Review and Outlook 2009-2010: Insurance Agency Consultants
What are the top 3 concerns of your clients, and has this changed from a year ago?
Gilman: The economy and the impact of M&As on growth, which has not changed from last year. Another concern is the growth of viral marketing and staying on top of the technology, which was not really on the radar a year ago. Lastly, the ever-changing landscape of the prospect base and universe of potential employee supply has been an ongoing concern.
Cunningham: First, there is the economy/economic recovery and the significant unknown impact of same due to reduced client exposure (payroll and sales) and parallel impact on premium. Similar unknown concerns are if the recovery will occur and if the climate will be better. Another concern is whether the insurance market has hit bottom. These concerns are not major changes from a year ago. Another is what will healthcare reform look like and how will it impact healthcare plans and brokers.
Hicks: A primary concern of agencies and brokerages is how to achieve organic growth in the recession. Organic growth is always top of mind, but it was especially so by the end of the year. In particular, agency leaders feel challenged by how best to grow their producers in order to grow business.
Related to organic growth is a second concern: how to find and develop talent. The insurance industry is not attracting young talent in the numbers it needs to; and even when young producers are on board, the agency needs to prepare them to be business consultants as opposed to policy peddlers. Buyers are more sophisticated than ever. Producers need to be enterprise thinkers who can ask insightful questions and engage prospects in meaningful dialogue.
From smaller independent agencies, we hear increasing concern about what to do about non-performers. The solution is not as simple as "fire them." These agencies are like families. When times were good, a somewhat under-achieving producer could bring in enough business to get by. Now that times are not so good, the business isn't there, but everyone in the organization knows the producer has a family to feed. As a result, we find ourselves helping smaller agencies develop the expertise and specialization of under-performing producers and counseling them not to allow these producers to continue to under-perform. Inaction has negative consequences across the agency.
Burand: The huge decrease in exposures and when it will turn around, which is a definite change from last year. The question of when will the soft market end has not changed much from last year. Lastly, the intensity of the clients' concern of how to grow has changed considerably.
Lieblein: The soft market continues to be the biggest concern of our clients. Many clients believed that the market would harden this year and felt that they would begin to see growth in their client base by the second half of this year. This clearly has not happened and most feel that 2009 has been their most difficult year. Second would be the impact the overall economy is having on their existing client base. We think many agents and brokers underestimated the impact of the economy on their books of business. This is particularly true for employee benefit firms, which are finally feeling the "pain" that their P-C counterparts have been experiencing the past 5 years. Finally, while recruiting is always an issue, healthcare reform is clearly a major concern for all of our EB clients or those P&C firms that have employee benefit divisions. At this time last year, most clients were concerned about the soft market but felt optimistic and were probably more concerned about how to improve their organic growth rates and recruit talent. Overall, while most clients think the worst is over, it is clear that 2009 was by far the most difficult year they have dealt with over the past 10 years.
Candage: The state of the agent community is a definite concern. Customers are directly acquiring insurance products through the Internet and direct marketing. Agencies face increasing expenses and diminishing marginal compensation and the capitalization width is thinning. Agents should change their market opportunities by using the Internet, especially with social networking.
What new technologies should today's agents and brokers be investing in?
Lieblein: The big trend that you are seeing in technology is that all major management system vendors have migrated their applications to the Web and are offering hosted solutions. The impact of this is driving technology costs down throughout the industry and opening up opportunities to completely automate technology solutions using the very latest technologies. The challenge for agencies is understanding what is truly out there that can improve efficiencies and productivity. Data integration with insurers, business processing outsourcing (BPO), improved claim and policy administrative systems are just an example of technology software systems that are now available, from many different vendors to help insurance agents and brokers. A final thought is that we see the need for many benefit firms to upgrade their technology platforms to become more efficient during a period when their revenues and margins are being squeezed. We believe that technology is going to be one of the key drivers of business strategy in the future and will be critical to the long-term success of many independent agents and brokers.
