An Open Letter to Independent Insurance and Benefits Agencies

There comes a time for every business when it must make adjustments, embrace change, and reinvent itself. Occasionally, circumstances arise that bring an entire industry to just such a transformational moment. For the insurance industry, and our individual businesses, that time is now.

Some may not want to believe it and others may choose to ignore it, but for all those who are in denial, they may be doing so at their own peril.

An industry in crisis

We are at a defining moment for the independent agency system. Profits are being attacked, growth is a struggle, future revenue streams are uncertain and the result is a level of panic not seen before. The most concerning thing of all is that most agencies don’t seem to have a plan for how to deal with the lack of control they have over their businesses. As a result, there is an almost vulture-like strategy driving agency acquisitions, a development that seems to be gaining momentum and threatening the very survival of the independent agency system.

This isn’t just a personal opinion or observation. This is the collective opinion and observation of a group of 10 industry/agency consultants who recently came together for a somewhat unprecedented meeting. On most days, this is a group of competitors; either competing directly for the same clients or, at the very least, competing for the discretionary time and money of the same agencies. However, it was out of mutual concern for the future of the industry that this group came together in the spirit of “coopetition.” Rather than retreating into separate corners and competing more fiercely for the shrinking ranks of agencies, this group has made the decision to work together to help keep the ranks of independent agencies as large and successful as possible.

An industry worth saving

This is an unbelievable industry that has been rich with personal and financial rewards for those willing to make the investment. We are provided with great income opportunities, have more work/life balance than most other professions, work with diverse and interesting business owners, and perhaps best of all, we have the potential to make a significant impact on the businesses of those clients.

In fact, this industry has been so generous to independent agencies that it could be argued that the generosity itself has helped create many of the problems we now face.

We do not see the demise of this industry as inevitable. In fact, this group believes the best days of independent agencies still lie ahead. We know the independent agency system can survive; however, the surviving businesses will look different than they do today. What we don’t know is how large those ranks are going to be because the change is starting with a needed cleansing of the industry, something which is already happening.

We have put ourselves in this precarious position. As we just said, many of our problems as independent agencies are self-created (or, at the very least, have been tolerated). All businesses must control two critical elements:

  1. What it is they sell to their clients.
  2. How they get paid for what they sell.

Because the industry has been so financially generous, most agencies have allowed those critical parts of their business to be controlled by a third party, the insurance carriers.

Also, because of the generous financial rewards provided by the industry, it has allowed agencies that deliver marginal client value to find disproportionate levels of success. We know this is a bit harsh but, if you are being honest with yourself, you will agree that if all an agency does is place an insurance policy and then fix the resulting problems, they have been way overpaid. It is these agencies that have helped fuel an unfavorable stereotype for our industry and gained us little support in the court of public opinion.

It is not this part of our industry we are looking to protect and save. That would be a fool’s effort. Instead, we are looking to save those agencies who are able and willing to take control of their businesses and whose mission is to truly improve the business of their clients. That is an industry worth saving.

Now is the time to act

While we believe there is a great future ahead for these agencies, the future glory days are not guaranteed, not by a long shot. Each of us in this group has varied ideas as to how agencies will take part in that glory, but we are unified in our belief that it will require something drastically different than what has been done in the past.

And, as we all know, change is never easy and the right kind of change is rarely quick. While we also have differing opinions as to how much time agencies really have to save themselves, we are all in agreement that now is the time to get started and significant progress needs to be made within the next 12-24 months.

Focusing on the wrong target

Most would agree that this is a time of unprecedented challenges for independent agencies. Sure, some of the challenges are obvious: health care reform, exchanges, and a slow recovery from the recession, to name a few. As we talk to agency owners, it is these challenges that are getting the most attention.

However, as real as those challenges are, we don’t see those as the most critical challenges: these issues are merely exposing the underlying frailty of the independent system, a frailty that has been a ticking time bomb and whose clock is winding down.

A failure to address and correct the real issues will bring an end to the independent agency system, at least as we know it today.

Common agency challenges

Identifying those foundational issues was a primary focus of our recent meeting. The consensus of our group is that the following issues are leaving agencies vulnerable and exposed to the impact of the current (and emerging) market and industry conditions.

Too many agencies do not have an answer for these industry trends:

  • Carriers are starting to limit the number of agency contracts.
  • Carriers are writing policies net of commission, leaving the agency to negotiate their own fee.
  • Where commissions remain built in, they are being slashed.
  • After the cleansing of the industry removes the mediocre performers, the remaining competition will be potent and fierce.
  • The Patient Protection and Affordable Care Act (PPACA) and the resulting Exchanges will drive many smaller businesses out of the medical insurance business.
  • While the commission slashing is currently focused in the health side of the business, it could be a false sense of security to think other lines of insurance are immune to reduced commission schedules.

