How and Why to use a Consultant

The question of why and how to select an outside consultant often arises in small closely-held companies like insurance agencies. The owners may be worried over the confidentiality of information, the sensitivity of their problems or may be embarrassed that they have to use an outsider to solve the agencies problems or development issues. They may also be worried that the consultants are unaffordable. These issues have been overcome by the larger agencies and corporations that normally use outside consultants to solve problems that are too difficult, complex, or specialized for agency personnel to handle.

We would like to explain the situations that justify use of outside consultants (and those that do not) and how to select the appropriate consultant.

There are five reasons to use a consultant and four rules for selecting a consultant. If your situation doesn’t fit one of these five reasons, you probably do not need to hire an outsider to help you. If the consultants that you interview fail any of the four tests, look for someone else.

Why to Use A Consultant

1. An Agency In Crisis – Many reasons could cause crises in agencies. Financial failure is the most prevalent crisis in today’s insurance agency industry. The combination of increased overhead, soft markets and commission reductions have pushed many agencies over the edge of the break-even line. Most agencies, through poor fiscal habits, have few reserves to offset multiple years of losses. A qualified insurance agency consultant can help you either take the hard steps to quickly turn your agency or to develop new marketing plans to generate sufficient income to return the company to profitability.

Other issues can be just as critical to your business as financial failure. Death or departure of a partner or key employee is an example of crises often requiring outside intervention.

2. An agency in Change – Change is always with us. However, many businesses have found their niche, their market and the method that is successful for them. As a wise man once said, “You don’t fix that which is not broke.” These agents may fine tune their systems in reaction to market changes, automation, etc. but their basic operation is sound and should remain that way. On the other hand, if you sell personal lines in an area in which the companies have decided not to sell personal lines, you are in trouble. It is no longer important that you are the best personal lines agency in the area. Remember, the “best” buggy whip manufacturers went out of business with the advent and success of automobiles – unless they changed their business. These are the kinds of changes that can use outside intervention to help develop.

3. New and arising organizations – Most agency owners are experts in the products and sales techniques of insurance. They have generally little experience constructing new companies or merging existing companies. Attempts to buy, sell, merge or create organizations without any help is almost as smart as “Do It Yourself Surgery” in order to save the surgeon’s fees. Chances are that the next doctor who works on you will be the coroner. Using your local accountant as your advisor is akin to turning the surgery over to your general practitioner, he knows the body parts, but is probably not acquainted enough with the specialized business of insurance agencies to conduct the surgery without help.

4. Organizational Conflict – Who in the agency is suited to resolve conflicts among or between the owners or key managers? A professional consultant can act as mediator and can suggest methods of resolution to avoid resignations or even dissolution of a company.

5. Undisciplined Organizations – Strategic Planning is the disciplined approach that we use to professionalize businesses. Most insurance agencies in the United States and Canada began and grew in the “boom times”. Referrals, increasing rates and growing public need kept agents busy, whether or not they were working efficiently or professionally. The times have changed and those agencies who have remained undisciplined and free-wheeling are suffering. A good consultant can help you establish that discipline and professionalism that will permit you to recognize your strengths and weaknesses and change your organization

How To Select A Consultant

1. Interview – Speak directly to the consultant that you would be using. Review your situation and ask for examples of similar situations that he has encountered and methods that he has used to assist the client. This interview, normally conducted by phone, establishes whether your consultant’s personality will match yours.

2. References – Seek and contact references. Consultants feel that all of their clients are happy with their services. However, clients are often brutally honest about the consultant’s shortcomings as well as his strengths.

3. History and Documentation – Ask for and read documentation describing the consultants activities and specialties.

4. Consulting Proposal – Once the consultant understands your problems and needs ask for a proposal defining the services that he proposes, the time necessary to accomplish the solutions and the cost associated with his activities. Those costs can be stated as a guaranteed cost or an estimated cost. Expect to pay expenses in addition to the consulting fees.

Consulting costs are determined by the time needed to accomplish the task at hand. Consultants should give you a good idea of the costs associated with a task or job from their experience doing similar jobs for other agents. Some products and modules such as valuations, Strategic Planning Sessions, agency analysis and automation analysis can normally be firmly priced. Other activities like conflict resolution and merger negotiations are priced per diem. Many consultants will offer their services on retainer, permitting them more certainty of time commitment and the client a lower cost as a result.

Consider the use of a consultant with the same gravity as the use of a doctor. A wrong choice in either case can worsen the situation. The right consultant can relieve the problems and set you on the right course for your business’ future.