Cunningham: Each firm is a bit different on the techno utilization scale but I suggest investing in multiple screens for CSRs and account managers, and laptops with wireless cards for producers to use robustly in the field.
Burand: Before investing in new technologies, agencies should invest in training their employees on their current technologies, some of which are extremely basic. These technologies are essential going forward and if the employees are not using them, these investments and any new investments will be wasted.
If agencies are going to invest in new technology, agencies going after large accounts need to invest in technology that will reduce cost and increase the profitability of their clients. Finding this technology is more difficult and expensive, but it exists and is essential. For agencies focusing on smaller accounts, any kind of single entry multiple quoting technology is likely to be essential.
Hicks: Because we don't traffic in technology solutions, it's hard to say which specific technologies we would recommend. But related to technology is social media, which portends major change for our industry. People are becoming increasingly used to receiving only the communication they want, when they want it. An agency or brokerage that isn't using social media as a strategy by the end of 2010 will find itself running to catch up.
Gilman: Agents and brokers should be looking at VoIP to help cut down on infrastructure costs and social media to improve marketing and relationship building with clients and prospects. Agents and brokers also should invest in Real Time technologies to improve internal efficiencies and broaden CSR potential by focusing more on sales and service.
Candage: Agents and brokers should use the Internet to provide relationship marketing, communicating with their customers in multiple ways to their preference and using your Web presence more effectively. Agents should also communicate with their companies in a more uniform and effective way
What's the best way for agents and brokers to attract and retain top talent?
Cunningham: There are great opportunities in this economy to attract people who would have never considered working in the agent-broker universe, particularly on the sales side. Pitch the relative stability of the industry and the career opportunities. However, there is no cheap way of doing this. A top-tier compensation plan will attract/retain top- tier talent. A mediocre compensation plan will drive off the high performers and only retain the mediocre.
Gilman: As the landscape of talent changes, hiring managers need to think more from the potential or existing talent's perspective. Think about what environment they would prefer to work in. What would they consider to be worthwhile benefits? Salary may or may not be the bottom line for the Gen Y'ers yet they might be the best sales and service staff you could hire as your markets change.
Hicks: Become the place where people want to work. Granted, it takes some effort to create an energetic, stimulating environment in which people are motivated and engaged. But investing in such a workplace culture solves the talent equation in a way that compensation can't.
Agencies that inspire, recognize, reward their teams and strive to create a work-life balance find that recruiting becomes part of the culture. The people who love working there want talented people in their personal and professional networks to work there, too. It also helps that such agencies are typically very tolerant environments. Their people accept other people's differences, and their hiring managers aren't afraid to bring in people with varying skill sets. They don't just hire "people like us."
Burand: Agents and brokers need to pay enough, have a great work environment and show that the agency is a success because good people want to work at successful enterprises.
Lieblein: First and foremost, I think most firms need to adopt a term we call talent management as part of their overall strategic planning process. Too many firms treat recruiting and retaining as separate business issues and not part of their core strategic planning process. I believe that to be successful in recruiting and retaining top talent starts with building a strong culture and a foundation of core beliefs that truly builds a competitive advantage in the market. Most firms underestimate how their reputation impacts their ability to recruit and retain. Therefore, many firms need to reevaluate their commitment to recruiting and their investment in people. Specific steps would include expanding their recruiting base to go beyond the insurance industry and look for talent outside the industry. Second, they must develop and implement a mentoring and training program to help ensure that new talent is developed successfully.
Candage: Make the business exciting with innovation, relationship building, career opportunities, careers tracks and financial incentives. Also, have a strong vision and attain strong buy-in from all stakeholders. Agents and brokers should have an effective plan and communicate it to their employees in an exciting and effective way. Reward performance and make your reward base broader.
What will be the biggest challenge for agents in 2010, and how can they overcome it?
