–OR—I JUST HAD A “KODAK MOMENT!”
Where are the Buggy Whip makers?
In 1890 there were 13,000 businesses in the Buggy and Carriage industry in the United States. About 110 years ago the last great buggy whip manufacturer told its employees that they made the best buggy whips in the world and that as long as they created the “best” and provided excellent service, the business would continue to thrive. Do you know the name of that company??
I thought not!! In case you’re interested, it was Turner and Cook Buggy Whip Manufactory in Southfield, MA. It is now an Antique Mall…
But not all of the 13,000 businesses failed as the industry declined. The most notable success was not a buggy maker or a whip maker, it was a company that made parts for buggies. It supplied ball bearings for buggy wheels. And, when the transportation industry changed, it adapted and today, Timkin is a $5.2 Billion business who owes its existence to its founder who chose to solve transportation problems instead of simply building a better buggy wheel.
Where are all the video rental stores?
On October 19, 1985 an innovator named David Cook opened a store in Dallas, Texas that would “rent” videos to people to watch in their homes. By 2006, (after Wayne Huizenga took control), Blockbuster was a nationwide chain generating more than $5.5 BILLION in revenue. But they lost the entrepreneurial spirit in favor of ‘logical’ business strategies and they didn’t see the technology changing around them. By March, 2010 it was $1 Billion in debt and on the verge of bankruptcy. In April 2011, this once $5.5 Billion business was sold to Dish Network for $320 Million.
In 1873 Charles Barnes opens a book printing business in Wheaton, IL. By 1917 Charles son, William, opened the first Barnes & Noble bookstore in New York. In 1987 when B&N purchased B. Dalton, it had become the second largest retailer with almost 800 stores and $538 Million in sales. Meanwhile the Internet and automation was progressing relatively unnoticed. In 1997, in response to the burgeoning Amazon.com, B&N launched its website and started selling on-line. In 2010, B&N shuttered most of its stores and completed its dissolution in 2011.
Where are all the photo stores?
In 1881 George Eastman began a business that would mature into Kodak. Recently, Kodak signed on with a law firm specializing in rehabilitations, dissolutions and bankruptcies. Its stock, at $94/share in 1997 and is now 78 cents/share. It’s value, $31 Billion in the mid 1990’s had dropped to $6.75 Billion by the time of its bankruptcy in 2012 and its revenue $2.5 Billion when it came out of bankruptcy was half of what it was when it began its bankruptcy proceedings.
Kodak’s red and gold logo was one of the most recognized logos worldwide for the entire 20th Century. It even began the digital camera craze. But it didn’t change with the times until it was forced to change. It will now focus mainly on commercial products such as high-speed digital printing technology and flexible packaging for consumer goods. It may still be called Kodak, but it is certainly not the Kodak we once knew.
As I’ve said countless times,
“YOU CAN NOT SHRINK TO GREATNESS!!!”
–Al Diamond
Now let’s take a look at the insurance agency industry and the insurance companies in general and the many thousands of multiple generation agencies, many over 100 years old, who are proud to “service” their customers the same way that their parents and grandparents did. Today the industry is defined by the Progressives (the insurance company, not the political movement) of the world and the direct writers who either innovate to meet the needs and desires of today’s generation of buyers or who invest in wonderful marketing to re-brand themselves.
Do they sell “better” insurance? No, of course not. Are they more knowledgeable than independent agents? No, of course not!! Do they provide better and different service than agents provide? Well, that’s a maybe. Are they more attractive and easier to access by the general public and by their target markets? ABSOLUTELY!
Are there answers and responses that can be made by the industry in general and by agents directly to the onslaught of a wide variety of competitors?
YES. But those responses require pro-active measures, instead of reactive measures and investment (not cost) to yield a much higher return than we generate from our agencies today.
What can the insurance companies do?? We’ll start by stating what the insurance companies can NOT do; A COMPANY CAN NOT INNOVATE WITH THE SAME MANAGEMENT THAT HAS PERPETUATED THE STATUS QUO SYSTEM FOR THE LAST 200 YEARS!! Most insurance companies “breed” managers who will be very much like their predecessors. So if the company is already progressive and innovative, the new managers promoted to leadership positions will be the ‘change agents’ who are nurtured by their predecessors. But if the company is traditional and teetering on obsolescence, the managers selected for progression into leadership will likely also be traditional and will foster the ways of their predecessors instead of taking risks to change the business model. This makes as much sense as assigning the same politicians who created the debt and deficit in Washington the responsibility for solving the problem they created – talk about assigning the fox to guard the henhouse rationalizing that he knows so much about chickens!
