Growing Market Share and Revenue Through Financial Services

By Matthew Tuttle, Steven Zeiger and Richard Urbealis | February 24, 2008

For years, property casualty (P/C) agencies have been making the jump into offering personal insurance — life, long-term care and disability — as an adjunct to their traditional products. Brokers have realized that the same people to whom they sell P/C products are perfect prospects for other financial services. By adding these products to their portfolio, they can increase revenue and the more products they provide to clients, the more likely it is that those clients will be retained.

Many successful P/C agencies have taken one step further by offering comprehensive financial services (investments, insurance, financial planning, etc.) to their clients. These agencies have experienced huge growth in revenue and market share by offering these services.

Why Financial Services?

Financial services — investments, insurance and financial planning — can provide a number of benefits to P/C agencies, including:

  • A significant new source of revenue. Successful agencies know that their clients are the perfect prospects for financial services. By capitalizing on existing relationships, it is not hard to develop a successful financial services practice in a short period of time.
  • Stickier clients. Agents currently have competition from other local agencies and the low cost, low service providers. Smart agencies understand that the more lines of business they have with a client, the more likely that client is going to be therss for life.

There are three main ways that a P/C agency can enter financial services: in-sourcing, outsourcing or co-sourcing.

  • In-source. In the in-source model, the agency either acquires a financial services firm or puts one of its brokers in charge of financial services. This model has the highest profit potential but it also has the most cost in terms of time and money (if the agency is buying a firm).
  • Outsource. In this model, the agency refers business to some local insurance and investment people on a case-by-case basis. There is little or no cost to this type of program and it can take very little time to implement. Unfortunately, the profit potential is also very low as the P/C agency loses control of the engagement as soon as the client walks out the door. This is also usually undertaken haphazardly, without any real business model.
  • Co-source. In our experience, this is by far the most successful model. In this case, the P/C agency sets up an investment management LLC and an insurance LLC and then finds a joint venture partner to help set up an open architecture financial services platform. This method uses an open architecture model so that the agency can bring in an estate planning specialist, a deferred compensation specialist, an asset manager, etc. Alliance partners are also contractually responsible for delivering P/C opportunities to the agency.

Unlike with the outsource model, under the co-source model, the P/C agency has a business plan and retains control of the client relationship at all times while bringing in separate specialists for each business line. The agency and the co-source partner must have a step-by-step plan designed to appeal to all or most of the agency’s clients, not just those who express an interest in financial services. The co-source model is much less expensive to implement than buying an existing financial services firm and fairly easy to unwind if the cultures don’t fit. It also requires much less training than building the practice in house.

Making it Work

There are two key ingredients to making the co-source model work: commitment from the brokers and client segmentation.

Each broker at the agency who has client contact needs to commit to how many financial services appointments he or she can handle each month without impacting the P/C business. This can be as few as one or as many as practical. Whatever that commitment is, the broker must be willing to stick to it.

The co-source partner needs to go through the agency’s client list and get as many financial facts about them as possible. Then, the co-source partner can rate each of the clients based on how they look as a financial services lead. The P/C agency can then start with the most likely prospects and move down from there. All appointments should be held either at the agency or at the client’s home or place of business. If they are not held at the agency, the broker dealing with the client needs to be present.

As more and more agencies discover the opportunity of starting financial services practices more will join them. As with any business the early movers will most likely be the most successful in setting up financial services practices leaving the competition scrambling to keep up.

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