Burand: Growing will be the biggest challenge, and related to that will be achieving adequate profitability. The key to overcoming the lack of growth is simply working harder to make new sales. I see too many agencies seeking various strategies such as joining clusters or investing in sophisticated sales programs or buying huge lead lists, when these are really just delays or temporary fixes. At some point, someone has to get out and make sales. Not enough agencies and producers are truly getting out and knocking on doors. I am not suggesting calling anyone and everyone without regard for quality, and I'm not suggesting referrals should not be farmed, but I see too many excuses and not enough action.
Gilman: Keeping up with all of the changes taking place, whether it's coming from their clients, or staff. The social network, for many agents and brokers, could be a huge barrier for them to get over, both in terms of understanding it and from knowing how to take advantage of it. The biggest single way to overcome these challenges is to stay open to the change and being receptive to thinking not just outside the box but realizing it's no longer a box at all.
Hicks: I see not one, but two "biggest" challenges, both of which are interrelated: maintaining optimism and having the courage to change. By mid-fall, it looked as if the economy was improving; yet recovery still felt a long way away. For some, that reality can be cause for despair. But as we've seen with our clients, it can be energizing to focus only on that which can be changed and improved, rather than preoccupied with the forces and factors that are beyond our control.
And therein lies the second "biggest" challenge: actually making the moves that need to be made once they've been identified. The new year is the time to say, we're going to make the tough choices. We're going to challenge our past assumptions, make overdue changes in personnel, and become more sophisticated in how we present our offering. We're going to perform as experts and specialists, not salespeople and generalists. I can name several firms that have made these and other resolutions, many of which took a lot of courage to tackle.
Cunningham: Surviving the perfect storm (economy and insurance market). Remaining stable (i.e., keeping the agency and its infrastructure stable) through the economic recovery, as it will likely take some time to get back to a vibrant economy. If the firm does not have the capital resources to weather the storm, it may not survive and will likely be a candidate for sale.
Lieblein: Once again, I believe the combination of the lingering effects of the soft market and the economy will be the two biggest challenges impacting agents and brokers. Agencies cannot control the market or the economy, but they can impact their future by focusing on strategies to drive growth. This is the perfect time to reevaluate your organizational structure as well as your compensation plans to make sure they are designed to promote growth. In addition, agencies need to reevaluate their prospecting and sales strategy in order to make sure that they have developed a unique sales process that truly differentiates them from the competition. We see too many agencies just working harder on the same flawed or failed strategies that result in many hours of investment with little success. This leads to poor morale throughout the entire agency and a hopeless feeling that they cannot succeed. This may seem too dramatic, but we have seen it happen time and time again.
Candage: The incursion of new competition and substantial investments in marketing from risk bearers will be a challene. Agents can overcome this by building one-on-one relationships with their clients.
What opportunities do you expect to see in 2010?
Hicks: The greatest is the opportunity to add new value to the enterprise. This is especially true for those who were looking for exit strategies in 2008 and 2009, people who find their agencies and brokerages undervalued. They've put years, maybe even a lifetime, into building a client base and a brand. In the current market, it may not be worth as much as they'd planned or hoped.
So 2010 can be the year to innovate, or even reinvent. That begins with getting the organization's leadership team together and asking: How can we look at ourselves in a new light? How can we think differently this year? What changes can we make that have the potential not just to enhance our bottom line–but make us more valuable as an enterprise? This may seem elementary. But such conversations can be powerfully enlightening.
Gilman: Technology developments offer the greatest opportunities for everyone. Your agency can become anything you can imagine. Perhaps the greatest challenge is in the limitations of the insurance products our industry offers. The technology can free up the true potential and creativity of the insurance industry so finding the right match between the market and the flexibility of technology might prove to be the ultimate opportunity.
