Why Do The Best Agencies Get Better?

The principals of Reagan Consulting were retained to create and perform the first study of "The Best Practices of the Leading Independent Insurance Agencies in the United States." The "secrets" of these agencies boiled down to one theme–a commitment to continuous improvement. Whether they were striving to better understand and meet client expectations, investing in employee development, working to enhance company relationships, adopting new technology, or refining the agencys business focus, they wanted to be better tomorrow than they were today. The impact of such a commitment can be remarkable.

Comparing key results of the 1993 "Best Practices" study with the 2002 "Best Practices Study Executive Update" shows that the better agencies in the country are indeed better than they were 10 years ago. Over the last decade, operating efficiency has improved dramatically, while profitability, the cornerstone of determining agency value, has soared.

Much of the improvement comes from greater productivity. Excellent support systems have been put into place to allow key people within the agencies to maximize their time. Better implementation and use of technology, and more streamlined workflows have allowed the agencies to grow without adding new people. Many study participants have stated that salary savings is a major consideration when determining whether to purchase and adopt new technology.

Interestingly, compensation expense has gone up in the largest two revenue categories, while declining in the other categories. Although a 1993-to-2002 comparison is difficult to make because the largest revenue size study group prior to 1999 was "Greater Than $5 Million," the increased expense is not unexpected. The larger agencies have tended to be more sensitive to monitoring head-counts, staffing more leanly all along.

Their philosophy can be summed up by a quote from Jim Collins book "Good to Great," in which he quotes a Wells Fargo executive as saying, "The only way to deliver to the people who are achieving is to not burden them with the people who are not achieving."

At the same time, competition at this revenue level has forced many of these firms to offer top salaries or more attractive compensation packages to attract and keep top talent, making it more difficult to squeeze expense points out of this line item.

Nearly one in five "Best Practices" firms were involved in an acquisition during their last fiscal year. This activity, which has remained high for several years, may also be contributing to improved operating results across all categories, since well-executed mergers and acquisitions can yield significant increases in productivity and expense reduction, producing results that would not have been obtainable by the individual firms.

Concurrent with the acquisition activity was steady internal revenue growth that continued to hover around an average 10 percent rate for all participants. Those who suggest that the current hard market has influenced the results need to understand that the study reflects the participants most recently completed fiscal year-end performance, which for 85 percent of the agencies was Dec. 31, 2001.

Although the market had begun to change early in 2001, the hard market we are now experiencing was not the factor it is likely to be in the next update. A much greater influence on this years results is the long-term financial and management discipline of these leading agencies to obtain steady revenue growth, maintain good profitability, and manage the risks affecting agency value.

While it is impossible to attribute the improved 10-year results solely to the "Best Practices" initiative, the annual study has contributed significantly by setting high standards for agency performance and creating the awareness of what is possible. The study results suggest that the better agencies just keep getting better.

Perhaps the message provided is "continuously improve or fall further and further behind."

For those agencies willing to embrace "Best Practices" philosophies and commit to enhancing their performance, a complete family of "Best Practices" resources and tools are available to help. The "2002 Study Executive Update" and a listing of the "Best Practices Tool Kit" can be viewed on the Web sites of IIABA (www.independentagent.com) and Reagan Consulting (www.reaganconsulting.com).

Shirley Lukens is a senior vice president with Reagan Consulting, which produces the annual "Best Practices Study."

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 23, 2002. Copyright 2002 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.