Too many agencies (both benefits and P&C) have left themselves vulnerable in the following ways:

  • There is no unique sales process. Most are still competing with a spreadsheet and look just like every other agency to the prospect/client.
  • Growth is overly dependent on the owners to produce.
  • With the owner focusing on growth, there is not enough work being done “on” and leading of the business.
  • There is too much dependency on the placement of an insurance product as the only value delivered to clients, and therefore, the only opportunity to get paid by those clients.
  • Most agencies lack a vision as to what the agency needs to become in order to survive.
  • As businesses, agencies are largely controlled by the insurance carriers. It is the carrier who controls the product being sold and determines the compensation for the sale.
  • Agencies are having difficulty creating non-insurance solution revenue streams.
  • We’re seeing industry shifts in buying behavior: consumer-centric at the individual level and single-source (benefits, HR, payroll) at the employer level.
  • There is little relevant differentiation between agencies (better service and a list of value-added services are not differentiators).
  • There is a lack of effective recruiting, interviewing, selection, and training processes leading to too many poor hiring decisions.
  • The stereotype of the industry (not trusted and seen as delivering marginal value at best) is difficult to overcome.
  • Most agencies have little to no effective sales management.
  • There is a disproportionate dependency on the smaller groups most threatened by the above listed industry trends.
  • Compensation programs are misaligned with the behaviors needed to drive new revenue, often rewarding a “protect what I have” mentality over a “go get more” mentality.
  • There are too many silos within the typical agency – Sales vs. Service, Producer vs. Producer, Department vs. Department, Leadership vs. Everyone else, etc.
  • All too often, there is a lack of accountability to results, especially for producers. Agencies have to be willing to fire poor performers, including producers.
  • Agencies create a service culture instead of a sales culture with their compensation programs and their accountability structures (or lack thereof).

In all areas, the constant among the problems seems to be a lack of systems and processes.

The cost of doing nothing

We know we aren’t the only ones who recognize the existence of these challenges. Unfortunately, many agencies who see the direness of their circumstances are still not taking appropriate action. The reason for lack of action usually comes down to the difficulty of change but also the cost of addressing the problem in terms of both a financial and time investment. However, the cost of doing nothing and trying to stay the course would be the costliest decision of all.

Agencies who don’t change their course will watch their financials and their structure deteriorate before their eyes and are likely to be out of business in short order. The current path will lead to:

  • Little, if any, top line growth.
  • Eroded profit margins at the bottom line.
  • Disintermediation, either because of carrier selectivity, exchanges, technology, or new and unexpected competitors.
  • Talented staff leaving and difficulty attracting new/replacement talent.
  • Competitive acquisitions at distressed prices.

There isn’t one solution for everyone, but everyone needs to find a solution. Being honest, there are self-interests in this group for issuing this letter. After all, our own success is dependent on this industry remaining strong and viable. However, we got into this side of the business because we like to help others succeed, and success now includes a fierce belief that now is the time to fight for our survival. This is an industry worth saving and fighting for, but it is a fight in which we must all engage together.

If in reading through the list of challenges, you feel you are one of the vulnerable and exposed, we encourage you to take control and start addressing your situation now.

There are basically two courses of action:

  1. Tackle this problem on your own, or
  2. Seek out help.

For most, and especially for those who haven’t yet started making changes, we believe the limited time frame to put answers in place makes tackling this on your own the wrong approach.

We suggest you align yourself with someone who can help you put the answers in place. Of course, as a group of consultants, we would love the opportunity to discuss with you how one of us might help. But we also freely admit there are plenty of other consultants and resources out there to whom you may turn, and we will even suggest some places for you to look.

Another option may be to align yourself with a peer group of agencies who are committed to fixing the same challenges and are working together towards common answers. We see successful agencies every day, agencies who are more optimistic about their future than ever before. Find one of these agencies as an example; there’s no need to reinvent the wheel.

The unacceptable response is to stick your head in the sand and pretend everything is going to be okay. Most of us don’t like the current course of the industry, so we need to be the ones who start steering the ship.

This is our defining moment; now is the time to take action.

What do you think? Is the industry in crisis? Leave your thoughts and comments below.

————————————————————————————————————————

The following are the consultants who met in Atlanta and who have committed to doing their small part in helping protect the independent agency system.

