Agents Can Still Grow In A Soft MarketKey change is not to tolerate service people masqueradingas producers

The future has arrived. You knew it was coming, but are youready? With organic growth rates plummeting, many insuranceagencies are seeing their growth rates slow into single-digits forthe first time since the late 1990s. The great run of the past fiveyears had to end some timeand the second half of 2004 was clearlythe turning point.

The accompanying table paints a pretty grim picture, and keep inmind that for the most part, these numbers dont reflect falloutfrom the probes by New York Attorney General Eliot Spitzer intobroker misconduct.

Despite this disturbing scenario, there is a group of BestPractices agencies out there that truly are ready to prosper duringtougher times. Although each is unique, they share one commonattribute that will allow them to succeed, even if the marketenters another long-term down cycle. What is that one thing?

Theyve developed a sales culture. Theyve accepted the fact thatgrowth (not simply retention) of their client list is the path tosuccess. Theyve renounced their belief in the false choice betweena sales culture and a service culture, recognizing the winning pathis a relentless pursuit of both. And their results thusfar are showing that double-digit growth is still possible, even inthis market.

The question we are most frequently asked is this: Assuming itis possible to create a sales culture, what are the steps that mustbe taken to get there? Here are three observations of firms thatweve seen make real progress in transforming themselves into truesales organizations.

Sales culture agencies recognize that not all who carry thetitle of producer are really producersand do something aboutit.

A client of ours became increasingly frustrated that several oftheir producers consistently fell short of sales goals. Theseproducers were valuable employeestheir superior technical andrelationship skills made them great at holding on to customersbutthey simply didnt produce new business. Our client slowly realizedthat this chronic underperformance had spread like a cancerthroughout the firm.

Other employees followed suit. If the producers werent requiredto live up to their sales goals, why should everybody else be heldto a higher standard? The firms ability to build a culture ofaccountability and discipline was being undermined.

Finally, our client decided the situation had to be addressed.The CEO got up at a sales meeting and explained that the title ofproducer would in the future apply only to those individuals whoconsistently generated new client relationships.

If a producer (no matter how large his book) failed to live upto a minimum standard of new business generation for twoconsecutive years, his title would change to account executive, andhe would be placed on a salary-plus-bonus arrangement, with hisperformance measured primarily by account retention.

The CEO put it well when he said afterward: We simply could nolonger tolerate service people masquerading as producers. Thegenius of the CEOs solution was that it didnt put agency managementin the position of declaring who was and who wasnt a producer, butinstead let the producers decideby their own performance. A yearlater, the sheep were truly separated from the goatsand a majorstep toward agencywide accountability was achieved.

Sales culture agencies are breaking up the old client-servicemodel and replacing it with a team-based approach.

Sales culture agencies are recognizing that their productionsupport model can be the difference between success andfailure.

One of managements most important jobs is to equip producers sothat they have enough time to dedicate to new business development.Are your top producers getting to spend at least 25-to-35 percentof their time soliciting new business? If not, you need to revampyour service model.

For smaller agencies, the first step is often to take certaintaskssuch as claims handling or new business placementout of thehands of customer service representatives and consolidate them intothe hands of a dedicated specialist. For larger agencies, it oftenmeans creating an entirely new positionsuch as an accountexecutiveplaced between the CSR and a top-performing producer.

In our experience, most agencies need to reevaluate their entireservice model every three-to-five years to make sure it still fitstheir customers and producers. Every single producer must haveenough time available to generate new commissions equal to 15-to-20percent of their book each year.

Sales culture agencies are spreading ownership broadly amonghigh performers.

We are frequently asked by principals being pressed to spreadownership around: How many shareholders should an agency have? TheBest Practices Study provides a surprising but simple-to-graspanswer.

Once an agency grows beyond $2.5 million in annual revenue, itadds about one shareholder for every $1 million in growth. Thismeans Best Practices agencies with $5 million in revenue normallyhave five shareholders, while $50 million revenue agencies have 50shareholders.

Although this may appear overly simplistic, the pattern amongBest Practices agencies is undeniable.

The two most important ownership issues are who should own it,and how much should they own.

In our experience, a healthy way to address this is to workbackward. How much value does a given individual create each year?Agency value is created by those activities that increase thegrowth and profitability of the agencysuch as new businessgeneration, agency leadership, attracting other talented employeesinto the company, sales management, etc.

A good starting point in determining how much of the agency eachshareholder should own is roughly six-to-eight times their annualvalue creation. If thats the case, an agencys value will grow by10-to-15 percent annually.

After having doubled their value between 1999 and 2003, manyagency principals are starting to realize the next four-to-fiveyears will make for a tough encore. Whether they double in value ornot, the sales culture agencies will be leading the pack.

Kevin Stipe is a senior vice president and principal of ReaganConsulting Inc., an Atlanta-based management consulting firm thatdeveloped and produces the Independent Insurance Agents &Brokers of America “Best Practices Study,” which may be accessedfor free at www.reaganconsulting.com. Mr. Stipe may be reached at404-233-5545 or at [email protected].

Reproduced from National Underwriter Edition, April 15, 2005.Copyright 2005 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.