Cunningham: Firms with an adequate capital base can seize the producer candidates. Market pressure is possibly creating some dissatisfaction due to compensation and other changes in larger firms (public brokers, private equity owned) among some of their key producers. Those individuals may be prime candidates to recruit. Also, there are acquisitions. The previously active acquirers are sitting on the sidelines. Value is down. Some sellers will need to affect a sale. Fewer buyers provide a better climate for the remaining buyers. Regarding healthcare reform, depending on what ultimately comes out of Washington, there will likely be revenue opportunities amid the turmoil. Such turmoil may create consulting and similar advisory opportunities for the well structured broker.
Lieblein: One of the biggest opportunities we see in 2010 is that privately held agencies that have retained capital and have built a strong balance sheet should have an excellent opportunity to acquire smaller agencies and books of business. Many agency owners realize they can no longer compete effectively and will be looking to sell their agency. With agency valuation lower than it was 12 months ago, and many of the traditional buyers either out of the market or significantly reducing their acquisition appetite, we think this represents the most opportunistic time for privately held agencies to acquire other agencies. Beyond this strategy, I believe that now is the time for agencies to reinvent themselves so they are better positioned when the market and economy improves. This starts with effective strategic planning and reevaluating everything about their agency, from back office operations, service and sales process. Doing nothing will result in the slow death of many agencies over the next 5 to 10 years, particularly employee benefit agencies.
Burand: For agencies that have strong balance sheets, 2010 offers great opportunities for acquisitions of agencies and talent. Many agencies, large brokers and banks do not have the ability to buy as many agencies and a lot of talent is open to leaving. To take advantage of the situation, though, agencies need strong balance sheets to finance this opportunity.
Candage: Building relationships and communicating the value of having an intermediary to deal with an insurance company. Also, valuing distribution as necessary for insurance through agents.
Do you expect the agency force to contract in 2010, to how many agencies? Why?
Cunningham: Likely modest contraction, but not likely greater than prior years. Impending potential increase in capital gains tax may stimulate some sales. Frankly, nobody has good numbers, including the Big I Future One study. Consequently, it is hard to opine with regard to numbers.
Hicks: Almost certainly, contraction will continue, but I don't see it as being as rapid as in recent years. Here's why: Older leaders of independent brokerages and agencies are inclined to delay acquisition by larger organizations until the economy recovers. They're hanging in there because the going price for their firms isn't what it was 2 years ago.
Beyond 2010, that's likely to change. Changes in technology that increase "transactional activity" in commercial lines–coupled with the entry of new non-agency players in the arena–should accelerate contraction.
Gilman: I don't expect the agency force to contract next year. The make-up of the agency may change a little as some key into very targeted markets. More and more companies are recognizing the value of agency distribution force as offering the best marriage between the smart consumer and quality service.
Burand: I expect the agency force to contract because many agencies do not have a good enough balance sheet to withstand the continued weak economy and soft insurance market. Offsetting this is the decreased number of acquisitions the traditional serial acquirers are making.
Lieblein: At Hales, we view the total number of agencies to be significantly larger than many other industry consultants. The number you typically hear is approximately 30,000 agencies. However, when you include life and health, wholesale and captives agencies (e.g. Nationwide, Allstate, State Farm, Erie, etc.), there are approximately 85,000 agencies. With that said, we do not expect the number of independent agencies to change significantly. First, consolidation among the major players is down, and we are seeing many producers from agencies that were acquired over the past 5+ years looking to start their own agency. In addition, the captive agencies continue to expand their presence in many markets so in the end, we think there will be stability in the number of independent agents that will stay in the 85,000 range for the foreseeable future. However, we do expect to see a greater number of agencies with more than $2.5 million in sales to continue to grow in total numbers and you will begin to see a bigger gap between small and midsized agencies in the talent they have and the products and services they can deliver.
Candage: Yes. I am not sure how many but tax changes, thinning revenues, lack of planning and lack of anything to aspire to. Principals have the inability to inspire the next generation. The industry lacks vision and leadership. We need to inspire people and create careers, not just jobs.
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