When Bob Dylan wrote the iconic 1960s song, "The Times They Are A-Changin'," he captured the social and political upheaval that characterized the times. Today, those lyrics would resonate with agents and brokers who have experienced dramatic changes in their revenue growth rates and profit margins over the last couple of years.
As the soft market continued (another 5.4 percent drop in commercial property and casualty pricing in 2009) and the economy weakened (gross domestic product fell 2.4 percent last year), agency organic growth has plummeted.
The double-digit growth rates reported in the "2007 Best Practices Study" are long gone, and it is expected that private broker organic growth rates in 2009 were flat to negative. The combination of economic decline and soft pricing is kryptonite to organic growth.
This has been reflected in public broker growth figures as well. Four of the five public brokers posted negative organic growth rates in 2009, with only Willis reporting positive organic growth. The public brokers managed to grow organically in some of the most difficult soft markets, but the shrinking economy has pushed organic growth rates into the red.
In a recent short survey we conducted with the current Best Practices agencies, more than 70 percent indicated that their number-one challenge and concern for 2010 is achieving positive revenue growth.
With revenue growth, the objectives of satisfying carriers, providing returns to shareholders, generating opportunities for employees and maintaining financial stability all become easier to achieve. Without revenue growth, they become nearly impossible.
But how do you generate revenue growth in an environment like this? What do you do? One thing is for certain: agencies that don't react aggressively are in trouble. To quote Dylan, "You better start swimmin' or you'll sink like a stone, for the times they are a-changin'."
Here are some key strategies being successfully deployed by those agencies that are swimming hardest. These are the agencies that have the opportunity to grow fastest in this market–where capital and employee resources are constrained.
o The agencies driving growth are focused in their new business efforts.
While working diligently to write new business is critical, agencies will benefit if they take the time to assess new business strategies and make sure they direct the agency's sales resources and energies into the areas in which they can be most successful. This means pinpointing the types of accounts to which the agency can bring particular knowledge, expertise, products, services or other value.
These are the accounts the firm will have the highest probability of winning, and should be the focus of the agency's prospecting and advertising/marketing efforts. In this market, where every hour and every dollar count, efficient prospecting, rather than exploratory prospecting, should be the focus.
o The agencies driving growth are targeting the accounts they already have.
Often, the quickest growth can be realized by expanding current relationships, rather than by fostering and developing new ones. Today's market creates even more of an imperative to capitalize on cross-selling than usual.
Agencies that offer multiple lines of insurance products can generate quick revenue growth by ensuring they are marketing all of their products and services to all of their clients.
o The agencies driving growth are strategically pursuing new producer hiring.
This isn't the time to give up on hiring new producers. With an economic environment that is likely to be subdued for some time, not adding new producers robs your firm of the fuel it needs to grow. However, given that the bottom line for many agencies is shrinking, it is more important than ever to think strategically about new producer hiring.
First, play to your strengths and hire producers that fit your firm's unique DNA. If you've been successful with experienced producers from another industry, stick with it. If hiring college students has worked for your firm, keep the graduates coming.
Second, make sure you are doing what is necessary to allow your unvalidated producers to succeed. It isn't enough to hire producers and hope that they work out.
During times like these, agencies need to focus on improving the success rate of their producer hires. Because, after all, it isn't the producer hire that creates growth; it is what the producer does after being hired.
A key theme to the points above is focus and efficiency. Fiscally difficult times don't allow for wasted energy. Focus on your firm's strengths, your firm's clients and your firm's producer prototype.
Finally, if your financial condition allows it, look to supplement these growth efforts through mergers and acquisitions. If growth becomes impossible to drive organically, it might be wise to buy it.
While executing successful mergers and acquisitions is not an easy task, the revenue base an agency can bring on board through a deal can often address a lot of concerns.
An acquisition can help cover overhead costs (rent, management salaries or accounting expenses), secure carrier volumes to shore up contingent income, and provide new platforms to leverage an agency's existing products and services.
An agency's financial strength will play a large role in determining whether the agency is positioned to take advantage of the benefits of mergers and acquisitions. But for those that can afford it, the M&A market looks like it will pick up in 2010, with more agencies–driven by economic hardship, the prospect of rising capital gains or simple owner demographics–preparing to sell.
Times will always be "a-changin'." Unfortunately for our industry now, times have changed for the worse.
When they change again, maybe we'll be talking about the hard market being a good time to take chances, start new divisions and bring on board large new producer classes.
But for now, a key to success and survival is the pursuit of focus and efficiency in agency growth efforts.
Shirley Lukens and Brian Deitz are partners with Reagan Consulting Inc. (www.reaganconsulting.com), an Atlanta-based firm that developed and produces the "Independent Insurance Agents and Brokers of America Best Practices Study." Mr. Deitz may be reached at (404) 233-5545 or at Brian@reaganconsulting.com. Ms. Lukens may be reached at (404) 233-5545 or at Shirley@reaganconsulting.com
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