As you read this you are probably finishing up planning for 2023 (or thinking, “Yikes, I need to get started!”). If you’re like me, this is not your favorite thing to do. Our industry tends to attract doers rather than analyzers. The analysis that good planning requires is often not our strong suit.
That said, I find that big-picture planning, which is tremendously valuable for leaders of businesses of all sizes, can be simplified with time spent in the SWOT exercise.
SWOT is familiar to many and is an acronym for Strengths, Weaknesses, Opportunities and Threats. Spending time contemplating these topics as they relate to your career or agency can set an excellent foundation and define your path forward. Planning, via SWOT analysis, just strengthens what most of us are already good at — and enjoy — doing.
With that in mind, I thought I’d take a stab at doing a SWOT analysis on the independent insurance agency industry. Just as a SWOT analysis can be valuable in moving your agency forward, I’m hoping a SWOT of our industry will give us some quick insight into what’s working, as well as what isn’t, and inspire you to get your analytical juices flowing.
For me, defining the strength of our industry is easy because I’m very bullish on its future. As I look at us as a group I see:
Choice of Products, Carriers and Pricing. This has always been a hallmark of our industry, but it’s never been more pronounced, with more capability here among all agency sizes than ever.
Skilled People. We have a deep bench across the industry in experience and expertise. The average employee in the business is in the middle-to-latter-third of their career, which means they possess deep competence and capability to serve customers and grow businesses.
Strong, Diversified, Capable Carriers. Insurance companies have their challenges, but they’ve never offered a broader product set and better claims handling (the promise we mutually sell) than they do right now.
Stable, Recession-Resistant Income and Operating Profits. While we need to be concerned about the economy in which we operate, the dramatic swings and tough results that affect many businesses typically don’t impact us. Yes, premiums and commissions are exposed to changes in sales and payrolls, but they don’t pose the same risks to us that they do to many businesses.
High Agency Values. Agency values are staying high despite rapidly rising interest rates, which demonstrates how the investment market views the strength of our industry.
Though more strengths than weaknesses stand out to me, it’s important that we acknowledge these risks to our industry and work to address them. Top line weaknesses to strengthen include:
Talent. We aren’t attracting enough people to work in the industry to sustain productivity. Though technology may help, almost every agency principal I talk to sees this as their biggest challenge.
Perpetuation. Despite nearly a decade of remarkable value increases for insurance agencies, a large swath of the industry, particularly in smaller “hometown” agencies (what I think of as the backbone of the industry) lack a plan to perpetuate, and to finance the perpetuation, of the business.
Relationships with Customers. This used to be a foundation of our business, and for many agencies it remains so. But multi-carrier rating systems, price-focused competition, and declining training programs have created a price-based business model in many agencies. This is ultimately a loser as technology will weed out price-based sellers. Many in the industry will need to discover, or rediscover, the power of building deep relationships.
Now, comes the fun stuff. Our industry is rife with opportunity. Despite its many negatives, COVID has opened the door to new technology and new ways of doing business. Opportunities for our industry include:
Agency Turnover. Our workforce is aging and so are agency principals. Most estimates show a large percentage of agencies will have new leadership, one way or the other, in the coming decade. This creates huge opportunities as new leaders with fresh visions take the reins of their businesses.
New Technology. While some see technology as a threat, I see it as an enabler of greater productivity, improved customer service, greater income, and more job satisfaction as it removes the “drudgery” from our work and allows more time to be spent either on technical excellence or relationship building.
New Agency Creation and New Business Models. One outgrowth of agency consolidation has been, and will continue to be, employees leaving organizations to start or acquire their own agency. This is a dynamic activity that ultimately benefits everyone in the business.
Geographical Spread of Risk and Business Opportunity. COVID has made geography largely irrelevant for those who master niche business-building and video communications. Zoom, and similar technologies now commonplace allow selling and servicing at a distance. Additional advantages of work/life flexibility and employee recruitment can benefit all who make use of these opportunities.
Hardening Market. This represents a huge opportunity for agencies with aggressive marketing capabilities.
Though the future looks bright for our industry, it’s critical that we don’t bury our heads in the sand. Many of the same trends listed above as strengths and opportunities could also be perceived as threats for those who are unprepared. Those could include:
Technology. Technology is creating efficiencies, but there are risks. The first is a risk of failure to adopt technologies on a timely basis, making it harder to compete or be profitable. Another is failure to understand that the technology replacement cycle is getting shorter and the need for more frequent investment is speeding up. Finally, there is also increased operations risk related to picking the wrong technology or tech that consumes time resources instead of creating them.
Disintermediation. We’ve worried about this forever and suffer sometimes from “Chicken Little” syndrome. But it’s clear that personal insurance and eventually small business insurance can and will be sold in large volumes by carriers, nontraditional sellers like auto manufacturers or your alma mater and algorithms.
Talent. The Baby Boomer generation is the largest in American (and world) history. Gen X is the smallest. Labor shortages will exist everywhere, including our industry, for a long time.
Loss Ratios and Contingent Income. Changing weather patterns coupled with an inability to predict and keep up with appropriate rate changes have become a constant challenge. This has been exacerbated by insurance carriers’ failure to understand, predict and respond to inflation, as well as by carriers’ struggles to adjust rates in a timely manner in accordance with politically sensitive regulators. As loss ratios rise, the industry’s contingent payments are threatened, and these threats will continue at least until 2024 and likely beyond.
Hardening Market. The hard market represents a huge threat to unprepared agencies as inflationary premiums force customers to shop.
Carrier Cost Containment. As carriers increasingly focus on costs, with even greater urgency driven by inflationary pressures, they have and will continue to look at agent compensation, leading to cuts in some premium dollar revenue.
Well, that’s my end-of-2022 independent insurance agency industry SWOT analysis. Did I get everything? Not likely, but I hope I listed enough to inspire you to jump-start your own thinking.
How does my list impact your agency? What did I leave out that matters to your future? What “strength” are you missing? Is there a “weakness” you think is more important than what I listed? Did I mention an “opportunity” you want to explore? What “threat” to the industry represents an opportunity for you?
It’s time to start or finish planning for a great 2023. I hope that you will “SWOT” your challenges away and seize opportunities to grow your agency for the future.
Topics Independent Agencies
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