency must do differently in order to reach its second million. By this point the owners recognize that the path used to get the first million in revenue will not work to further grow the business. Tactical Plans are created from the defined Strategies. If done properly, the Objectives of a Tactical Plan spawn one or more Quarterly Action Plans that define how to achieve the Objectives. The Objectives also result in monthly benchmarks that permit the agency to measure its results each month toward the selected objectives. The expected revenue generated from the growth and retention objectives combined with the expected expenses of general operations and of new arising marketing and advertising programs help the agency create the Budget.
While all phases of the Strategic Plan are important to evolve and mature owners and employees alike, the most critical elements of the Plan to its implementation are the Action Plans and Benchmarks. These permit the developing professional agency to conduct monthly management meetings with agendas comprised of the Action Plans of each Objective and with ACCOUNTABILITY for the success of the Objectives assigned to individuals within the organization. When each responsible party must stand up and report on the progress of his/her Objective each month, the implementation of that objective becomes a much higher priority.
With ten or fifteen employees, the owner(s) can still manage the process themselves but they must also have Supervisors who are more managers than service representatives. These people become the second level of management (under the owners) who control the daily activities of service and administration while the owners continue to sell insurance and deal with the larger issues of carrier and customer relationships.
The keys to breaking through the first Glass Ceiling is evolution of owners and employees through Strategic Planning, the creation of a management discipline through budgets (and the reporting of them) and Monthly Management Meetings reporting on the progress of each Objective and the controlled management of employee activities.
Ceiling Two – The Two Million Dollar Mark
Agents who successfully transition from “JOAT – Jacks (and Jills) of All Trades” and “Controllers of All They Own” to planners, managers and coordinators of others’ efforts will find that, not only will their Strategic Plans work, but that they bear more fruit faster than they ever imagined. Success breeds success and within a few years they are learning how to do demographic studies and marketing plans within their Tactical Plans. They also learn how to live within their budgets, permitting profits to accrue to the agency’s benefit.
Along the way, they adopt (usually by employee, peer or industry coercion) automated agency management systems. Within a short time they realize that they are only using 10%-20% of the system’s capacity but no one knows how (nor has time) to properly utilize the system. The owners who have spent tens of thousands of dollars for a fancy accounting machine are the most frustrated, but all employees know that the machine should be able to do much more than it has been for the company. The agency is bumping into the second glass ceiling.
The success of the Plan has grown the business, requiring even more employees, most experienced in other agencies. The employees have their own favorite ways of handling their desks. The owners don’t mind as long as the work is being done. But at some point they realize that, while the work is being done, it is not being done as the owners would like it to be done. Unfortunately, sometimes the owner finds out when customers complain or the first E&O claim appears for something that has fallen through the cracks. The agency is bumping into the second glass ceiling.
When the owners try to change or correct the inadequate procedures, the employees hear the requested changes. But when the owners review the process at a later date, nothing has changed. The employees have reverted to those methods most convenient to them. Sometimes owners are simply ignored. They try to bring the agency good ideas as often as possible. Without management, the good ideas turn into the “Idea of the Month” and the employees know that they can wait a week and the new concept will be dropped. If there are supervising employees, they are also CSRs, so they are more employee than manager. The lament is always that there is nothing they can do to change the employees. The other problem is growing dissension between producers and employees. The producers consider themselves the keys to the agency success and make demands that the service staff find difficult to accommodate. The agency is bumping into the second glass ceiling.
The second glass ceiling results in a paralysis of the agency because of inadequate use of systems, inadequate procedures and inadequate management. The agencies who break through the second ceiling do so by dedicating a Systems Manager to fully understanding the system, training all employees to utilize all aspects of the system and auditing the use of the system to assure adherence to the system procedures. The bookkeeper or accounting manager who has had the system responsibility may not be the best person to manage systems.
The second management need is a full time Operations Manager (not having sales or service responsibilities). The developing owners understand that this “cost” will provided the opportunity to break through the impasse created by poor systems, poor procedures and poor management of employees (including producers). Competent Operations Managers are worth their weight in gold and will eliminate agency roadblocks to increased growth and profit.
