Thriving in today’s challenging insurance environment

The insurance industry has witnessed a reduction in the number of markets, agents and brokers, and overall industry personnel in the past 10 years. Meanwhile, many markets continue to soften, competition has increased with Internet direct sales, and there are more regulations and a new generation of buyers, according to Dean L. Middour, president and chief operating officer of Thoits Insurance Services Inc.

How can independent agents and brokers survive?

Agency survival depends very much on a long-term strategy and its implementation, according to Anita Z. Bourke, president of IMA of Kansas Inc. Often, that plan takes five to 10 years or more to implement, she said.

“One of the major issues faced by agencies today is perpetuation,” Bourke said. “Growth and profits are tied together in perpetuating the agency. … Key to perpetuation is to have the agency grow in profit and to have producers bringing in new business.”

Most agencies can profit for a period of time, but if they don’t work on attracting new accounts, then as some existing business is lost — which occurs with every company — the agency will have no new business to replace lost customers with, Bourke explained. That leads to less profits, which means the agency will be forced to cut expenses, and that could lead to a downward spiral.

Thus, “organic growth is critical,” Bourke said, meaning agencies must invest in producers.

Every agency has a standard for who they want to hire, but agencies now face hiring competition from other industries, that often seem more attractive.

As a result, Bourke said she will hire someone without insurance experience that she thinks has the wherewithal to succeed. But, “when you hire someone outside of the insurance industry, you have to give that person the tools and time to succeed. To be successful, they need training,” she noted. Companies should designate part of their revenue to attract and retain staff, she recommended.

Attracting people to the industry has become more difficult in recent years. Yet “in the next five to 10 years, there will be a huge number of retirees,” and the industry is looking to train people now to fill those future positions, she added. “That’s an overreaching concern.”

Associations such as CPCU encourage students to pursue insurance-related careers. Bourke also recommends companies offer internships, and then encourage those interns to take professional insurance exams while in college so that they have a head start on the business when they graduate.

“The CPCU is trying to increase students in the CPCU program as soon as possible so they can learn the principles of the industry,” she said. Then, when young hires grow older and family time becomes more important, they maintain their spare time because they’ve already obtained the designations, she explained.

Bourke said she also would like the industry to become more involved in recruiting on college campuses and educating students about the industry. “This is an exciting industry if you understand the entire scope of the insurance business,” she said. To assist in her talks, Bourke takes a diagram (see chart below) with her to show students about the career avenues available in the industry, as well as to talk about salaries. “There are people in this industry who are paid very well for their knowledge,” she said. “This industry is attractive because you can bring wealth to your family and be an owner in a firm.”

Of course, agencies can grow without new hires, by instead acquiring other companies. Yet “there is a lot of competition for acquisitions among the big brokers and banks, which makes it difficult to buy another agency of any size and improve earnings,” Bourke cautioned.

Other challenges facing agencies, the panelists said, include contingent commissions and regulations. Bourke noticed smaller agencies have a more difficult time complying, and recommended they have a staff person in charge of compliance.

At the CPCU seminar, the panelists went through five or six major regulations dealing with such issues as privacy laws and the Patriot Act, that agencies now face. “It’s enough to make your head spin,” Bourke said. Nevertheless, “failing to comply can put an agency in jeopardy, so agencies need to be aware of the laws before them,” she said.

The panelists suggested agencies improve technology, working closely with insurance companies to interface their database and computer systems. “In the past, it’s been difficult for companies and agencies to agree on how to interface their systems, and that’s become an ongoing problem that’s held back the industry,” Bourke said.

Finally, agencies should strive to improve the insurance industry’s image, which has taken a few punches in the past few years. Make sure you’re providing value to clients, the speakers suggested.

“You have to understand the business your clients are in. An agent’s job is not pricing insurance,” Bourke said, “you’re helping to manage clients’ risk globally.”

The industry will only improve its image by having knowledgeable people with values and ethics. In other words, agency survival comes back to having the right people and plan to keep infusing good people into the organization.

“You can only do what you can control,” Bourke said. “That means improving company relationships one at a time.”

Donald B. Allen of Professional Insurance Agents of Hawaii, Anita Z. Bourke of IMA of Kansas Inc., Dan R. Carmichael of Ohio Casualty Corp., and Dean L. Middour of Thoits Insurance Services Inc. were speakers on a panel titled, “Agency Survival in a Changing Environment,” held in September at the CPCU Society Annual Meeting in Honolulu.