One grim reality faces Americans today in a way not felt for generations–there are simply not enough jobs to go around. The Bureau of Labor Statistics pegs the current unemployment rate nationally at 9.9 percent. The young have it even worse, with 16.4 percent of Americans from 20-to-24 unemployed. Those coming out of college and graduate school are entering an economy that has yet to put the class of 2009 to work.
Although hiring trends for recent grads are nominally better than they were a year ago, it is still an abysmal job market for those starting their professional careers. In a recent Wall Street Journal column, Joe Queenan put it this way:
"Over the next few weeks, hundreds of thousands of Millennials will graduate from institutions of higher learning. They will celebrate for several days, perhaps several weeks. Then they will enter a labor force that neither wants nor needs them."
Well, there is one industry that desperately needs young, bright employees in significant numbers–independent insurance agencies and brokerages.
At the same time recent college graduates are struggling to find work, many privately held agencies are facing–many unknowingly–their own employment-related perpetuation crisis: a growing shortage of internal buyers.
Many agencies lack a sufficient number of capable and motivated young producers who will grow into the next generation of buying shareholders necessary to make internal perpetuation possible.
This is not to suggest that all shareholders must be producers–many other key roles within an agency are appropriately rewarded with a seat at the ownership table.
However, the overwhelming majority of buyers in internally perpetuated agencies are producers. Therefore, a shortage of young producers in development today will likely prove very costly later as it respects an agency's ability to remain independent.
Many issues may play into an insurance agency's decision to sell to an outside buyer, such as changes in capital gains rates, compelling third-party buyer valuations, market pressures, capital constraints and uncertainty regarding the future.
However, a sizable percentage of insurance agency sales to third-party buyers result not from a desire to sell externally, but rather the need to do so because of a shortage of internal buyers.
Bluntly put, many agencies today are in desperate need of a youth movement if they hope to remain independent over the long run. To be able to perpetuate later, you must be investing appropriately today in the next generation of young producers who will grow, economically and professionally, into the next generation of buyers.
How do you know if you're making an appropriate investment in young producers?
One quick rule of thumb is to hire one new producer each year for every $6.0 million in agency revenue. Assuming a three-year period over which to develop each producer to maturity, this would mean a $6 million revenue agency would always have three producers in development (one newbie, one in their second year and a third in their final year of development). A $12.0 million agency would look to have two new producer hires each year, with a total of six in development at any given time. A $3.0 million agency would look to hire one producer every year-and-a-half, and so on.
If your agency has neglected this youth movement for some time, you might need to do even more hiring.
Another key indicator of an agency's age perpetuation healthiness is a metric developed by Reagan Consulting called WASA: Weighted Average Shareholder Age. It is calculated by multiplying each shareholder's age to their ownership percentage and then summing the totals.
A WASA over 55 indicates an agency may have difficulty transitioning ownership internally (there are too many mature shareholders who will need to sell their shares to too few buyers at roughly the same time). A WASA of 50-to-54 would be considered normal, while a WASA of less than 50 would be considered low.
Well, where to find these young producers to hire? For many, college and graduate school job fairs are the last place they would look. One of the most time-honored truisms in this industry is that hiring producers right out of school is generally a doomed venture, as everyone knows that most young professionals change jobs repeatedly before they settle down in their careers.
The truth, however, is a different story. In 2009, Reagan Consulting published the "Young Producer Study" (available at www.reaganconsulting.com), the result of a detailed analysis of agencies that viewed themselves as successful in attracting and developing young sales talent.
A successful young producer, for the purposes of the study, was an individual under the age of 30 who was hired during the past 10 years to sell property and casualty insurance and employee benefits business, and has proved to be successful in doing so. Reagan conducted an in-depth analysis of 91 producers who met these criteria to determine where these success stories came from. What did we find?
o Surprisingly, 52.9 percent of these successful producers were recruited straight out of college or graduate school.
o Perhaps not surprisingly, only 1.2 percent of successful young producers were recruited from another insurance agency.
o 36.5 percent came from another industry.
o 3.5 percent came from an insurance company.
o 5.9 percent came from another position within the agency. (For more on this survey, see http://bit.ly/bjj8rJ.)
Agencies that successfully developed young producers right out of school found that these young producers validated (matured) over roughly the same time period as successful producers recruited from another job, and they produced roughly the same commission revenue while doing so.
Further, the compensation necessary to satisfy a young producer right out of school is significantly more modest than with older alternatives.
In terms of sourcing, a majority of agencies that are successful in this area recruit on-campus and make extensive use of summer internship programs.
Without question, recruiting, developing and retaining sales talent right out of school requires a very focused, patient and deliberate strategy to succeed. But the "Young Producer Study" reveals that it can be done and, in fact, it is being done with more success than you might have imagined.
Many have complained that independent agencies do not get their fair share of the top-tier talent graduating from our universities. Well, if there was ever a time to remedy this, it is now.
Albert Einstein once said that "in the middle of difficulty lies opportunity." That is certainly true for agents and brokers looking to recruit the next generation.
The formidable employment challenges faced today by recent graduates may prove to be a golden opportunity for forward-thinking agencies. Perhaps in numbers never before seen, our industry has the opportunity to attract large numbers of bright, capable and motivated young individuals who will make remaining independent tomorrow possible.
Tom Doran (tom@reaganconsulting.com) is a senior vice president and principal at Reagan Consulting Inc., an Atlanta-based management consulting firm that developed and produces the "Independent Insurance Agents and Brokers of America Best Practices Study." Information about Reagan Consulting can be found at www.reganconsulting.com.
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