Carriers Put The Squeeze On Agents

If you're an agency owner wondering why your carriers are makingit so difficult to do business with them, you're not alone.

Your calls and e-mails have been pouring into my agencymanagement consulting firm, and while the reasons for the calls arevaried, there's one topic that overshadows all others how hard itis to get along with your carriers.

To get a better understanding of what's going on, you might justconsider getting out the old dictionary and looking up the wordscompression and pressure. What the heck, I've done it for you.

This is what the Oxford Dictionary has to say about compression:compressing to squeeze; to contract. Pressure, according to thesame source, includes the following definitions force exerted,inducement, prevail upon, affliction or difficulty under financialpressure.

Those two terms will have a great bearing on property andcasualty insurance agency owners in the months and years ahead.

Many carriers are basking in the glow of the numerous rateincreases they have received while remaining relatively untouchedby any unexpected payouts for natural disaster losses. And with arising stock market and balance sheet repairs behind them, manycompanies are “cruising.”

As an agency owner, however, don't expect much, if any, of thislargesse to end up at you're agency's doorstep now or in theimmediate future. In fact, you should expect quite the oppositepressure.

Many agencies will experience both compression and pressure asseveral carriers believe that now is an appropriate time to reduceagency commissions. The carriers think that the increased rates, inspite of reduced commissions, will lessen the pain felt in theagencies and it won't be so bad for them (the agencies) afterall.

It is my personal belief, however, that many agencies' net worthin the coming months will be lessened because of these carrieractions unless the agencies are able to write a considerable amountof new business.

Quite a few agencies are already geared for “hard running,” andthey will be able to withstand this change. At many others,however, agency owners are going to be forced to do something thatmany are not prepared to do. They are going to have to re-examinetheir business models and change to meet these new challenges.

Agency owners who are not already in the production-for-pay modewill find that they can no longer afford to keep nonproductiveassociates on the payroll. Agency associate positions will have tobe filled with individuals who are sales or agency productive.

Agency productivity can be measured, and this has to be animmediate priority for agency owners. New hiring guidelines and payguidelines must be established for agencies without productiveassociate standards.

This means that agency owners must begin to look at theiroperations as functioning “cash” operations, examining each andevery part of the agency operation to make sure that all theirassociates are sales minded. The owners must also make sure thatthey are treating their present book of businesses as platforms fornew sales. No longer can agency owners afford to carry individualswho do not understand the relationship between referrals, clients,prospective customers and their paychecks.

1) Adjusting Pay Structures:

There are many things an agent or agency owner can and should bedoing to prepare and take advantage of the challenges that willconfront them, but the most immediate concern is in the area ofexpenses and the big bucks being expended on salaries. You can haveseveral other working programs in place, but if your payroll is outof whack, you will have minimal impact on your agency's financialfuture.

Agencies with payrolls of more than 60-70 percent of their grossrevenues will find that they can have serious problems should alarge bump or downturn on their financial road suddenly turn upwithout warning.

If you are not already in the pay-for-productivity mode, it'stime for you to switch your thinking from regular annual raises foryour associates to a bonus structure based on productivity. Mostassociates take annual raises for granted and they may or may notearn the extra money. But you can be sure they expect that pop oncea year.

If your agency is one of those where the payroll numbers aremuch too top heavy, then you should be prepared to exercise yourcommunication skills and make the needed adjustments. Should it benecessary to adjust any of your associates' salaries downward, youcan make it very palatable by giving consideration to paying anon-the-spot bonus for the balance of the year that would make upfor any pay shortfall. This would be given with the admonition thatany shortfall next year can be made up in the form of extraproductivity on the part of the associates involved.

You would be surprised at the number of agency owners whobelieve “over-” or extra good pay insures loyalty. My experiencehas taught me otherwisethat those who take risk should stand at thehead of the pay line and not the other way around.