Carriers should hire dedicated management for innovation!! In all probability a 60-year-old Underwriting Vice President managing a silo of an organization has little incentive to innovate or to do things differently – especially cutting costs. Change for most insurance companies involves finding rating opportunities to cover their growing expenses.
Progressive’s SNAPSHOT is a tool that can be installed in vehicles to reflect the performance of the vehicle (and the driver) by judging the number of miles driven, the time of day the car is used and the number of sudden stops generated by the vehicle. The results sponsor 30% discounts for drivers who don’t drive large numbers of miles, who don’t generally drive between midnight and four in the morning and who don’t have to frequently come to sudden stops (all indicators of accident potentials). WHAT A GREAT IDEA!!! Weren’t the traditional stock companies smart enough to develop such an innovation? Of course, but no one was being paid to work on things different – no one was involved in risk taking for the traditional companies. Now, many similar products have been developed by other carriers.
Could the stock companies and mutuals around the country try new things? Yes. Do they have a culture that nurtures risk taking for the rewards of greater market share and regained underwriting profit? I don’t think so – with certain significant exceptions. For instance, is THREE by Berkshire Hathaway a good idea (https://threeinsurance.com/why-three/ )? You bet! Is it workable? The jury is still out on that but Warren Buffett didn’t rise to his level of success by backing losing propositions.
During the last 50 years the insurance companies have jumped on the investment bandwagon, reducing the importance of underwriting in favor of total returns generated by investment of giant amounts of money. However, few have returned to an underwriting profit philosophy even when investment returns made the Total ROI concept difficult or non-existent.
I challenge the insurance companies to name a VP of Innovation and to create something new every year. Fast-Track those changes into market studies and re-create our industry to fit the technology and culture of today’s generation of teens, twenty-year olds and the Thirty-Somethings and middle-agers who are the insurance buyers of today and tomorrow. Otherwise be prepared to join the companies above and some of the biggest names in the insurance industry as entries into the history books of companies that some can remember as having been really big insurance entities just a few decades ago.
NOW ON TO THE AGENTS!!
Since we travel so much from agency to agency, we have had the opportunity to see true innovation in the conduct of insurance agencies throughout the U.S. and Canada – from only a few of the agencies and brokerages we see. Congratulations to them! And they don’t care that no one else comes close to changing their agencies to fit the new generation and new culture. They don’t care because they are doing very well selling to new customers (taking them away from the other agents and brokers) and by purchasing the agencies whose owners would prefer to give up rather than oversee a changing environment.
Even most of the agencies who are perpetuating to younger owners do so to people of the same culture and initiative as the owners before them, creating a generation of maintenance owners instead of agency-builders.
Comparing Agency Consulting Group, Inc.’s Composite Groups of agency performance (several thousand agencies from high performers to mediocre performers) to the Best Practices agencies, we see miles of difference in productivity, growth and profit. This tells us that the insurance agency business is still a wonderful service business and that each agency owner has the capability of growth and profitability.
Too many agency owners are effectively RIP (Retired in Place), enjoying a fine lifestyle without the need for growth or change. Technology, additional producers, managers or staff and change, in general, are not appealing when the investment portfolio is strong, the earnings are strong and the family has shrunk and no longer demands the expenses that young children required. It is easier to coast.
But the insurance agency business is like the buggy whip business and the video rental business, bookstores and the camera business. The buggy whip manufacturers didn’t see that they were supporting a dying business. If they did, they would have transitioned into the tire and auto parts business model. Happily, the need for insurance is certainly not diminishing.
The video rental, the bookstores and the camera business failed to see that they weren’t in the business of renting tapes and dvd’s, selling books and selling cameras. The video and bookstores were really in the same business, providing quick and easy forms of entertainment and information to the public. The camera business is in the business of saving memories.
