Inflation Impacts Agency Growth

Over the past 15 years, insurance agencies have experienced inflation in two distinct forms. First is the tremendous exposure growth thanks to the booming U.S. economy. Agencies' sales increased substantially because their commercial customers' sales and employee counts were increasing, and people everywhere were buying bigger homes and new cars. Second, agencies also periodically benefited from increasing rates. Collectively, these factors fueled huge increases in agency revenue and profit growth. True to John Kenneth Galbraith's quote, "Inflation does not lubricate trade but by rescuing traders from their errors of optimism or stupidity," these inflationary factors rescued the industry. Inflation, like always, hid an ugly reality: many agencies forgot how to sell.

Many agency owners fell into a peaceful, easy feeling that all was well because revenues and commissions were growing. But the truth is, these inflationary factors tricked many owners and producers into believing they were much more successful growing their agencies than they really were. Many thought the expensive sales consulting programs they joined were actually working.

But the bubble has burst. Real organic commission growth today is more difficult to achieve than possibly anytime in anyone's current career. Between exposure declines and rate decreases, staying even can be a huge achievement. In some geographic areas, especially within certain industries in those geographic areas, not declining by 5 percent is a huge achievement.

For agency owners who choose to focus on building their agency, however, all is not doom and gloom. The first step to get out of the gloom is to remove the uncontrollable losses from the equation. When an agency loses business because its customers go out of business or because it lays off half its employees, the agency cannot control these factors--although the most innovative agencies are taking steps to help their commercial clients improve their businesses which simultaneously decreases the agency's own exposure losses.

After removing these uncontrollable factors, how is the agency doing? What is its retention rate on the remaining accounts? How many new, quality accounts are being written? If retention is good and new account growth is good, all else being equal, the agency is going to be well positioned when the market rebounds. It's always the darkest before the dawn, and dawn is near for hardworking agencies that have never lost focus on the essentials to success.

This leads to the second step: Focus on the essentials to success. Successful agencies must be adding new quality accounts. Even this may not stem commission declines in some locations, but if quality accounts are not being added, the result will be significantly worse. On the other hand, if the agency focuses on increasing the number of accounts, rather than only looking at commission goals, when things turn around the agency will be perfectly positioned.

Focusing on account growth goals is an old, tried-and-true process, yet most agencies today focus on commissions. This is a key metric for measuring true agency success. To track accounts, create categories by account quality, like "A, B and C," or "Platinum, Gold and Silver." Set new account and retention goals by producer and by account type. If the agency focuses on sales in this way, commission growth will take care of itself and success will follow because the focus will be at the account level, which is better aligned with the true heart of an agency. The focus will be on sales, not dollars.

Most producers who actually do have goals have commission goals. But producers do not sell commissions. They sell to clients, one client at a time. By focusing on account growth, one account at a time, the goal and reality are better aligned. Even better, the focus goes to the client and the client's welfare, and everyone in the agency knows the effort is being made client by client. Money goals are not personal; account goals are. When we make the goals personal, client by client, the collective energy is much more significant.

Furthermore, when inflationary factors return, they will not trick agency management. Measuring success by account growth gives a truer picture of the agency's actual success. To top it off, younger producers will especially benefit from this personalized, integrated goal focus. This is a simple approach. No extra money must be spent. Combine this approach with your current sales strategy if possible, and add in your value-added services.

Another essential to success is strong leadership. As I've mentioned before, the most critical key to strong leadership is to hold producers personally accountable, on a daily basis, for achieving their goals. Many agency owners keep hoping their producers will finally catch on and do it themselves. They keep hoping that since the producers are grown up, they'll fix themselves. But it doesn't work that way.

Think about this. Athletes are paid millions of dollars annually to play games, and every single player has at least one, if not a half-dozen, coaches to train, motivate, measure and hold them accountable. If someone at that level is not adequately motivated by millions of dollars to play a game, why expect producers to hold themselves 100 percent accountable to achieve your goals, when they already may be achieving their goals?

If an agency is to build organic sales, producers must be held accountable daily for prospecting, following agency procedures, training, learning and selling. In many agencies, accountability simply does not exist. At most, some goals are set--but then what? What accountability do the producers have for daily prospecting? Following agency procedures? Training? And, of course, selling? What are the consequences if they fail in any area? Accountability cannot exist without consequences. This is where real leaders distinguish themselves. If you don't know where to start, start with one small step and see where it leads. The opportunity is ripe for those willing to step up and lead.

The veil of inflation has lifted. To thrive today, adjustments to the new market environment are required. Work on changing what you can control. Focus your agency on account growth and show leadership by making people accountable. The results will be powerful.