2) Job Descriptions and Salary Policies:

The second area that needs shoring up involves hiring criteriaand job descriptions. These need to be put down on paper. You mayfind that this will prove to be an insurance policy that you mightone day need.

The key concept here is to set production standards for each andevery position you have in the agency. Spell out your salary policyand make it clear that your agency pays annual bonuses based onmeeting annual productivity standards. Time on the job or longevityshould no longer be the benchmark for more money.

Each time a worker or associate, during his or her life cycle,obtains or moves into a better, higher paying job, that workershould realize and expect to pay a higher price in the new positionin the form of longer hours, better dedication and improved jobskills. The worker shouldn't be lulled into thinking that thesalary tree grows straight up to the sky. Instead, each job carrieswith it the implied notion that there is a maximum pay ceiling thatthis job will support.

Agency owners are typically reticent when they discuss how theyarrive at associate salaries, other than saying that they have tomeet the competition whatever that means. The plain truth of thematter is there needs to be more education in the area of how muchit really takes to operate an agency while still being able to paythe agency owner the money he or she needs to assume all the risks.You cannot overlook the fact that you need to set aside enoughmoney for those unexpected rainy days.

3) Retaining Dedicated Workers:

Many agency owners confuse associate loyalty with longevity, andthey link longevity with ever-increasing salary levels. They don'twish to even think of replacing any high-caliber associates,regardless of salary level, for any reason. And so, the upwardmoney spiral continues.

The truth is, in today's agency environment, individuals areloyal and dedicated only as long as their needs and desires are meton a sustaining basis. That means fair pay for the jobs theyperform, working conditions that are acceptable, and leadership towhich they can relate and understand. Many agency ownersunderestimate the importance that their individual leadership hason the longevity of their associates.

I have found that agencies with excessive turnover are spendingroughly $30,000 for each associate they have to replace. This maybe a little on the light side when you factor in benefits,training, salary, morale and time wasted with a low ornonproductive associate. This is an expense that comes right out ofthe “hurt line,” which is the all important bottom line. Yet manyagency owners still regularly “buy” turnover by giving the problemshort shrift and chalking it up to just another cost of doingbusiness.

A surprising fact has emerged on many of the exit interviews ofassociates that I have conducted while completing agency evaluationappraisals. Whether these individuals were terminated or they leftof their own volition, the reason they gave most often for theirexits was incompatibility with management.

The other two major reasons that were given were that the jobwas boring (a situation that didn't look to improve) and thatlittle thought, if any, was given to training.

Where did pay rank among deciding to leave an agency? Oftenassociates said that while pay is important, if an agency ownerproved to be a good person to work for and the job was madeinteresting, then pay played second fiddle.

It has been said that most people live lives of quietdesperation and that all they strive for is to survive for anotherday. The one thing that we all live for is hope. Making theworkplace a happy and safe environment is something for which everyagency owner should strive. That doesn't mean that happy pillsshould be passed out each day. But it does mean that considerationshould be given to what those departed individuals had to say abouttheir working environments.

Agency owners should consider conducting exit interviewsregardless of their feeling for their now departed associates. Ifpossible, the person who is assigned to conduct the interviewshould be someone who has a neutral bias. This will lead to trustand believability on the part of the associate leaving thefirm.

A final word to the wise if there are non-productive workers onthe payroll who will not ever fit into the production for pay mode,it may be time to rise above your ego and admit your hiringmistakes. It's quite easy to overlook the problem and just letthings meander along. But an agency owner who is not willing tomake necessary adjustments in today's insurance environment marketwill find that he or she is in charge of a declining asset.

Edward D. Curry, president and founder of TargetMarketing-Management Consulting, is consultant to the insuranceindustry, based in Virginia Beach, Va. His latest book, “InsuranceAgency Consulting: The Straight Skinny & The How Tos,” targetsconsultants and agency owners who may require consulting servicesto assist with agency evaluation appraisals. Mr. Curry can bereached at [email protected].

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, March 25, 2004.Copyright 2004 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.