Agency of the Month

HYPER-FOCUSED ON THEIR NICHE

California agency sees improvement in ROI as it focuses only on its niche business

It was a pleasant summer day in 1989 and Russ Castle was taking a break from trying to decide what to do with his life by attending a Little League playoff game featuring, for him, his cousin’s son. It was a great day, capped off by the fact that his team won, sending them to the championship game. There were smiles all around as Russ joined the parents and friends of the players on the field—except for one. Russ overheard one man tell his son that he wouldn’t be able to make it to the championship game, which was scheduled for the following Tuesday at 4 p.m., because he had to work. Russ could see the disappointment that tempered the original joy that had resulted from the victory. He decided that he never wanted to see that look in any of his children’s faces, assuming, of course, that he had children. That wasn’t quite on the radar yet, since he had just recently gotten engaged to Mary, who now has been his wife for 28 years.

Up until that moment, Russ had decided on only one thing: He was not going to work in insurance. That’s because his dad worked as a 1099 salesperson for his father-in-law’s agency in San Carlos, California, and Russ saw first hand what that meant. Both he and his brother helped out at the agency, determining the commission cut. At the end of that task, they would joke: “Are we eating mac ‘n’ cheese or steak?”

“That convinced me that insurance was not for me,” Russ remembers.

But after the incident at the Little League game, he began to consider his options, taking into account what he had just seen. He realized that any 9-to-5 job could very well mean that he couldn’t go to a 4 p.m. championship game or a dance recital. His dad, Jack, had his own agency, Insurance by Castle, in Redwood City. So Russ went and talked to him about his concerns. “I’m lucky that my dad is also one of my best friends,” Russ says, “so I knew his advice would take into account my concerns, not just pay lip service to them. And, sure enough, he came up with a solution. He was looking for a salesperson to join his agency, and he offered me the job and included a base salary. That alleviated my fears about having to eat mac ‘n’ cheese every day. I wasn’t sure that would appeal to Mary, whom I had married in 1991.”

He accepted the job, and it turned out to be a great decision. He was a natural. He joined the agency on April 15, 1992 and, in less than two years, his commissions grew larger than the base.

Small beginnings

“When I joined the agency, Jack had my mother doing the books and clerical functions, and he had one full-time CSR. At the time, our total revenue was 21% of what it is today, with one client representing somewhere between 30% and 40% of that business. Today,” Russ adds proudly, “we still have three employees (not the same people and my parents are retired) who are handling a substantially larger niche book of business. We have more clients, but are no longer a generalist like we were at the start. Through many ups and downs, I found that focusing on a niche offered us the greatest possibility for a strong ROI.”

A lot happened along the way. In the same year that Russ joined the agency, Jack formed a cluster with five partner agencies called Pacific Interstate Insurance Brokers, which today has more than 250 agencies in the western states. Jack spent a lot of his time managing the cluster, which meant Russ had to spend time managing the agency.

“In 2000, we moved to another cluster, United Valley Insurance Services [UVIS], and I met Sean McCreary, whose agency was also part of UVIS,” Russ says. “I was looking for some help with strategic planning. At the time we were still a generalist, like my dad and grandfather before me, and my wife was a working mom at a Silicon Valley company. I had a feeling that there had to be a better way of doing business that would allow Mary to have the choice of staying home if she wanted to. That was my big goal, and I wanted to achieve it in three years. We reached it in a year and a half.

“Sean introduced me to the Quantum Club, headed up by Michael Jans, and I learned about working on the business and not just in the business. It’s a subtle difference, but it was profound. I started looking at how we were running the agency and what changes we could make that would help us increase our revenue per employee. We actually grew to have seven employees, and I found I was becoming a people manager. That wasn’t consistent with my goal of being a risk manager for my clients. I wanted to spend the bulk of my time helping clients. So we completely revamped the entire agency to focus only on niches.”