If any of these industries and major players understood that, Blockbuster would be in licensing streaming video to your phone, tablet, laptop and to your televisions at home, Barnes and Noble would be doing the same thing and Kodak would have been in the photo enhancement and storage business. All of them had a strong reason to follow the technology boom into the Cloud and to invest in automation as their future course. Some of the major players who are gone did nothing. Others realized, only when their new competitors took their market share that their business model had changed.
ADAPT OR DIE
Those agents who understand the following concept have a chance of perpetuating and ‘morphing’ into the successful insurance businesses of the 21st Century:
WE ARE NOT IN THE BUSINESS OF SELLING AND SERVICING INSURANCE POLICIES, WE’RE IN THE BUSINESS OF PROTECTING CLIENTS’ ASSETS
IT’S A MINDSET CHANGE THAT BEGINS WITH THE AGENCY OWNERS! Every agency whose owners and/or producers spend their time finding prospects and working as hard as possible to find prospects that allow the agency to quote their insurance MUST convert their sales concepts or hire new people who operate on a different level – helping clients and prospects understand their exposures and properly insure them (regardless of who is used to sell them that coverage). The problem is that it takes much longer to establish a friendship and trust relationship than it does to give someone a quote, hoping to have a price low enough that they don’t simply go back to their current provider with leverage. The up-side is that, once a trust relationship is established, unless you lie, cheat and steal, it is difficult for someone else to break that relationship. Your clients are much more likely to be your champion – referring others to you because they are doing THEM (their own friends) a favor by linking them with you.
IT’S A WORKFLOW CHANGE! For a hundred years we have been the processor for insurance companies. We have issued policies for our carriers and have implemented changes for our clients. Policy issuance has long since transferred to the carriers and is now often handled digitally to the clients and to the agencies. We still want to implement changes for our clients as a part of our interaction and relationship with them, but many normal transactions will be managed directly by the client to the carrier’s database (i.e. renewal confirmation, simple changes, etc). We still contend that single-carrier Service Centers are not a great idea because they erode the relationship of the agent with his client, trying to replace it with a relationship between the client and the insurance company (a voice on the other end of the phone). Service Centers erode the level and frequency of communication between the agent and the customer. It is that communication that creates and maintains the relationship, allowing us to assure ourselves and the client that we understand his risks and are doing our jobs by updating his protection every year, as needed. The entire reason for a local insurance agent is to give a client personal service. The agent is expected to do what’s best for the client as well as what’s best for the carrier – hopefully not in contention with each other. It may be in a client’s best interest to be moved to another carrier. What chance is there of a client getting that advice from a carrier Service Center? In commercial lines, it is sometimes better for a client to have different coverages insured by different carriers. How well would communications and customer service work if the client is given three telephone numbers, one for each of his carriers and another for the agent?
This does not imply that the agent should continue to insist on handling all policy transactions. Simple and straightforward transactions can be done by the client directly to the carrier (or through the agency’s portal to change a policy, regardless of the carrier). We must remove ourselves from the processing world as long as the pressure on commissions continue downward by the carriers. Anyway, quality relationship communications are not derived from calls to change a vehicle or figure out if a payment has been registered. Those transactions are most efficiently handled directly by the client to the carrier (or agency’s portal).
Take a DEEP BREATH and consider whether you will have a ‘Kodak’ moment or, like Timkin, you will recognize that we are not in the business of selling insurance – we are not even in the insurance business — we are in the ‘protection’ business. As soon as we figure out how to convert our agencies to address the REAL business issues, the faster we will transition into a successful agency for the 21st Century.
What’s the answer? I suggest that you spend some time actually PLANNING how you can respond to the natural transition of the insurance business and the unnatural acceleration of a decentralized insurance agency. If you assume that simple transactions (policy issuance, endorsements, renewals) will be managed on line by either your staff or by the customer, what’s left to the agency is the sales process and the claim management and risk management process. To the degree that you plan for spending the majority of time introducing yourself and building relationships with prospects and with clients you will be able to continue to thrive as you provide proper coverage to people who trust you as their insurance professional to do so. Whether personal or commercial lines, you must transition to become the insureds’ Risk Manager to provide the level of protection at fair prices as their insurance agent.
Call Al Diamond at 856-779-2430 to create a Strategic Plan to shift your agency’s concentration from processing to protection and survive in the new realm of insurance protection through the next generation of your business.