As I write this, in the fall of 2021, it’s now clear that we are going to be living and working with COVID-19 for the indeterminant future – perhaps forever. Regardless of one’s opinions about vaccines, masks, social distancing and other mitigation strategies, the United States today ranks 28th among the world’s largest economies in terms of COVID-19 containment, vaccinations, fatalities, healthcare and more, according to Bloomberg.
With that in mind, I’d like to talk for a moment about how insurance agency entrepreneurs can navigate the continuing impacts of the COVID-19 pandemic on their businesses and highlight some of the opportunities this continually shifting landscape emerging from COVID-19 may uncover.
Finding the Positives in Flexibility
The workplace is clearly different today than it was two years ago, regardless of what coping strategies you may have adopted. Some agencies are still completely virtual, while others never went remote. Now, many agencies have adopted a blended remote-office work model. While no one knows if or when work style may go back to pre-COVID-19 norms, it’s become increasingly apparent that employees want more flexibility than they had before the pandemic.
In fact, a recent report from PWC found that 55% of employees would prefer to work remotely at least three days a week going forward. With many agencies offering new flexibility, the fierce competition for talent that the industry was already experiencing pre-COVID-19 – and made worse by reduced workforce participation during the pandemic – is only increasing.
This means that agency owners who don’t offer work flexibility may find it harder to attract and retain talent.
On the positive side, this pressure for increased flexibility offers at least two opportunities, and possibly a third, to grow your agency:
Because remote workers can work from anywhere, you have a much larger, potentially national, pool to recruit from if you can adapt to such an arrangement.
This pool can become even larger if you focus your talent searches in smaller communities with fewer competing local job opportunities.
Recruiting without geographic restrictions not only opens up the pool of potential candidates, it also offers greater opportunity for those candidates while providing, in some instances, a broader salary range for employers who need to maximize their budgets.
The so called “Great Resignation” is further exacerbating the challenges for agency owners in retaining talent. People have decided to change jobs for a number of reasons. They no longer are willing to put up with something they don’t like, they’re bored, or they’ve found another employer offering more money, among other things. This workforce mobility can work to an agency owner’s advantage if you offer better-than-average working conditions, a great culture or superior opportunities for growth. Now, is the time to focus on your employees.
Buying and Selling
This new landscape also presents a renewed opportunity to acquire agencies or books of business.
Pre-COVID-19, the aging of the workforce in the independent agency system was an increasingly urgent issue. The pandemic only contributed to the problem, inciting retirements. Though this trend is perceived as a negative by many agency owners who are trying to grow, others see it boosting their own desires to retire and sell.
Those who are thinking of retiring and selling are feeling a sense of urgency to do so recognizing a potential for higher capital gains taxes beginning in 2022. Additionally, for those looking to sell, it’s become apparent that interest rates, which are tied to agency values to some degree, will also rise next year.
With many exploring exit options, now is the time for aggressive, ambitious acquirers to reach out and begin discussions with likely sellers.
More Opportunities to Uncover
Another opportunity that this evolving COVID-19 landscape has highlighted is the value of carrier service centers. When faced with talent challenges in the agency, carrier service centers provide a way to maintain service levels, lower costs by turning a fixed salary expense into a variable one, as well as a way to further lower costs overall as service staff typically cost about 25% of revenue. Service centers typically cost only 10% to 12% of revenue.
Further, cyber insurance is something that must be considered in this new environment. Cybercrime and its negative impacts on commercial clients are exploding. Many businesses weren’t prepared for safely moving to remote work, but criminals were prepared to exploit the situation, and cybercrimes of all kinds are skyrocketing. Also critical to note is that a cyberattack can create a potential E&O exposure for agencies that haven’t offered this coverage to every business client. But once again, we see opportunity. In this new environment, clients’ interest in cyber coverage is rapidly increasing, as higher premiums and claims come along for the ride. Both things have the potential to add to agency revenues.
Finally, business continuation and perpetuation are issues that are perennially important to agency owners – but never more so than in the COVID-19 era.
Sadly, we’ve seen too many unfortunate deaths in the last year and a half – many of them older agency owners. But the last six months or so have seen the average age of seriously ill or dying people decline. The CDC reported 15,350 deaths in 2021 as of Oct. 6 for those under age 45. That number for 2020 was 10,157. In our organization, we’ve been fortunate to have seen no deaths among our team members, but we have had several owners in their 30s and 40s hospitalized or incapacitated for weeks and even months. If you don’t have a carefully thought out plan detailing how the agency will operate with you, or another key employee, this needs to be a priority!
COVID-19’s future is uncertain and many of the consequences it will create are also yet unknown. But one thing is always clear – entrepreneurially minded agency owners can see opportunities where others only see problems and dead ends.
The opportunities I’ve listed here are just the tip of the iceberg. I predict that many agencies are going to look back on this period of time as challenging, but also transformational and a period of great growth and progress. I hope that is true for you.
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