  • Agency Growth Mastermind Network – Nelson Griswold
  • The Anderson Agency Report | The Anderson Network – Steve Anderson
    Leading Authority on Insurance Agency Technology Productivity and Profits
  • The Brokers Broker – Kyle Hodges
    Helping brokers deliver unique wellness and marketing strategies for the 100+ market
  • Daymark Advisors – Jack Kwicien
    Trusted advisors to the insurance industry – Consulting, mergers & acquisitions, and charting the course for the future for brokers, carriers, and enabling technology firms
  • HR Technology Advisors – Joe Markland
    HR Technology Advisors is a leading provider of HR and Benefits Technologies for benefits brokers and their customers
  • iC3/The Intellectual Capital Coaching Corporation – Rick Bauman
    Helping Brokers succeed by building A Passionate Enterprise
  • Marsh, Berry & Company – Rob Lieblein
    Your Partner for Financial Consulting and Mergers & Acquisitions
  • Q4Intelligence (Formerly Benefits Growth Network) – Kevin Trokey & Wendy Keneipp
    An agency transformation network
  • The Wedge: Insurance Agency Sales & Management Training – Randy Schwantz
    Revolutionary Technology for Sales Team Development – Grow Your Agency Value, Grow Your Wealth

Steve Anderson provides information to insurance agents about how they can use technology to increase revenue and/or reduce expenses. He speaks professionally to hundreds of agents each year on the future of technology, the social web, and how insurance agencies can establish their Internet presence.

Please note: I reserve the right to delete comments that are offensive or off-topic.

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19 thoughts on “An Open Letter to Independent Insurance and Benefits Agencies

  1. Have you had an opportunity to review The Wedge? I would like your comments regarding the program.
    Thank you

  2. Hi Steve,

    Thank you and your fellow consultants for taking the time to meet on this very important topic.

    It was that “old” Greek Heraclitus that said, “There is nothing more constant than change.” Today he may have used “transformation” or even as the politicians are most recently using the term “evolving.” But as long as we have a Capitalistic system in our economy, entrepreneurs will find their way. Obamacare is a great example. The opportunities are fantastic! I can hardly wait to compete on health policies against the Federal Navigators.

    Already, in WI we have new carriers starting up targeting the Small Business market and paying commissions of $20.00 per each person per month for Group
    Health Plans and Individual. This flies in the face of the big carriers who have cut our commissions.

    We as entrepreneurs have always been able to “find our way” no matter what the politicians do at a Federal/State level.

    Look at OSHA. When first passed, it was doom and gloom in the business sector. However, look at how many businesses have started up because of OSHA. In fact, our office does Safety meetings for our clients. Where can you as an agent go to be in front of a group of “prospects” that you are talking about their safety?
    Talk about opportunity!

    In Bill Gates’ book “The Road Ahead” page 158 he talks about “disintermediation” of the middleman. Let me quote: “But those who provide added value will not only survive, they will thrive, because the information highway will let them make their services available to customers everywhere.”

    Agent/Broker friends, let your imagination conquer today’s marketplace,

    Sincerely,

    Dave Schuppler, CPIA

  3. Good read. Have felt I needed to change some of my services especially with the changes coming in health care. I plan to retire in three years or so with a small book of business I have built over the years. There are only two of us so paperwork is a problem and we have made some headway in upgrading our systems. We have made some good returns but now it’s slowing up as many employers in the 1 to 20 Emps market are getting out of healthcare. I would like to add some new life in what we do as most agencies don’t like to work with blue collar who are dropping out of the market. Also carriers are not as useful as they use to be.

    I know that from reading your article you work only with large agencies. Do you have anything for those of us who are self-employed? I have some ideas but have felt the need to share with some others. There are two of us and we have talked about other products like payroll etc. but again we are selling for others. Care giving etc. ?
    Dick Evans CSA BS

  4. Eli, I’m not sure any of us know how we are going to go about keeping up with the changes that are coming. But, you have taken an important first step in being willing to start the journey. I’m glad to hear you are ready to take on this challenge. We need people like you to lead the way.

  5. Karen, I agree that there are many challenges ahead. You are taking the right steps to try and experiment with different products and services. Everything won’t work — at least the first time. There will be failures. As you are working on transforming your organization you will learn as you go and become more successful.

  6. Kelly, you are a brave person to take on the changes that are here. You are in a tough position. It sounds like you have an agency owner that is RIP (retired in place!). I’m not sure there is any advice I can give you to change his mind. Unfortunately, there are entirely too many agency owners like the one you describe. You may need to buy him out if you can, or move to another agency that will support your ideas on how the industry needs to change.

