The insurance agency distribution system model was built around 1900 and is still amazingly similar to agencies of 100 years ago, albeit the monitors and lack of filing cabinets do create a different ambiance. This model is to be admired for its strength, longevity, flexibility to adapt into captive and independent arms, cost savings, and delivery of quality products to every single socio economic group in many countries. Few sales distribution systems have been so successful for so long through good times and bad, wars, famines, financial busts, and massive changes in what is insured. Its longevity is a key to understanding some of its quirks, such as its language and some mathematically incorrect metrics.
Why has it been so successful? The low barrier to entry is the most important factor. The barriers to entry are low on multiple fronts. One important low barrier is the extremely low capital requirement. Initially, a pen and paper, some stamps, envelopes, desk, a chair, and a filing cabinet were all the capital necessary to open an agency.
Another low barrier is that getting a license does not require much knowledge. Similarly, not much education was or really is (relatively) necessary. More than one producer today makes six figures and yet never earned a college degree.
An additional low barrier is the ability to obtain company appointments. Initially, because so many insurance companies competed, getting appointments from several was relatively easy. Approximately 900 property/casualty carriers still do business in the U.S. so relative to other products, getting an appointment from a few of these 900 is still relatively easy. For a while, appointments were more difficult to obtain, but now with the dramatic increase in clusters and aggregators, anybody with a license can get access to dozens of good companies if they try hard enough. Moreover, in a move that I cannot begin to understand, many carriers do not even look at the quality or even the results of these individual agents gaining access to them through these firms. This is changing somewhat as I write this and some incompetent agents are being fired from their clusters, but this change is still in its infancy relative to what needs to occur to prevent serious loss ratio problems.
When minimal barriers to entry exist, two elements are usually required for a distribution system to succeed. First, the sales offices must be small and widely distributed. Second, the sales people have to be people pleasers. This combination works well because if the organization is small, not much management is required and people pleasers get to live their strength pleasing people. Because the firms were small, the insurance companies needed lots of them, one in every community. The best old time producers were buddies with everyone. They worked hard, sometimes partied hard, sometimes prayed hard, and built a great reputation that then created its own referral system. Since not many people had to be managed, the weakness of people pleasers – displeasing people – rarely played a role.
A single key element in this distribution model has changed. Companies began demanding too much volume for this system to continue as it had for decades. Agencies, or at least independent agencies, had to grow. To grow means employing more people and this means more producers.
People pleasers are generally lousy sales managers unless they can set boundaries for their people pleasing nature. The vast majority of people pleasing agency owners are completely incapable of setting such boundaries. As people pleasers, they are on rocket fuel to please all and displease no one. People pleasers’ emotional turmoil, angst, anxiety, and debilitating loss of direction that overwhelms them when they face potential conflict and crucial conversations incapacitates them. The toil these situations can take on their insides and mind are huge.
Yet managing people, particularly the cult known as sales people, requires a heavy hand at times if one is to generate enough volume at a profit to meet company demands. The fact is that most producers never make it in this industry and this has to be addressed to grow profitably. Some agency owners avoid facing this reality by joining clusters or subsidizing inadequate producers with their own sales, personal lines, or a house book. Subsidies always have an end life, often sudden death, so the subsidy strategy is not sustainable. The cluster solution will remain viable, even though carriers will eliminate some clusters and force other clusters to improve quality.
For the independent agency that represents their own carriers and desires to continue to stand, grow and succeed on its own, can people pleasers continue to manage them? Or are people pleasers, as agency owner managers, nearing extinction? I do not know if I have seen more than a handful of people pleasers ever truly build a sustainable organic growth model and those that did, had special circumstances.
The characteristic that built the industry will fail the industry. Simply put, the industry has too much of a good thing. Going forward, agency success defined as an agency with at least 15 people achieving material organic growth annually while achieving a real profit margin of at least 15 percent, requires moderating people pleasing personalities so that someone can take uncomfortable action, someone can deal with displeasure constructively, and someone is not paralyzed by the thought of someone being upset with them. Effective change is easiest achieved by hiring or partnering with someone who can take a strong stand and still sleep easily. Hiring third-parties to be the “bad” guy can be extremely effective too. Even professional executive coaching, not the rah-rah kind, works well.
Moderating the people pleasing environment may be the biggest change in 120 years. The facts of the case make the change inevitable. To grow big enough to please the companies requires hiring more people and when more employees are employed, especially sales people, they need managing. And managing people always means having to have uncomfortable, at least from a people pleaser’s perspective, discussions. For those who accept reality, management creates an opportunity to help your people grow beyond their own expectations.
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