Change: a transformation, an alteration, a conversion or even a revolution. Today's economic environment is in a state of change. Failing financial institutions, falling investment portfolios, new politicians, declining P&C premium rates, stagnating growth and falling agency valuations negatively are affecting the insurance industry. For the things in our direct control, we need to ask ourselves whether we are willing and able to proactively execute change.

To outrun external economic and industry factors (net premiums written, rates, contingents, the economy), high-growth agencies execute a variety of initiatives to control their own futures. They focus on the policies, practices, resources and initiatives that reside within the confines of their organizational walls without making excuses relative to the external marketplace. Those initiatives begin with the leadership team making a long-term decision to continually maximize the agency's revenues, earnings, cash flow and value. Whether through organic growth, acquisitions or a combination of both, high-growth agencies have continued to realize double-digit revenue growth and EBITDA margins in excess of 20 percent of revenue.
As agencies and brokers seek to drive agency value and return in a tumultuous financial marketplace, change is the core belief that is embraced, not feared. That includes change in growth strategies, accountability and management principles. For those willing and able to execute change, opportunities abound.
Organic Growth
If the political ads of the past 2 years are any indication, many in our country are interested in change. Wouldn't it be nice if your employees viewed change with such enthusiasm? Normally, change in the workplace is viewed a little differently than it is on the campaign trail.
Why should we care? Creating an organic growth machine that can maximize predictable and sustainable organic growth requires significant change. Strong organic growth rates in most agencies are not the norm, but the exception. For those agencies, change is needed.
To properly frame the conversation, consider the following, sometimes called “Gleicher's formula,obCrLf to assess the likelihood that change can be successful in any given situation.

Formula: D x V x F > R
D = Dissatisfaction with how things are now
V = Vision of what is possible
F = First achievable steps -If the first steps are too difficult, change will falter
R=Resistance to Change

The formula recognizes that people and organizations resist change. Don't worry too much about how the math works; just remember that in multiplying D ,V and F, if any one of the three variables is zero or approaches zero, it will be impossible to end up with an outcome greater than our resistance to change.
For instance, if we have little or no dissatisfaction with our current situation, that number will be zero. No matter how high a score you assign to the vision or ability to pull off the first steps, the product will still be zero and resistance to change will win out.
Let's now examine the variables in the formula and the impact on your organic growth culture.
Dissatisfaction with how things are. Although most agency owners are clamoring for organic growth, the problem for many is the type of producers they employ. If I am a producer and have built a fairly significant book of business, I am more than likely happy with my current situation. The dissatisfaction score for producers is at or near zero. Therefore, a producer's resistance to change will win out.
Vision of what is possible. Again, if I am a producer with a book of business totaling $500,000 in gross commissions and a 30 percent renewal commission split, why should I be concerned with a vision for agency growth or growth of my book? Although the producer may care about growing his or her book, a strong vision of what is possible is different than maintaining a positive attitude regarding growth.
What Can We Do About It?
What you can do has a lot to do with how dissatisfied you are with low organic growth numbers and your vision for what the future holds. If we can't attack the first two variables of dissatisfaction and vision, there is really no need to talk about first steps that are, in fact, achievable. With that in mind, let's see if we can create a different environment in your agency whereby producers would be impacted by the first two variables.
Negative approach: If you have producers who don't care about the organization's collective organic growth, maybe a change is needed. Establish minimum new business commission guildelines that if not met in 2009 would call for a reduced renewal commissions for 2010. This is intended to drive up the R score in the change formula above.
Positive approach: Consider offering equity in your agency (not the producer's book) for those who embrace your call to get serious about organic growth. Now we can positively impact both the dissatisfaction and vision factors. I may become dissatisfied with my role as a producer if I also see the opportunity to become an owner. When producer peers begin to show interest in becoming owners, I may become even more dissatisfied with my sole role as a producer. My vision of what could be becomes very exciting.
Acquired Growth
Acquisitions provide an opportunity for agencies to grow customer base, employment and volume during a soft market and tough economic times. However, expirations are a wasting asset and acquired expirations are further at risk. The purpose and expectations of an acquisition must be clear to the acquiring agency.
The traditional buy-side demand from dozens of national brokers and banks will subside in 2009 as many of the historical buyers are no longer in the game. This will provide an opportunity for larger and better capitalized independent agencies to grow via acquisitions. Agency acquisitions should be pursued with care regarding:
o The purpose of the transaction
o The selection of partners
o Pricing
o Structure
o Post-closing integration plan.
As agency growth and value begin to stagnate and even decline, many independent agents see buying agencies as the answer to their growth problems.
An agency that builds a solid reputation in the marketplace, while also building a strong management staff and balance sheet, is well positioned to execute deals. From the initial meeting, a good acquirer points out the synergies of staff, insurance markets and expertise. These strengths, coupled with the ability to pull the transaction trigger and a reputation for not destroying the acquired agency's goodwill, producers' passion and customers, can win over prospective targets that maintain an allegiance to cultural unity. The valuation and structure in this type of deal almost becomes secondary, as the target agency perceives a better quality of life after the deal with another agency, than with other larger and less personal acquirers.
During the valuation phase, the buyer should understand the risk factors to carrier relationships, customers and agency staff. From the earliest conversations, it is important to begin formulating a vision of the combined company, sharing details as appropriate with the target. The initial valuation and structure should be backed up with a thorough due diligence review, allowing the buyer to get comfortable with producer contracts, carrier results, and the state of the target's accounts receivable and carrier payables. These are often the areas of greatest risk during the due diligence process.
It is important to begin planning integration of the carriers, staff and customers. One of the greatest opportunities for improved results is the consolidation of carrier volume and the potential for greater contingent income. The duplicative staffing requirements of the combined entity presents the opportunity for both consolidation savings in the support functions and a chance to improve the caliber of staff.
Finally, customer retention is critical to getting the most out of a transaction. A plan to communicate with acquired customers and provide them with high- quality customer service is critical to both maintaining commission volume and the related contingent income that follows the book of business. A strategy of constantly improving customer service and efficiency is your greatest opportunity to maximize the transaction.
Both organic and acquired growth require change. You can use either accountability or opportunity to get producers to buy into organic growth. Acquired growth opportunities will be plentiful, but be careful about how to consummate a successful transaction before changing your growth strategy. Are agency executives and principals willing and able to lead change? Will the entire organization embrace change? Who knows, maybe the elected politicians were on to something.

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Change We Can Hope For

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