Jeffrey J. Scherschligt, CPCU, is president of Howalt-McDowell Insurance, Inc., in Sioux Falls, South Dakota.
Howalt-McDowell Insurance, Inc., Sioux Falls, South Dakota, has grown and prospered through a unique blend of community involvement and recognition of opportunities. Today, this small town agency has reached $6 million in revenues. Ten years ago, its revenues were approximately $2 million.
A large part of the continuing success of the agency has been its commitment to charitable giving. As part of its corporate mission, the agency returns a minimum of 5% of pre-tax agency profit to 501(c)(3) organizations. "We try to demonstrate that we are part of the community," says Jeff Scherschligt, president. "This is a way to give back to the community that has supported us. It shows them that we not just taking the money and going out of town."
Jeff continues that the agency "doesn't spend money on advertising. I believe we get a lot more bang for the buck from our work with charities. That's not why we do it, but it's worked out that way. It feels good, helps people and lets people know we're part of the community. There's no better way to advertise what we are about."
Jeff has headed up the local United Way and also works to involve all employees at the agency. "We're one of the highest per capita givers to United Way," he points out proudly.
Howalt-McDowell started in business in 1946 as an independent property/casualty agency. Through maintenance of a strong reputation in the community, the agency was able to enjoy good growth and a strong retention rate. Unfortunately, when the soft market hit, that was not enough. Like many agencies across the country, Howalt-McDowell found itself facing declining commissions per account, especially since the agency was primarily involved in commercial lines. About 93% of its business came from commercial accounts. Personal lines was written as an accommodation.
Jeff Scherschligt (left) meets with Howard G. Boote, vice president, who heads up the agency's employee benefits department. The employee benefits department accounts for 25% of the agency's revenues.
The property/casualty commercial market was so soft that it was difficult to achieve even modest growth. In its 1993 five-year plan, Howalt-McDowell targeted a growth rate of 8% a year in property/casualty. "We barely made it. There were some years we even went backwards. It was clear we had to do something else to enhance revenues."
Howalt-McDowell made a key decision. The agency decided that it could capitalize further on its corporate relationships by entering the employee benefits field. "We had a few failures. We were property/casualty people. We tried hiring life specialists and partnering with life specialists. But it wasn't until we found Howard Boote that things took off," Jeff says. They also hired several other employee benefits people.
Howard heads up the employee benefits department. That department now accounts for about 25% of the agency's revenues.
The real key was group health insurance, Jeff says. "It's similar to property/casualty in that it provides a steady revenue stream as opposed to life insurance with the high up-front commissions." Health coverage also was not involved in any kind of soft market. In fact, things were quite the opposite. An agency that could develop an effective relationship with a health insurance provider was in a key position to help its corporate clients.
Health insurance also offered an unexpected benefit. Jeff explains that the agency had lost a few property/casualty clients due to merger or acquisition. Larger companies would take over local businesses and move the coverage to their agency. "We rarely lost a commercial client for any other reason," he notes. However, this didn't happen with the health insurance coverage.
Bringing the opportunity to others
The entry into employee benefits had been so successful in helping the agency grow, it was natural to think about bringing that same opportunity to other independent agencies that were suffering from the soft market. So Great Plains Brokerage was born as a wholesale operation offering employee benefits products to other independent agents.
"The employee benefits distribution system is very fractured," Jeff points out. "Providers are looking for more property/casualty agencies to get involved."
Great Plains arranged to develop a health product with the largest workers compensation carrier in the area. "We also made a deal with the largest hospital system in the area and helped create an HMO," Jeff notes. "We market the HMO in three states--Iowa, Minnesota and South Dakota." Revenues from the HMO are up 367% this year.
"We also tried to expand through acquisition. We bought a small agency and hooked up with it on line. We found it was hard to manage from afar. We've concluded that, for us, it's better to provide product and expertise," Jeff says. "We plan to continue to expand the wholesale operation and provide outlets and expertise to smaller agencies.
"A lot of carriers are looking for more volume from these agencies than they can provide," he continues. "We see additional opportunities in that arena by providing them with markets where none are available."
The wholesale operation started about one and a half years ago and today, revenues are around half a million dollars.
A team effort
Jeff emphasizes that the success has been a team effort. "We're fortunate to live in a great area of the country and to have good solid people working for us. All of our people pull together to provide good service to our clients. We involve employees through various goals. We offer additional pay for performance." Employees can earn an additional 5% for meeting their personal goals and an additional 5% if the agency reaches its budget goals.
In addition, any dollars that exceed budgeted projections for profit are split between owners and employees through an increase in the profit sharing contributions or pure cash bonuses. The agency has contributed 10% to 15% to the profit sharing plan every year for the past 40 years.
"We try to involve all our employees as much as possible. They're involved in our annual planning session and at quarterly meetings where we go over our progress to date. And we try to offer additional incentives. This year, we've given them a Million Dollar Challenge for which they can earn an additional 1%. We're looking to exceed $1 million in new commissions. (Last year, new commissions totaled $978,000.) Our people are pulling together to help attain this goal and we're on target to reach it."
Involvement in charitable organizations also is included in the agency's goals for employees. "We try to infect everyone to give back to the community. We get a group of employees together at Christmas time and go and buy gifts for various charities."
Jeff concludes that the insurance business has become more and more impersonal. "It's a very tough business at this point. Our people try to provide that human touch. This is a very complicated product, and businesses want people who can explain it to them and who are there when problems arise.
"We really show them that this still is a people business. That's truly the key to our success." *
©COPYRIGHT: The Rough Notes Magazine, 1999