When I was a student in college and majoring in insurance, my professors used to tell us that there was a crying need for good, educated insurance agents.
In their opinion, there were too many agents who were insufficiently trained for the complex world that we were living in. And they further assured us that with the insurance education that we were receiving we were destined to great success, both professionally and financially, in our future careers. They were so focused on the academic side of insurance and in creating knowledgeable, well-trained insurance professionals that it never occurred to them that our future success could be dependent on any other skills outside of those offered by our university’s insurance department. They could not fathom that in the coming decades I would live to see numerous “competent and well-educated insurance agents” go broke because they did not have the management skills to run an insurance agency as a business. They could analyze risks and design coverage programs with high levels of sophistication but they couldn’t manage neither cash flow or people.
Business in America has become so complex that merely having expertise in core areas is no longer sufficient to guarantee a long-term, successful future. Of the companies that comprised the Fortune 500 list only 30 years ago, less than half still exist. And if that great a percentage of America’s best run and largest companies are disappearing that rapidly what kind of future can we, as small and relatively unsophisticated insurance agency owners possibly look forward to? The bottom line is that our businesses are typically becoming larger and more complex at a pace greater than the growth rate of our management skills and knowledge.
Unfortunately, there is a critical shortage of management talent at the agency level. There is a great deal of competent insurance knowledge but there truly are very few sophisticated insurance professionals who are also truly great managers.
Most insurance agencies today are big business by any reasonable definition. Even an average agency generating $1 million dollars in commission income is typically handling $10 million of premium volume with approximately 10 or so employees. For larger agencies, the numbers are even more staggering. I still cannot believe our agency’s employee roster is accurate when I look at it and it contains almost 80 names. How could we possibly get this large this quickly?
The bottom line is that running an agency today is a very sophisticated art that requires skills far greater than any of those learned in classes we took on insurance. And the larger we get, the more complex and difficult it becomes to run an agency. One of my favorite quotes, to paraphrase, says that, “Running a business today is like your kid’s video game. You work harder and harder to get to the next level only to find out that when you do, the game becomes infinitely more difficult.”
The problem that is endemic to our business is that we as agency owners all to often run our businesses like “Mom and Pop” shops. We are still, basically, a cottage industry with far too little talented management. Or, as a friend of mine with Microsoft is fond of saying, we are the “Amish” of the business world.
And the problem is not limited to just the American agency system in my opinion. The critical lack of competent management extends all the way up the corporate ladder within the insurance companies that we represent.
Let’s look at the problem from the top down. When was the last time you met with an insurance company employee who truly seemed to understand both your business and critical threats and weaknesses within your organization? And more important, if you did meet such a company employee, did they offer any assistance in helping you to face those problems so that you could be a stronger agency for the future?
I am constantly amazed by the indifference that is virtually universally shown by insurance company top management towards the success of the independent agent. For most insurance companies, the independent agent represents the sole (or at the very least, the overwhelming majority) of their premium income. Yet what has their management done to take an interest in, or, heaven forbid, invest in our future success?
If you were the CEO of a large insurance company whose revenue stream came from your agency plant, wouldn’t you try and do all that you can to assure their future success? It is no different from hiring a producer within our agency. If we hire a young person, offer them no training, no market support and constantly try to cut their commissions, what are the realistic chances of their success?
Yet large insurance companies, with all of their wisdom, make virtually no attempt to help us become better managers and owners. Who in this industry, if not the carriers, has the resources to help us grow with the skills that we need to run our agencies in this new millennium?
The problem, of course, is that the insurance company managers are far too focused on their next quarter’s profits to be involved in assuring their future through our continued success. Can you ever imagine a company representative coming into your office and announcing that, rather than implementing another commission cut, the company was actually going to increase your commissions so that you could reinvest in your agency, build for the future, and thus maintain a steady stream of revenue for the insurance company? I know that there are some readers who will recommend that I be drug tested just because I dared to dream of such a happening!
And when will insurance company executives become sophisticated enough to know that they need to differentiate themselves in the marketplace in order to have a unique competitive advantage? I once challenged a group of insurance company professionals to try and answer the simple question, “Why should a customer buy from us?” After that speech, I received a letter from the Marketing vice president of a large international insurance group who heard my speech. He wrote to tell me that his company’s management was so busy trying to jockey around its internal structure and save their own jobs that it had never asked itself what its unique position in the marketplace was or what, other than a lower priced commodity, their clients could possibly find as a value and a reason for doing business with them! And this is top management!