At this stage of agency development, owners find that some employees can not mature as far or at the same rate as the agency, itself. The business is becoming too large, complex and disciplined for some types of entrepreneurial employees. Of course it is wonderful to command your own job in the way that best suits you. But, in reality, when you have six CSRs who are supposed to do the same thing on the same computer system, they must follow similar procedures. Between the $2 Million and $3 Million revenue levels, agencies finally create workflow procedures and mandate their use. This is a part of the management process necessary to permit growth beyond $3 Million.
Ceiling Two – The Threee Million Dollar Mark
Agencies at the $3 Million revenue level know the business of running an agency. They are now faced with tremendous pressure to sell themselves to larger firms who are using acquisition as a primary growth mechanism. Operationally, the decision-making process is difficult because the owners know that mistakes at this level become very costly. As a result, the entire decision-making process slows down. Managers become disenchanted and may leave because their suggestions are not automatically acted upon and they feel they have little real control. Producers become disgruntled because they believe they are owed ownership by virtue of the production (for which they have, by the way, been handsomely paid). Owners find that they don’t even know many of their employees. The agency is bumping up against the Glass Ceiling again.
From a management standpoint, agencies trying to exceed the $3 Million Glass Ceiling must organize around Sales Management, Financial Management and Operational Management. These three key positions can overcome the sales vs. service conflicts and step-child position developed for most Financial Departments.
Sales Managers achieve control over the sales force. Producers are not stifled. They are actually better supported and given unlimited opportunities to achieve income. But they must do it “the company way”, not their own. At this level producers realize that their positions are that of salespeople, not independent contractors. Most, realizing that the service, marketing and sales support is of great value, will understand and accept their roles. Those who have always assumed that their books of business were theirs, not the agency’s will probably depart. The roles change from the agency working for the producer to sales, service, administration and financial employees working as teams to achieve agency goals.
Agency owners realize that the Financial Manager of the company with both investment and budget control plays an ever-growing role in the profitability of the agency. If the person in the position is a bookkeeper or accounting representative, the agency may need a higher caliber manager. More responsibilities are proffered to this manager as the agency continues to grow.
The Operations Manager is a key player (and normally one of the owners). This position directs all departments and becomes responsible for the day-by-day operation of the agency (including its Tactical Plan implementation). Systems and procedures are audited, employee handbooks are designed, procedures are standardized and reviewed and workflow is carefully measured to assure that little falls through the cracks.
Smart owners no longer make snap decisions in agencies beyond $3 Million. The best decision they can make is to appoint a Board of Directors (including outside directors) to assist in the strategic direction of the company. The Board helps design and approves the Strategic (long range) Plan of the company including mergers, acquisitions and divestiture or sale. The Tactical Plan (one year objectives) is given to the Operations Manager and local managers to implement. Their performance is based on their success in achieving the goals of the Tactical Plan. To that end, agencies breaking through the $3 Million Ceiling are almost always divisionalized and profit-centered. Division management is responsible for their own revenue and expenses and must drop the required profit to the bottom line to achieve their goals during the year.
Breaking through the $3 Million barrier is different from (but as difficult as) the earlier Glass Ceilings. However, once the divisions are established and management knows their responsibilities, the growth of the company is only limited by the imagination of the Board of Directors. This could be the most exciting of times and is certainly the most profitable.
Most insurance agencies are less than $1 Million in revenue. A very small number exceed $2 Million. The agencies growing past $3 Million either make their owners millionaires when they sell to larger firms or find that their lifespan and potential size is unlimited. Most agencies would like to break through the $1 Million and $2 Million marks. The primary cause of their failure is not their intelligence or insurance knowledge. The reason most agents fail to grow is that they can not change sufficiently to break through the Glass Ceilings. Risk-taking attitudes, flexibility and the dedicated desire to grow are the only things necessary to spring-board your agency through these artificial ceilings in the business of insurance. Either you will earn a living as an insurance agent or you will become a business owner whose product happens to be insurance services. The decision is up to you.