A TALE OF TWO AGENCIES
Making the most of bad times by
preparing in the good times
By Mary Belka, CPCU, ARM, ARe, RPLU, CIC, and Cheryl Koch, CPCU, ARM, AAI, ACSR, AFIS
“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness … .” We find ourselves reaching into the past for timeless words that can accurately portray the essence of how the best agencies deal with today’s turbulence and transition. It is heartening to see that some agencies experience their best-ever results during the most difficult times.
We have been studying how that is possible.
Certainly, the traditional components of successful organizations apply: strategic planning, effective operations management, scalable business model, procedures, and measurement of results. Beyond these basics, which many agencies do not yet have in place, we have identified five primary, deeper factors that might not be so obvious, but that further widen the gap between good and great results—and highlight the difference between successfully run agencies, and those who just wish it were so.
Which is the tale of your agency?
Action vs. indecision. It’s not just about leadership—it’s about how intentional agency owners go about executing necessary changes to move their agencies beyond the status quo. The decision not to act is still a decision—and it is those decisions to postpone or avoid moving forward that hold agencies back the most. Examples include:
- Focus on new business sales goals vs. allowing non-performing producers to remain with no consequences. It is estimated that producers who do not sell are the single largest drain on agency profitability. It can be difficult to see—and to calculate—but it is real. Producers are like sharks: if they are not swimming, they are sinking.
- Anticipating hiring needs and recruiting new account managers vs. waiting until someone leaves before starting the search for a replacement. Consistently running “one person thin” (or more) vs. “one person fat” creates additional pressure on remaining staff. Developing a continuous replacement strategy of key staff is critical. Without it, today’s hiring pressures can lead to chaos, not just discomfort.
- Leading employees through necessary non-optional change firmly and fairly vs. maintaining that “total buy-in” has to occur before changes can be fully implemented. This creates a form of inconsistency purgatory that never ends, as employees choose whether or not to comply with necessary procedural updates. Change doesn’t just “happen”—it has to be intentional and on a specific timeline for consistent operating results and delighted clients. Waiting for buy-in is a fool’s errand.
It is heartening to see that some agencies experience their best ever results during the
most difficult times. We have been studying how that is possible.
Financial management vs. antiquated bookkeeping. The impact of outdated or incomplete accounting processes is real and, unfortunately, is becoming more common. This has emerged as one of the most common reasons agencies contact us for consulting advice post-COVID. It was barely a blip on the screen 10-plus years ago. Accounting issues can have a significant impact on agency value, to say nothing of operating efficiency, and your over-all business. What would you like your story to be?
- Outsourced vs. internal. Bookkeeping is one area that we recommend be outsourced to a reputable firm specializing in independent agency accounting—one that understands the accounting nuances of your particular agency management system. The average agency is 90%-plus direct bill. There is no need for a full-time, internal bookkeeper for the average agency; this is an outdated position for most. Inefficient accounting practices, particularly drawing account managers into “back office” procedures, can be costly.
- Helping clients embrace direct-to-carrier payment methods vs. accepting in-office payments. Eliminating time-consuming, outdated processes, including taking cash, interim payments, and using “sweep” accounts, is actually very easy and has the added bonus of increasing profitability. Transitioning all insureds to electronic payment directly to the carrier also creates more time for account managers to help clients with risk management-based service. Even agency bill can be handled via wire transfer (best-case scenario) or at least via EFT. Getting out of the banking business entirely is the goal and is a significant differentiating factor for the most effectively run agencies.
- Regular clean-up of any exceptions or accounting issues vs. years of incorrect entries cluttering up your balance sheet. This applies to agency management system clean-up in general, including certificate holders, carrier information, and eliminating long-gone employees from the system. The ghosts of unresolved past accounting entries can have a major effect on valuation efforts. It is best to have the cleanest accounting records possible in order to avoid any “surprises.”
- Oversight and actual understanding by owners of the agency management system accounting functionality vs. non-engagement by owners. The days of owners never touching the system are over. This needs no explanation.
