In 1988 when Hurricane Andrew hit Florida, it not only destroyed millions of people's homes and property, but it also "blew out" many relationships between insurance agents and insurance underwriters. Many large underwriters pulled out of the market, leaving the agents to put their businesses back together piece by piece. While this instance was more severe than most, it illustrates a problem that most (if not all) independent agents have faced at one time or another during their career.
Looking back through three generations of family P&C insurance experience, we see that the conventional business model for P&C insurance agencies came under attack from a variety of predators. However, in the face of adversity comes opportunity. Through this new column, "Financial Services Opportunities," we hope to show independent insurance agents how to turn these threats into significant competitive advantages. The threats to the small-town, main-street P&C insurance agency are not news to most agents. What many may not know is that there are simple and effective solutions not only to remaining competitive, but to continuing to build an agent's customer base and easily increasing an agency's bottom line by as much as 33% or more.
As I see them, the three primary threats to the independent insurance agencies we all grew up with are:
1) Bank encroachment in all lines of insurance
2) Underwriters' policies of dictating rates in a constantly changing financial world
3) Advancements in technology allowing underwriters to sell insurance directly to the consumer, eliminating the need for the independent insurance agent
Each threat on its own would be daunting enough. Facing all three at once may seem an insurmountable obstacle to many independent insurance agents. Facing these same challenges in my family's P&C agency, we created a unique service, which has allowed us to turn these threats into opportunity.
Changes in finance laws allow banks to sell insurance. With their financial resources and their infrastructure for recruiting and training, they can hire risk management professionals who can cut into a P-C agent's existing customer base.
Second, large P-C insurance companies seem to have lost sight of where their success originated: the grass roots agents in small-town America. Turning their focus to volume, it is not uncommon for large insurance companies to pay out on claims and then give 60 or 90 days' notice that they will no longer be underwriting policies for a particular agent or area. Thus it becomes difficult (if not impossible) to offer consistent rates and services. More and more, independent insurance agents become employees of the large companies rather than their clients.
What's worse, I believe the majority of the large underwriters will move to begin selling directly to the consumer through their own sales force and the Internet. We are already seeing large companies that have historically insured high-risk candidates now offering direct quote services and sales. Over the next five years, I believe we will see this trend continue to grow and eventually dominate the market.
Now, what can the independent agent do about it? If the independent agent has a card up his/her sleeve, it's the intimate relationship and trust already established between the agent and his/her customers, an asset that cannot be overcome by a fancy new building, an army of representatives or a DSL connection. Good relationships start with trust. With your existing accounts, you are one giant step ahead of the competition.
The first step in attacking your "new competition" is to expand the number of goods and services the agency offers. Through an independent broker-dealer, such as Hagar Financial Corporation (HFC), an agency can simply, effectively and inexpensively create his/her own one-stop shop for financial goods and services as well as insurance. For the cost of typical office infrastructure (space, phones, fax, a PC and office supplies), an agency can add a financial professional to its staff and make it pay within a few months, competing directly with financial institutions on every level.
Here's how it works: For any size agency, HFC recruits, interviews, and trains a financial specialist with, ideally, four years' experience to implement the financial services component. Once we have identified the most qualified candidates, the P-C agency owner makes the final decision of who is hired. In addition, Hagar continues to oversee the performance of the financial planner, consulting on sales and marketing strategies, and supplying the necessary technology and tools. Our goal is to become a part of the agency's team--adding profits to the agency. Therefore, we encourage our partners to let the reps report directly to us so that we can proactively stay involved in the operation.
Over the past few years, we have found that more and more financial planners in larger organizations are becoming frustrated with demands to sell proprietary products. And because of the concern surrounding mergers and acquisitions of present employers and decreasing commission rates, we are realizing firsthand that the world of the independent broker-dealer (and now the independent insurance agency) is ripe to attract some very talented financial professionals looking for a change in their career track. What these professionals want most is to address their clients' needs using their own knowledge and expertise. We offer no proprietary products. We offer higher payouts and more autonomy of work. They bring over their existing book of business and have the opportunity to expand their clientele through their clients and vice-versa.
Partnering with HFC has enabled agencies to round out accounts, increase the number of policies sold and increase profits through the additional services. The P-C agency's intimate knowledge of customers and its trusting relationships with customers make it all possible. For example, when a customer calls in to add a new minivan to his/her auto policy, the agent has the opportunity to discuss college planning or 401(k) services.
Since April 1998, John Piersall of Lassiter-Ware Insurance has been working with Hagar Financial through the agency's office in Leesburg, Florida. In a market of approximately 250,000 in population, the Leesburg office has 10,000 personal lines clients and 2,000 commercial lines clients. To date, John has added a team of two securities representatives. Together, they have brought on 21 qualified pension plans and $100,000 in securities revenue to the Leesburg Lassiter-Ware office. The potential for exponential growth is significant and they expect to quintuple their securities revenues to the office in 2001.
Over the next several months, we will be elaborating on this theme using specific examples of products, services and hidden markets. We'll provide success stories showing how agents have taken advantage of financial services opportunities to build loyalty from their customer base and improve their bottom line. I sincerely hope you will be able to use this information to establish a competitive advantage and contribute to the growth of your agency. *
The author
Andy Hagar is president and CEO of Hagar Financial Corporation, a full-service broker dealer created in 1996 to provide financial services to independent insurance agents. Currently, Hagar Financial operates with 98 representatives in 26 states and has $750 million in assets under management. Its Web site is www.hagarfinancial.com. Andy can also be reached at (800) 416-2043.