  7. I’m in. Willing to change, grow, and succeed. I don’t exactly know how we’re going to do it, except we’ve been improving our office procedures via standardization, improving technology, and are beginning to emphasize coverage knowledge among our support staff. I’m a CIC, am 2/3rds of the way through AFIS (we do farm insurance) and starting CRM in July. Ready to take on the challenges of this new economy.

  8. We have a small agency and since I started here 3 years ago I recognized the industry transformation that was occurring. I have so many ideas on transforming our agency. Some may be good and some may be bad but I cannot seem to convince the owner that we have to try. I can feel the train coming but I’m tied to the track.

    With the little power that I do have, I have improved efficiency, expanded our product line, enhanced our customer service quality, retained our clientele and encouraged industry education throughout the office. Now I am at a point where investment and courage are needed but cooperation from the owner is not. Any suggestions on how to remove the ostrich head from the sand?

  9. Steve, I read with interest your “An Open Letter to Independent Insurance and Benefits Agencies” and noted the high quality team of consultants meeting in Atlanta.

    As a recruiting firm, the Rogan Group is committed to the success of independent insurance and benefits agencies and has been for 25 years.

    Thoughts for your readers, before beginning the interviewing be sure there is consensus on the financial and operational objectives of the hire, clearly establish what is expected in a candidate and be prepared to have solid reasons why a candidate might consider the firm and position.

    Good article.

  10. How refreshing and well written. I completely agree with your comments and our agency is on board 100%.

    That being said, I must admit there are areas that we are in dire need of help. Finding qualified sales personnel continues to be a challenge. We have begun to add capabilities that include payroll, HRIS, and technology needs. Pricing out some of these new services is often difficult.

    While there are many challenges ahead there are also many opportunities. I believe this is an incredibly exciting time in our industry. We are always open to new ideas.

    Thank you for taking the time to meet and reach out.

  11. Tom, I am not sure anyone knows exactly how this will happen. We do have to do the best job we can to figure it out as we go. I do know it is changing and we can begin experimenting with how we can react to these changes.

  12. I totally agree with the transformation part, it is HOW that will happen is the unknown. I don’t think we know yet what that looks like, if you do, please tell me! Definitely being more transparent is part of it but only part of it.

  13. John, I’d be glad to have a short conversation with you. You can schedule an appointment by following these instructions. (And anyone else interested as well.)

    To schedule a phone appointment with me please go to http://meetme.so/SteveA.

    You will be able to see the times I am available over the next few days. Pick two or three times that also work with your schedule. I will be notified of your selection and will confirm the best time for me. You will receive a notification and be able to add the appointment to your calendar. Please make sure to include the best phone number to reach you.

    Let me know if you have any questions. Thanks.

  14. Steve,

    I’d like to have a conversation with you to share our approach and to find out how you can help our agency !!!

    All my best,

    John Butler
    Owner/CEO True Choice Services

  15. Jason, I agree with your analysis. Change is hard, transformation is even harder. People like you need to keep talking about how you are transforming your business process and the results you are getting. I like your analogy of “jumping on our digital house as a new age Paul Revere.” As we keep sounding the alarm maybe, just maybe, more will take the steps necessary to transform.

    Thanks for taking the time to share your thoughts.

  16. Is this true?

    Well, hell yes, this is true! Nothing has been said this year that is any more true. Yet the scary part (depending on how you look at it) is that most agents/owners who read this article either rolled their eyes, scoffed at the idea or thought you were doing it as a self-serving purpose. And therein lies the problem.

    Steve, what we all need to realize is not change but what your second sentence mentions “transforming.” Change is not enough or is it worth doing. Transformation is the only option.

    Vinyl records to eight tracks to cassettes is changing. Cd’s to digital Amazon books is transforming.

    As I talk to agents and owners I just don’t see them transforming and for a couple of reasons:

    1. They can’t see the transformation that needs to happen and even if you show it to them they still can’t grasp it. And it is not their fault entirely.
    2. They flat out don’t want to change nor transform.
    3. They don’t want to change/transform or listen because they think they don’t need to change and this is just another cycle and things will go back to normal.
    4. They don’t want to change/transform because they are retiring in 3-7 years and there is no need to. (These I feel the most sorry for because their whole retirement is based on their agency selling for a profit or a good price and they have no idea the jeopardy and peril they are putting their future years in.)

    Steve, I just don’t see them understanding the dire straits they or this industry are in. All we can do is ring the bell, jump on our digital horse as a new age Paul Revere, and tell them the transformation is coming… so thanks for taking your time to write this article.

    But… in the end those who do transform will be in one hell of a position to conquer…

    Veni, Vidi, Vici ..I came..I saw..I conquered.

    Jason D Cass