Agency Opportunity: A Book of Business Transition Plan

By Tom McDonald | August 5, 2013

Agency value is always at risk, battered by external challenges such as the rate environment, or internal ones, like an aging producer team. Many agency leaders deal with retiring producers by transitioning their book of business over to younger people. But before you introduce another producer into a long-term relationship with the goal of transitioning your retiring producer’s book, take a second look. You may be missing an opportunity.

As agency advisors, our job is to identify and assess potential risk factors associated with an organization’s value. Short term risks are easy to identify. Challenges such as addressing health insurance reform, the rate environment, or strength of current staff are front-and-center in the mind of an agency owner. Decisions on such issues need to be made within two years in order to meet those challenges.

Longer term risk factors can be much more difficult to manage. One such factor is an aging staff or the imminent retirement of the most senior, highly productive people. This issue can easily get lost in the business plan and not addressed until it’s too late. This is why more than three-quarters of independent insurance agencies will never be able to perpetuate internally.

Age Factor

It is estimated that over 50 percent of the average agency’s book of business is currently controlled by producers who are over the age of 50. Agency stakeholders face a long-term risk of not retaining this business as producers retire. Agency owners can fight this battle with a diligent, systematic producer reinvestment plan. The goal is to develop people fast enough to be able to transition the accounts over a period of time.

Over the next 20 years, the average agency has to transition more than 50 percent of its revenue. For some, the transition has to happen much sooner. For all, this reality can be daunting. Finding good people continues to be a struggle. That’s the first hurdle.

But even agencies that have planned ahead and built a book of business transition process will miss a huge opportunity to help improve the agency’s long-term value, because that very transition process might be inherently flawed. As you develop your plan to move the business, consider this: producers need time to sell.

Time management is a critical component of successful and consistent book growth. The biggest reason why producers stop producing new business is because there is too much time spent servicing their existing book of business. So why would you take a block of business from one producer’s book and provide it to another to service? Transitioning a book of business down to a producer only further hinders that producer’s ability to spend more time prospecting.

Support Organic Growth

Some organizations will target a younger producer as the right candidate to accept a block of business as a seasoned producer moves out of the agency. Gifting a large book of business could have a negative impact on the producer development process. Many producers with large books of business that have not grown their book are producers who received gifted blocks of business.

A more sustainable way to grow the agency’s business is to help producers learn to originate their own book of business. A hybrid approach, with the work being done by a combination of producers, high-level servicers, and a small business unit, is the best way to support growth, improve profitability and control retention.

About Tom McDonald

McDonald is a vice president at MarshBerry and is responsible for the company's Peer Exchange Networks.

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Insurance Journal West August 5, 2013
August 5, 2013
Insurance Journal West Magazine

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