WHAT CAN WE LEARN FROM
THE BEST PRACTICES STUDY?
Observations from training and development to leadership, staffing and valuation
[B]e sure you’re not among those agencies spending more on miscellaneous items than on
training, educating and developing your team members.
By Roger Sitkins
A defining characteristic of the highest performing agencies is that their owners and other leaders know their numbers. More important, they realize that the numbers—their financial reports, their key performance indicators and more—are the result of the behaviors and strategies that form their agency’s business model. As I’ve often said, your current business model is perfectly designed for you to achieve the results you are currently achieving.
Recently, I completed a deep dive into the latest Best Practices Study (BPS), conducted by Reagan Consulting in concert with the IIABA (Big “I”). I’d like to share some of my thoughts on this report and how it can help your agency work towards its Best Version Possible (yes, a thinly veiled plug for my book!).
Training and development
Staff development is mentioned at least eight times in the opening section of the study report, which doesn’t surprise me because staffing-related issues are among the top concerns I hear from agency owners. Their concerns tend to be similar and recurring: How do you attract and retain the best employees? How do you adjust to the remote employee environment? How do you develop your current staff?
These concerns are underscored in the study’s opening comments, “Critical Issues Facing Agencies,” which emphatically states, “IT’S ALL ABOUT THE PEOPLE!” in all caps. That’s followed by, “Agency owners/leaders must recognize that people are your #1 strategic priority.” Is this true in your agency?
That sounds perfectly reasonable, yet when you look at the amount of money agencies spend on education and training, it’s only .3% of revenues—less than one-third of one percent. According to previous years’ BPS reports, agencies were spending .4%, so they are spending 25% less than before on educating, training, and developing their team members. That’s shocking considering most agencies agree “it’s all about the people.”
Having said that, we do have to take into consideration that COVID had a major impact on live, in-person training events and costs. So, some of the decrease is because few, if any, training sessions were being held live and in person.
Also keep in mind that the majority of dollars spent went towards continuing education credits or maintaining a designation. Agencies actually spend more on “miscellaneous” as a line item than on education and training! How can agencies claim “it’s all about the people” when they’re devoting more resources to miscellaneous expenses than to developing their team members?
The study’s report also includes the section, “Elements to Prospering as a Privately-Held Agency,” which I believe applies to all agencies. The section cites 10 elements, with people, culture, and leadership topping the list. When I look at these top three, I see a huge void. I believe that our industry—or at least those in the industry who care about prospering—must dramatically increase focus around these three areas, as well as the skills, processes and attitudes that are foundational for a great agency.
Going back to my comment about your current business model being perfectly designed to achieve the results you are currently achieving, how would you answer the following questions?
- What is in your current business model as it relates to the development of people?
- What is your current business model as it relates to your culture?
- What is your current business model as it relates to leadership?
Where in your business model does it discuss the ongoing development of any of the above three elements? According to John Maxwell, “Everything rises or falls on leadership.” From my perspective, sales leadership is the main missing ingredient for most agencies.
There’s a saying that “net new revenue doesn’t solve all of your problems, just most of them.” This reminds me of a lesson I learned several years ago when I worked with a group of agencies on a sales management project. They all had more than $15 million of revenue but were not satisfied with their results. One of my questions on the pre-session questionnaire was, “What percent of your producers met or exceeded their annual sales goal last year?” Their response: just 43%.
Now, if you’re a lifestyle agency—just floating along and satisfied with being semi-successful—good for you. You’ll never get a coach (or think you need one), so you can stop reading now. However, the group that I was working with was made up of only high-growth and high-profit agencies, yet only 43% of the producers met or exceeded their goals.
In case you’re wondering whether the goal-setting process was flawed, I can assure you that wasn’t the case. If anything, the goals were all pretty conservative. Missing were sales leadership and a culture and cadence of accountability, which was the overall theme of our program.
In addition to the lack of leadership, another problem that jumped out in the BPS report involved staffing issues relative to the low usage of carrier service centers. In my opinion, most agencies keep far too many of their transactions in house. In personal lines (PL), 14.8% of the commissions were placed with service centers. In small commercial lines (CL), it was 5.1%.
I realize that service centers are not for everyone. However, when possible, I recommend outsourcing the bottom 25% to 50% of the transactions on the small PL and small CL accounts but keeping the majority of the revenue. Giving up 1% of the 15% commission isa small price to pay to regain staff capacity and productivity. In the process, you’ll be eliminating lots of small transactions.
While staffing is an issue, it’s rarely due simply to a shortage of workers. Contrary to popular belief, most agencies are actually overstaffed for their workload. One of the problems is that most agencies don’t come close to maximizing their technology.
According to independent agency consultant Angela Adams, the average agency utilizes less than half of their available technology. Further, they do not have the simplified and proven processes in place as their agency’s way of doing business. All of this has an impact on staffing issues.
With personal account managers handling approximately $250,000 of commission income and commercial account managers at $400,000 of commission income, there is plenty of room for improvement. Again, these are the Best Practices Study numbers. Where is your agency today? Do you need more staff or a better trained and highly developed staff?
Perhaps you need both. If so, what are you doing about it? Are you constantly recruiting? Eventually, you’ll need to add staff. Just be sure you’re not among those agencies spending more on miscellaneous items than on training, educating and developing your team members.
Another observation in the BPS report is that valuation is top of mind for most agency owners because the values are so high right now. Looking at typical guaranteed EBITDA (earnings before interest, taxes, depreciation, and amortization) multiples of 12X, it’s easy to understand why. In fact, since the report came out, I’ve seen even higher multiples, with earn-outs that are over the top.
For most agency owners, their agency is one of their largest personal assets, if not their largest one. At a minimum, every $100,000 of increased profit is worth a minimum of $1 million or more. Yet, we continue to see agencies being penny wise and pound foolish. They’re simply not investing in their future.
Isn’t it time you began investing in the training and development of your team members? Isn’t it time to spend more on that than on miscellaneous? It all comes down to what really is important. Where will you get the best return on investment? It’s your choice.
Roger Sitkins is the CEO of Sitkins Group, Inc. After over 40 years he has truly become an icon in the insurance industry having trained and mentored thousands of insurance professionals.
Roger was inducted into the Michigan Insurance Hall of Fame in 2017 and in that same year also received the Dr. Henry C. Martin Award from Rough Notes magazine.
Recognized as the nation’s top insurance agency results coach and renowned leader for improvement, he believes that if you improve the life of one person, you improve the world. To learn more, visit www.sitkins.com.