View AA&B's 80th anniversary page! View more articles, 80 Fun Facts, and AA&B articles from each of AA&B's decades.
While agency management has changed remarkably in the last 80 years, the underlying goal to increase sales has remained consistent and is still the ultimate driver in most agencies. The major difference today is most agencies are much more complex. They have more moving parts that must work in unison to increase sales. And because today's agencies are more complicated, making those sales profitable is more difficult. To grow and to make sales profitable requires more proactive management than ever before.
A key reason more proactive management is required is because technology has enabled agencies to grow bigger. Eighty years ago, automation consisted of a telephone and typewriter, agency commissions were much higher than they are today, and agents had more responsibility, "for better or for worse." Direct bill business did not exist, and agents were responsible for collecting premiums, which they often did door-to-door. Some policies were even payable to the agency weekly. Picture this: Every week, families expected their insurance agents to drop by and collect that week's premiums. Some customers would even have coffee or sweets ready for the visits. Travelers developed the first electronic company/agency interactive computer system in 1980. Before the advent of this technology, agents had to write binders on all policies because weeks would pass between the time when the company would get the application and make a decision. Agents also had extensive claims-paying authority because the company and its adjusters were too far away. Even a large auto underwriter like Allstate did not have a full-time auto adjuster until 1939. Decades ago, the geographical area an agency could cover was limited and carriers appointed many more agencies to ensure they had someone on the ground in all places. The barriers to entry were small because no one needed an IT system and company contracts were easier to obtain. With technological limitations and agencies on every corner, agencies remained smaller. Advances in technology have enabled agencies to grow in size simply because agency IT systems can track thousands of policies. The connection between agency management and IT today is indelible. In fact, if you Web search "agency management," most of the first 30 hits involve agency management software. As in so many other aspects of our lives today, technology has had a profound impact on agencies and agency management. A small agency of the past did not require as much hands-on management as today's larger agencies. The agency owner was almost always the key producer and manager. As long as he managed his own efforts well, the agency would likely thrive. Successful selling meant literally picking up the phone and knocking on doors. The agent (usually a man back then) who had the ability to knock on doors and ask for the sale had an opportunity to become a success. To a large degree, that really was all that was required. Sales management as we know it today was not really necessary and sales success was dependent on raw talent and very hard work. The industry was ruthless to producers who could not pull their weight. Conversely, many agencies today employ producers that cannot really sell, at least not without significant training and guidance. The world today is a lot more lenient toward these producers. Evolving from a philosophy of "only the strong survive" to expending hundreds of thousands of dollars on developing each new producer has been a seismic shift in management philosophy. Another change is that in days of old, although not all sales would be profitable, most would be. Commission rates were sometimes as much as double today's rates–especially in personal lines–and coupled with lots of float (because direct bill business was minimal), agencies could make a fair return on the premiums they were holding in trust. In today's agency, float income is negligible, commission rates are much less and expenses are higher because to increase sales, agencies must spend much more money on developing producers, value-added services and IT systems. While agents made more in commissions from carriers, they also worked harder on services carriers perform today that we often take for granted. With the minimal technology of the past, agents were the primary underwriter. Because package policies like BOPs did not exist, agents had to manually combine separate forms to create the full policy. For example, an agent would combine a fire policy with a liability policy to create a homeowners policy. The agent really was an extension of the company. Carriers had no way of writing business, much less making money, without the agency.
This partnership allowed for more give and take between agent and carrier. Agents could truly rely on their carriers for support, especially if something went wrong. Agency management philosophy reflected this stronger relationship as carriers and agencies were viewed as partners working toward the same goal.
But again, times have changed. As an example, a material portion of E&O claims today are attributable to companies suing their agents. Another difference is today, all but one of the top multiline national carriers available to independent agents writes business through other channels. This massive change from the partnerships of the past represents a significant reason why agency management must continue to evolve. Today's best agency managers recognize that many carriers rank the agency relationship very low on their priority lists. Agencies today need to mind their p's and q's and avoid taking shortcuts in their dealings with these carriers. Today's larger, more complex agencies require more substantial management. Carrier relationships have changed, most independent agencies have at least one producer and virtually all have IT systems. Agencies today face more complex labor laws, tax regulations, and an active plaintiffs' bar, and each and every new layer requires management. Agency management today spans HR, IT, producer, carrier, and E&O management. If an agency has a benefits department, something that rarely existed even 15 years ago, it has divisional management, too. Increasing sales is still the fundamental motivation of many agencies. But today's complex world of insurance makes this a more difficult task. Many employees must be motivated by management rather than the simple but tougher environment of eating only what you kill in which only very self-motivated people survive. More importantly, making money on every sale requires greater management expertise. Agencies have virtually no float income today, expenses are higher, and commission rates are almost half what they once were. The historic management ideal of every sale being profitable simply is not true today. This is one of the most significant changes in agencies and yet not all agencies have accepted this as reality. Dedicated and proactive agency management today is much more important than it was in the past, even more important than it was in the '90s. Agencies today have many more moving parts. When the process is simple and largely dependent on a handshake between the carrier and agency and one man calling and selling one client after another, conscious management is not that important. Some owners believe agency management has not changed much in the past 80 years and focus only on making sales like their forefathers did many years ago. That train –or space shuttle–has left the station.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.