Craftspeople and Money People

An insurance agency is a business; make no doubt about it. And it needs to be treated as a true business to fully realize its potential. Many traditional agency owners, however, are not interested in running a business. They like the idea of owning a business, and, psychologically, many need to own an agency rather than work in one. Wanting to “own” a business and wanting to “run” a business have almost nothing in common, other than society and law mostly dictate that those who own a business should run it, with the partial exception of publicly traded companies.

Most owners do not want to run a business. I’ve heard some people say that it is a hobby for many agency owners. In my experience, that is not correct. Agency owners I work with do not view their agencies as hobbies but as very serious endeavors. The difference is that most agency owners truly enjoy working with customers, helping customers, and building a better world.

They are operating at a very high level far beyond the capabilities of a hobbyist. They are professional craftspeople. They know insurance coverages inside and out, understand how to communicate effectively with consumers, and build the most trusting relationships. Their talents amaze me.

They are not that interested, though, in dealing with vendors and solving HR issues; handling arcane accounting issues, contracts, or IT; or especially holding producers accountable. Inside management is not their forte. Many of these agencies would benefit from hiring quality people focused on inside customers. But few agency owners are willing to relinquish control and take that step.

The industry is experiencing significant acquisition activity that promises to relieve these owners of all their inside customer management responsibilities. Most of the time, this promise is of little consequence because the sellers are soon retiring, but it is an important point. Some agency networks are promising something similar to people who are not retiring, which, if executed well, will be a game changer. And we will have an Adam Smith pin factory example played out in the modern world.

A point of conflict is arising with the acquisitions. Many acquirers do not really care about the craft of taking care of clients. There are several carriers and agencies/brokers who have quietly but purposely built organizations based on people with “good enough” (direct quote) skills. High-quality people are too expensive. And the high-quality people who stay, the professional craftspeople, grow frustrated by their inability to provide quality products and services to clients. They are angered by the degeneration of their work and treatment of customers.

This is one reason we are seeing many new agencies founded by younger people who believe in the craft and see a niche to be filled. The agents I am working with are doing this through an even higher level of craftsmanship at higher profit margins.

This conflict between craftspeople and money people has been happening forever. I recall reading about this happening with Western cattle ranches in the 1870s.

Are carriers, regulators, and consumers ready for “good enough” and the loss of craftsmanship? All three have, to some degree or another, based their expectations on the agent being a professional craftsman.

Consumers are definitely getting the short end of the stick. Due to the ridiculous standard of care in most states, which requires the insured to read and understand their coverages, customers will have more responsibility than ever to actually understand the coverages and determine whether the coverages offered address their needs. This is not a realistic requirement, and yet the law opens the door wide for amateurs (the opposite of professionals) who do not really know what they’re doing to exploit the shortage of professional craftspeople. Given how carriers are surgically removing coverages, this does not bode well for consumers.

Regulators are likely not ready for the deluge of complaints and suits. This might be most evident in California, where the state seems to sue its own insurance company, and vice versa. (It’s really like a Kafkaesque dystopian situation.) This is evidence that regulators are not positioned to address the shortage of professional craftspeople who take care of customers.

Carriers are not ready either. As much as some carriers have made it crystal clear they would like agents to disappear (or at least the commission expense), good agents have long protected their carriers from themselves. As some brokers have become larger than many insurance companies, that protection has eroded and will continue to erode. Most carriers’ underwriting systems, including their predictive modeling systems, do not address how the lack of professional agents will negatively impact them. For some, fewer professional agents will be balanced with lower commissions. For carriers with inadequate models, the result will not be positive.

There is no putting the genie back in the bottle. The money will win unless the craftspeople build boutique agencies and brokerages. The people I know building these boutiques are growing with great success. They employ different models, but they have all hired professional management to serve the internal customer. In all cases, they also emphasize deep technical knowledge and the professional craftsperson’s attitude for doing everything well. They have identified a niche and, using their high ethical standards, are taking advantage of those who employ “good enough” people.

Burand is the founder and owner of Burand & Associates LLC based in Mountainair, New Mexico. Phone: 719-485-3868. E-mail: chris@burand-associates.com.