A bank’s role throughout the
independent agency life cycle
By Patricia Smith and Keith Mangini
Independent insurance agencies have unique financial needs that evolve as they mature and grow. From agencies in their early stages to seasoned agencies that are well established, they all have distinct needs and requirements to expand, to add value to their businesses and to position themselves for the next steps in their agency life cycle.
In the current economic climate, independent agencies should carefully evaluate the cost, convenience and efficiency of all available financial services and solutions. As is the case for most businesses, having the right banking partner that is familiar with the client’s industry is critical.
As a financial institution in the insurance industry, it’s the bank’s job to understand what an agency’s needs are and let the agency owner know there are opportunities to leverage their agency’s value to help them in their growth plans, no matter what life-cycle stage they are in.
New or startup
In the early stages of starting an agency, the owners often find themselves wearing multiple hats and juggling numerous tasks to ensure the success of their business.
Cash management. It is crucial for owners to free up time in order to focus on strategic decisions and growth opportunities. By leveraging digital solutions such as online banking, remote deposit, and business mobility, agency owners can easily manage their day-to-day banking needs on the go.
Online banking allows agency owners to conveniently access their financial information and execute transactions from anywhere at any time. Mobile deposit enables owners to deposit checks remotely, saving them the hassle of making trips to the bank.
Additionally, business mobility solutions provide owners with the flexibility to work on the move, whether it be attending client meetings or traveling for business. This convenience enables agency owners to stay connected and in control of their financial operations while maximizing their productivity.
Lending. What are your agency’s working capital requirements? Managing working capital in the early stages of an agency’s life cycle is critical to maintaining healthy business operations while creating growth opportunities. The amount of working capital needed varies based on initial startup costs, licensing and legal fees, payroll, operating costs, technology and marketing.
Although there are no set rules on the amount of working capital an agency requires, ideally, it should have more than is needed to cover existing expenses. After evaluating these working capital needs, agencies at this stage may utilize a business line of credit for temporary working capital needs.
Growth
In the life cycle of an independent insurance agency, the growth stage is perhaps the most exciting and pivotal phase. It is during this stage that agencies have the opportunity to expand their client base, increase revenue and solidify their reputation in the industry. The growth stage is where the hard work and dedication put into the earlier stages begins to pay off.
Cash management. One key aspect of the growth stage is the need to improve efficiencies in managing the flow of funds for carrier payments and commissions. As agencies bring on new clients and take on more business, the volume of transactions can increase significantly. In order to maintain profitability and sustain growth, agents must implement streamlined processes for handling financial transactions.
This may involve investing in new technology or software solutions to automate and improve payment systems. Money movement products, like automated clearing house (ACH) origination, are important in this phase, as well as remote deposit capture, positive pay (a fraud detection tool) and lockbox services.
ACH origination empowers agencies to streamline payment transactions, automate fund transfers, and enhance cash-flow management with speed and accuracy. By incorporating ACH origination into their operations, agencies can optimize their workflow, reduce manual intervention, and ensure timely processing of payments.
By integrating remote deposit, positive pay and lockbox services into their financial workflows, agencies can enhance efficiency, reduce operational costs, and fortify their defenses against potential fraud. These services enable agencies to focus on strategic initiatives to drive business growth.
Lending. As agencies continue to grow and strive for expansion and market penetration, the independent agency may require term loans to acquire another book of business, partner buyouts, additional investment in technology to streamline operations, bring on new owners, purchase real estate for agency-occupied office space, or increase the marketing budget to promote an expansion into new geographic locations.
Maturity
Agency owners who are at the twilight of their agency’s life cycle want to make certain that their legacy is carried on to the next generation. Succession planning should be a top priority, but agency principals often delay until there’s a pressing need.
Owners should plan for the next phase in the agency’s life cycle—whether that means new leadership, ownership or branding—well in advance of any potential change.
Cash management. As agencies continue to grow and mature, it is important to implement cash management solutions to optimize cash flow and maximize returns. This may include utilizing sweep accounts that automatically manage funds and provide higher yields, ensuring that funds are not sitting idle but instead working toward further growth and expansion during this important stage of their life cycle.
[I]t’s the bank’s job to understand what an agency’s needs are and let the agency owner know there are opportunities to leverage their agency’s value to help them in their growth plans no matter what life cycle stage they are in.
Lending. There are many types of perpetuation loan structures that independent agencies can adopt, including personal buyouts, deferred compensation arrangements, stock redemptions, trusts and leveraged ESOPs (employee stock ownership plans). A specialized banking partner can provide strategic advice for perpetuation planning through the various stages of an independent agency’s life cycle.
In the meantime, during the maturity phase, lending needs may include consolidating existing loans, acquiring or merging with other agencies, hiring more seasoned producers or senior staff to help run the operations, or a new agency management system.
Building a partnership
Insurance agencies looking to build a strong partnership with a specialized bank must be willing to communicate, collaborate and be transparent about what they’re looking to accomplish. They need to have their financial house in order and be willing to share a complete picture of their financial and operational health through accurate and accessible records. Although this may require some preparation on the administration front, that effort is paid back tenfold in the value that such a partnership can bring.
With the right financial partner at their side—one with expertise in the insurance industry—insurance agencies can evolve, grow and keep the independent insurance channel thriving.
The authors
Patricia Smith is vice president and business development officer, and Keith Mangini is vice president, commercial team leader, both of InsurBanc. A division of Connecticut Community Bank, N.A., InsurBanc is a community-focused commercial bank specializing in products and services for independent insurance agencies.