Power users of chosen technology vs. inconsistent tech stack deployment. It’s not so much what you have, but how you use it. Then you can more effectively evaluate your technology needs. Which best describes your agency’s approach?
- Cloud-based data and properly encrypted devices maintained by an outsourced professional staff of network engineers vs. local servers maintained by an employee with too much to do—and periods of downtime—in 2022!
- Completely consistent, automated procedures vs. persistent paper components permeating and slowing down your processes. We receive more 911 calls regarding procedures implementation than almost any other issue. The source of the problem is nearly always a matter of business model—the right seats and the right people in them. Continued use of paper is a symptom of indecision mentioned earlier. The biggest question to be addressed by and codified in procedures is, “Who does what?” And then they should be followed and audited for compliance.
- Oversight and auditing of tech stack component use vs. software purchased yet never really completely implemented across the organization. This not only leads to potential errors and omissions, it also impedes productivity, as employees fail to use tools consistently when purchased. Examples include something as simple as headsets; what an impact the proper use of your phone system, e-signature software, file-sharing tools, writable software, and even carrier system use can have on your profitability and efficiency, to say nothing of top-notch use of your agency management system. Agencies spend a great deal of time and money implementing software that is literally never used at all. The best-run agencies make certain that staff is trained to use all tools to their fullest.
Focus vs. being all things to all people. We really cannot say enough about this, yet there is still a great deal of resistance from those who say to us, “You don’t understand; we are in a small town.” To which we reply that the majority of the agencies with which we work are not necessarily in large, urban areas. We have found this to be an almost universal objection. What we know is that being all things to all people may once have worked, but today it is an unsustainable model. Focus takes sacrifice, but it has its rewards. Which side of this story will you be on?
- Developing a specific target client for producers to recruit new accounts. spitting out quotes for all who call in or, worse yet, come into the agency. Giving producers specific parameters for new business prospecting increases their expertise and understanding, as well as their potential for success.
- Segmented disciplines (commercial lines, personal lines, benefits, etc.) vs. “everyone does everything.” It is critical for producers and account managers alike to build expertise and provide the best possible sales and risk management services to your clients. It is not possible to be an expert in all areas; something is bound to suffer.
Creating a specific, organized training and education plan vs. “shadowing” a busy account manager (or more). Again, this is not a criticism, but a statement of reality. What worked in the past, vis-a-vis training, is both inadequate and nearly impossible today. If you are lucky, the person you hire this week will still be in the agency in three years; you do not have a minute to waste in quickly getting employees to the point where they can contribute. Did we mention you are now paying more for the privilege? Training matters, especially in the first 90 days. It’s not easy but it makes all the difference. The importance of taking precious time to train people properly cannot be overstated. Watching someone else work for a few days will not get you there.
- Consistency on all desks vs. all are free to interpret or follow their own procedures.
- Invariable, written, audited procedures vs. “oral tradition” of explaining details the new person is unlikely to remember, even with repetition. If your staff is not doing things consistently, which set of procedures will the new person follow? Inconsistency has become institutionalized; unwinding it and replacing it with invariable processes for all to follow is the key to training new employees as well as closing gaps for existing staff.
- Metrics, measurement, and accountability vs. lack of goals, rewards, or consequences. You get the picture.
The goal is to run your agency like a business. In another 10 years, there will no doubt be a new set of challenges. Continuous practice at improving your agency operations now should help to ensure “the best of times” in the future.
Mary M. Belka is owner and CEO of Eisenhart Consulting Group, Inc., providing management and operations consulting to the insurance industry. She also is an endorsed agency E&O auditor for Swiss Re/Westport. A graduate of the University of Nebraska, Mary holds the CPCU, ARM, ARe, RPLU, CIC, and CPIW designations.
Cheryl Koch is the owner of Agency Management Resource Group, a California firm providing training, education and consulting to producers, account managers and owners of independent agencies. She has a BA in Economics from UCLA and an MBA from Sacramento State Uni-versity. She has also earned several insurance professional designations: CPCU, CIC, ARM, AAI, AAI-M, API, AIS, AAM, AIM, ARP, AINS, ACSR, AFIS, MLIS.