Carriers Put The Squeeze On Agents

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

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

To get a better understanding of what's going on, you might just consider getting out the old dictionary and looking up the words compression 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 the same source, includes the following definitions force exerted, inducement, prevail upon, affliction or difficulty under financial pressure.

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

Many carriers are basking in the glow of the numerous rate increases they have received while remaining relatively untouched by any unexpected payouts for natural disaster losses. And with a rising stock market and balance sheet repairs behind them, many companies are “cruising.”

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

Many agencies will experience both compression and pressure as several carriers believe that now is an appropriate time to reduce agency commissions. The carriers think that the increased rates, in spite of reduced commissions, will lessen the pain felt in the agencies and it won't be so bad for them (the agencies) after all.

It is my personal belief, however, that many agencies' net worth in the coming months will be lessened because of these carrier actions unless the agencies are able to write a considerable amount of new business.

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

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

Agency productivity can be measured, and this has to be an immediate priority for agency owners. New hiring guidelines and pay guidelines must be established for agencies without productive associate standards.

This means that agency owners must begin to look at their operations as functioning “cash” operations, examining each and every part of the agency operation to make sure that all their associates are sales minded. The owners must also make sure that they are treating their present book of businesses as platforms for new sales. No longer can agency owners afford to carry individuals who 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 be doing to prepare and take advantage of the challenges that will confront them, but the most immediate concern is in the area of expenses and the big bucks being expended on salaries. You can have several other working programs in place, but if your payroll is out of whack, you will have minimal impact on your agency's financial future.

Agencies with payrolls of more than 60-70 percent of their gross revenues will find that they can have serious problems should a large bump or downturn on their financial road suddenly turn up without warning.

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

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

You would be surprised at the number of agency owners who believe “over-” or extra good pay insures loyalty. My experience has taught me otherwisethat those who take risk should stand at the head 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 criteria and job descriptions. These need to be put down on paper. You may find that this will prove to be an insurance policy that you might one day need.

The key concept here is to set production standards for each and every position you have in the agency. Spell out your salary policy and make it clear that your agency pays annual bonuses based on meeting annual productivity standards. Time on the job or longevity should 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 worker should realize and expect to pay a higher price in the new position in the form of longer hours, better dedication and improved job skills. The worker shouldn't be lulled into thinking that the salary tree grows straight up to the sky. Instead, each job carries with it the implied notion that there is a maximum pay ceiling that this job will support.

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

3) Retaining Dedicated Workers:

Many agency owners confuse associate loyalty with longevity, and they link longevity with ever-increasing salary levels. They don't wish to even think of replacing any high-caliber associates, regardless of salary level, for any reason. And so, the upward money spiral continues.

The truth is, in today's agency environment, individuals are loyal and dedicated only as long as their needs and desires are met on a sustaining basis. That means fair pay for the jobs they perform, working conditions that are acceptable, and leadership to which they can relate and understand. Many agency owners underestimate the importance that their individual leadership has on the longevity of their associates.

I have found that agencies with excessive turnover are spending roughly $30,000 for each associate they have to replace. This may be a little on the light side when you factor in benefits, training, salary, morale and time wasted with a low or nonproductive associate. This is an expense that comes right out of the “hurt line,” which is the all important bottom line. Yet many agency owners still regularly “buy” turnover by giving the problem short shrift and chalking it up to just another cost of doing business.

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

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

Where did pay rank among deciding to leave an agency? Often associates said that while pay is important, if an agency owner proved to be a good person to work for and the job was made interesting, then pay played second fiddle.

It has been said that most people live lives of quiet desperation and that all they strive for is to survive for another day. The one thing that we all live for is hope. Making the workplace a happy and safe environment is something for which every agency owner should strive. That doesn't mean that happy pills should be passed out each day. But it does mean that consideration should be given to what those departed individuals had to say about their working environments.

Agency owners should consider conducting exit interviews regardless of their feeling for their now departed associates. If possible, the person who is assigned to conduct the interview should be someone who has a neutral bias. This will lead to trust and believability on the part of the associate leaving the firm.

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

Edward D. Curry, president and founder of Target Marketing-Management Consulting, is consultant to the insurance industry, based in Virginia Beach, Va. His latest book, “Insurance Agency Consulting: The Straight Skinny & The How Tos,” targets consultants and agency owners who may require consulting services to assist with agency evaluation appraisals. Mr. Curry can be reached 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 serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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