An amazing survey in the mid-90’s of insurance agency clients who spend anywhere from $100,000 to $1,000,000 per year truly floored me. While approximately 75 percent of the clients surveyed indicated that they would likely renew with and recommend both their current carrier and agent, fewer than 25 percent felt that they received any real value from either! These are the statistics that keep me awake at night as an agency owner.
When I first got into the insurance business, I was attracted by two concepts. First, insurance sales offered unlimited income with recurring revenue. Second, the only capital investment you needed to get into the business was an adding machine and a typewriter. Today, they don’t even make adding machines and typewriters and the capital investment for automation equipment is huge.
The business of running an insurance agency today is rapidly evolving into a very complex managerial art form. We run millions of dollars of premiums through our account, generate large sums of commissions, spend fortunes on hiring, training and retaining staff (especially producers!) and deal with problems at a level we never imagined as recently as 10 or 15 years ago. And while we are typically mandated to participate in continuing education on the insurance side, we have no requirement and pitifully few offerings to help us with the business of running our agency.
In our case, our successes have come typically with a very high price tag. Whatever success our agency has enjoyed in the way of innovation management has usually come from (often) blind experimentation. I am quick to admit that if we have enjoyed more success than others it is because we have endured an even greater percentage of failed initiatives.
What our industry needs is a greater emphasis on management training from top to bottom. We do little to educate ourselves industry-wide in the science of running our businesses. Even programs like the “Best Practices” survey, which we highly regard as the “bible” for the way we should be doing things, is too broad-based to take into account critical geographical differences in agency operations.
These shortcomings, interestingly enough, are manifesting themselves more predominantly than ever in this hard market that we are all experiencing. To no credit of us as managers in this industry, our commission income across the board seems to be soaring with the correspondingly higher premiums that are prevalent today. It’s almost impossible to talk to an agency owner who isn’t almost gleeful when they get their financial statement each month. But despite the influx of cash, I hear more and more from agency owners who are ready to sell because they don’t know how to deal with limited markets, large per client increases, and the shortage of agency talent, particularly in the sales area.
Recently a very successful agency owner approached us about buying his business. When I asked why he wanted to sell in this incredible market he replied, “Because I just don’t have the management skills to continue to grow my agency in today’s business environment. I need to sell or merge!”
I would invite you to look around your own offices and in particular, at your management team. Then dig deep and ask yourself if you were starting in business today, would you hire the same managers? All too often we promote and retain managers because “they have been with us a long time” rather than because they possess management skills that are both current and effective.
And then take the really hard test and self-examine the job that you are doing as a manager. Have you changed with the times or are you still making the same speeches to your staff that you made five or 10 or even 20 years ago? I’ll never forget attending an insurance company meeting when the chairman of the board looked out at the audience and said, “If you are doing the same things today that you did last year then you are doing them wrong!” That was a great insight into how rapidly our businesses are changing and how quickly we need to change to keep pace with the times.
Overall, how are we doing as an industry in growing our management skills? Frankly, not all that well. I was shocked and pleasantly surprised at the courage of the head of the commercial of a major national insurance company when he addressed an audience of his elite agents and proclaimed, “Your 1099’s prove that this is a great business but as agency owners you are doing a very mediocre job!”
If we are to continue to survive and flourish as agency owners we need to get serious about running our agencies like big businesses. We need to hone our skills and be willing to invest in the education of our management teams far beyond what we spend on the normal insurance continuing education requirements.
And last but not least, we need to work together as agency owners to exchange data, share successes and failures and band together to insure our mutual success. Let’s take a lesson from the car dealers. It is typical for a car dealer to join a “Twenty Group” with 19 other dealers of a similar size selling the same make of car in other parts of the country. They share balances sheets, income statements, compensation programs and marketing ideas with one another. Imagine how much we could learn and gain if we did that with a group of homogeneous insurance agents?
When I was given my first job in the insurance business, I was told that 10 percent of the agents would fail no matter what, 10 percent would succeed no matter, and that the success or failure of the other 80 percent was largely going to be a function of how well they were managed.
To paraphrase that concept, I think that more than ever our businesses will not succeed because of our insurance knowledge, not because of the companies we represent, not because of a hard market but rather as a result of how well we manage them. And how well we manage them will be a function of how well we prepare ourselves for the future.
Michael J. Weinberg is the managing director and partner of Gateway Insurance Agency in Ft. Lauderdale, Fla., where he spearheads the agency’s marketing and automation efforts and is involved with the strategic growth of the business. Weinberg is a nationally known speaker, writer and seminary leader and is available by e-mail at mweinberg@gatewayins.com
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