Becoming laser-focused

“As a generalist, we primarily were reactive. For us, the way out of this was to become experts in one or more niches and not try to be a Jack of all trades. In 2001, we decided to focus on the industry I had left to enter insurance—fire sprinkler systems. I was in sales and knew a number of fire sprinkler contractors in our book. So, we started a focused marketing campaign to that niche using the Yellow Pages for the entire state. We were very successful, growing that niche to almost 40% penetration, as we became a one-stop shop for all their insurance needs. But our market was a non-standard company where commissions were low, and we also found the business required a lot of service. The result was a lower ROI than we had hoped for and a realization that there wasn’t a huge opportunity for future growth, considering how much of the market we already had.”

So, in 2003, Insurance by Castle started searching for other niches. “I was still convinced that niches offered the best opportunity for us; it was just a matter of finding the right one,” Russ says. “We also went back to our original cluster, PIIB, to get the best markets for the niches.

“The CFO of one of our largest clients started a company that purchased apartment buildings in our local area,” Russ continues. “His company would find locations that needed rehabilitation and then his partner, a general contractor, would fix up the units. The company would then refinance the renovated apartment building and take out the equity to purchase the next building. Today, they have more than 300 units in 15 apartment complexes.

As a generalist, we primarily were reactive. For us, the way out of this was to become an authority in one or more niches and not try to be a Jack of all trades.”

—Russ Castle

“We investigated the insurance markets for this business and determined that Mercury Insurance was the best choice. I met with their rep Darlene, whose son played T-ball on a team that I coached. She liked our proposal, which included a suggestion that we develop a package of coverages that would be needed by landlords so we could replicate the one-stop shop idea that had made us successful in the fire sprinkler arena. She asked what our projection was for the market, and I said we hoped to hit $100,000 for the first year. We hit $300,000. And by 2005, we were writing $1 million in premium.

“To reach the market, we developed an intensive marketing campaign. My dad had the great idea of taking pictures of every apartment building in our county and developing individual flyers for each apartment building owner. They really paid attention to the flyer because it featured their apartment building. We purchased the list of apartment buildings in the county, and I went out every Friday for a few months to take pictures.

“The effort was so successful, I paid a friend to take pictures of all the apartments in a neighboring county. Oh, did I mention, we’re in Silicon Valley. This turned out to be a gold mine. And within six months, we expanded to offer coverage in the entire state. We now write more than 2,000 apartment owners statewide, but there are 128,000 in the state, so we have plenty of room to grow.

“For us, niching has been the key to success. In 2013, we decided to write business only in our niches,” Russ says, “and I’m convinced that niching is the wave of the future for independent agencies. This has been achieved through great carrier partnerships, with Mercury being our largest key partner, and because we truly have become experts in our niche. We have become so efficient that we can be on the phone with a prospect, ask them only three questions and then email a proposal to them while we’re still talking with them on the phone.

“I admit that we’ve had some failures (lessons), but we’ve learned from them and I’m happy to share ways that we’ve achieved and become more with any agency that wants to market to a niche, as long as it isn’t apartments in California,” he adds with a grin. “That’s really been the most fun, sharing with others and watching them become successful. As a member of the Unstoppable Profit Producer Platinum Coaching group led by Mike Stromsoe, I frequently collaborate with other agents to continually grow and currently am mentoring two different agency owners to help them improve their offices. We talk every month or two.

“To sum up: I’m living the dream, and I haven’t had to disappoint my children. When my son went to New York to pursue his acting dream, I was there for his performances. My wife and I are empty nesters now. Our two children have grown up, and we can come and go when we want. This business allows for that. Last year, I was out of the office for more than 50 days, part of that spent on my other full-time job of overseeing facilities at Menlo Park’s Church of the Nativity and Nativity Catholic School, including building a new gym. The best part was seeing the kids’ faces when it was done. We also went to Kenya with our Rotary group and installed a computer system in a school on Pate Island and a water treatment plant in the Mara for the Maasai people.

“My ultimate goal is to be known as someone who helped others achieve more,” Russ concludes.

Rough Notes is proud to recognize Insurance by Castle as our Agency of the Month for its success and for helping its clients, its community and independent agencies. They exemplify what makes the independent agency system miles ahead of any of its competition.

The author

Dennis Pillsbury is a Virginia-based freelance insurance writer.