MARKETING AGENCY OF THE MONTH
Revenues grow to $40 million in 15 years as
casual atmosphere fuels entrepreneurship
By Dennis Pillsbury
Heffernan Group's sales and management team (from left): Liz Bishop, branch manager for the Sonoma office; Steve Williams, branch manager for the San Francisco office; Maria Warlich, human resources manager; Robin Newman, chief operating officer; and Mike Heffernan, chief executive officer.
When Mike Heffernan started Heffernan Insurance Brokers in Walnut Creek, California, in 1988, he had a dream of establishing a unique, sales-oriented organization where the wealth could be shared, the atmosphere could be casual and entrepreneurs could thrive. He purchased a small agency with about $900,000 in revenues as the starting point for his idea. Today, the Heffernan Group, which includes Heffernan Insurance Brokers, the retail agency; Presidio, an MGA; and Advanced Risk Technologies (ART), a TPA, has revenues in excess of
$40 million and employs 245 people in eight offices in California, Oregon and Florida. In addition to the headquarters in Walnut Creek, Heffernan has offices in Menlo Park, San Francisco, Sonoma, and Los Angeles, California; Portland, Oregon; and West Palm Beach, Florida. The group has three Regional Operating Centers (ROCs) in northern California, Oregon and Florida, with Los Angeles operating as a satellite office at this time. The agency currently boasts a revenue-per-producer level (for producers who have over three years' experience with the firm) of $860,000, which is expected to be at $1 million by 2004.
After attending college as a history major with plans to become a teacher upon graduation, Mike found his career heading in a different direction. He had insurance experience from working at his father's brokerage in San Francisco. So instead of teaching, he entered the insurance business in 1982 with a multiline insurance company. He later joined his father's insurance brokerage. After that agency was sold to Arthur J. Gallagher (one of Gallagher's first acquisitions on the West Coast), Mike left to start his own firm and make some history of his own.
"The atmosphere in our offices is much different from what you find in a standard insurance company office," Mike notes. "There's a high energy level that stems from the fact that most of the people in our company enjoy their work. It's fun doing what we're doing. Our mission statement makes it clear: 'Answer the phone and have fun.' That's our number one concern. When a customer calls, everyone at the agency knows they're expected to answer the phone and either provide the needed information immediately or let the client know when he or she will have an answer. And, if our people are having a good time, that spills over into the way clients are handled. Fun is contagious."
It's also more fun if you can be successful while having a good time. And the Heffernan Group provides the opportunities for all to succeed. "One of my primary goals is the 'Shared Economy,'" Mike continues. "I want as many individuals as possible to have ownership in the company. It just takes commitment and dedication to the company and succeeding in your position to receive stock. We have more than 40 owners and they're spread out across all levels and disciplines within the company. We consider every job in the agency to be important, and people who are outstanding at their job can be rewarded with ownership."
In addition, everyone has an opportunity to move up or over--to achieve his or her individual goals. For example, "many of our producers have come from elsewhere within the company," Mike points out. "Our 2002 producer of the year started out as a receptionist in the Sonoma office. One of our other top producers was an account manager whom we identified as having sales potential."
He continues that one of the benefits of this approach is "we have producers who: understand the entire process involved in placing business and servicing accounts; understand how difficult the other jobs in the agency are; appreciate the effort everyone is putting forth; and understand just how difficult the market is. We also have started a trainee program where we bring in two people each year and put them on a two-year track to become a producer. We started that in 2002 and, so far, it's looking good, but we'll be analyzing the results. The objective is to keep new blood with new ideas coming into the firm.
"We have a very young organiza-tion--most of the management team are in their 30s. I'm the old guy at 43. We have buy-sell agreements for each of the owners and a perpetuation plan and are regularly bringing in new owners. In short, we're in position for the long haul. We plan on remaining independently owned and operated."
On-the-job training
A key aspect of the firm that contributes to its casual, team atmosphere is its home-grown Producer/Account Managers. Heffernan's Producer/Account Manager development program is a systematic learning program, allowing budding producers to learn the ins and outs of account servicing before advancing to the producer level. This provides future producers with an intimate understanding of the unique challenges of account management. The result is an experience designed to help them better understand the importance and functions of the various account servicing roles, while keeping big producer egos at bay.
Niche markets are a key focus
Almost 50% of the business written by Heffernan Insurance Brokers comes from niche practices for which they have developed programs.
"We have five main niche practices," Mike notes, "nonprofits, health care, property owners, construction, and technology. Specific producers are assigned to practices and become experts in that arena. We have extensive databases within each of those niche areas that we use to drill down for smaller, well-defined niches within a particular area. For instance, in the nonprofit area, we developed an exclusive Church Program."
Before Heffernan enters a particular niche market, it first determines the total premium potential of the market and whether any of its producers has expertise within that niche. It also looks at potential competition. If the market appears attractive, Heffernan will then spend about two or three years researching the market to gain in-depth knowledge about its needs so that it can develop a program that will address those concerns. Prior to creating a program, Heffernan will serve the market with off-the-shelf products. During the research phase, producers assigned to the market will read industry trade publications and attend seminars and conventions. If there are specific laws that are important to the particular group, they will find out about that. Before Heffernan created its program for nonprofits, producers studied the tax laws affecting 501(c)(3) corporations.
The nonprofit niche practice includes (from left): Paula Haddox, program director; Melani Havener, senior vice president; Brian Dantzig, vice president; John Prichard, Jr., director of the nonprofit niche practice and vice president; and Erin Trevethan, assistant vice president.
The agency also will seek out partners to help with certain programs. For the property owners program, Heffernan partnered with an environmental engineer--because of mold concerns--and with a mortgage broker as well.
By the time Heffernan decides to create a program, it typically has developed sufficient market penetration to make it attractive to an insurance company. "We normally need between $5 million and $10 million in premium," Mike points out. "We provide the insurer with growth estimates and loss data, as well as our proposal for an exclusive program that will respond to the unique needs of the target market. If we can convince the company to provide us with an exclusive package, our chances to further penetrate the market increase."
Mike continues, "We also seek to gain some type of underwriting and claims-handling authority for the program to avoid the time delays that can occur if we have to go back and forth to the company to place coverage or to handle a claim situation. We have seasoned underwriters and claims people on staff."
Alternative risk transfer
The agency also provides alternative risk transfer solutions for some of its niche markets. "We're very active in forming workers comp groups of clients to access the alternative market. We've also worked with individual clients that were large enough to go the captive route on their own. We set up our first rent-a-captive about seven years ago and have developed an expertise in that area. We operate several captives that are controlled by Presidio. We decided to use Presidio for that purpose because that is where our underwriters are and also because it let us make the captive available to other retail agents."
The producers who sell the programs remain the key contact for the clients with the assistance of account managers and support staff assigned to the program. "We don't believe in having our producer close the deal and then walk away. Establishing and maintaining a long-term relationship with the client base is critical to a program's success and assuring strong retention."
Heffernan also provides customized loss-control services for each of its niche markets through its TPA, ART, which specializes in loss control and claims consulting for workers comp. It has helped clients create safety manuals and has developed industry-specific brochures and videos that teach workers how to work safely, thus reducing injuries.
Personal lines and small commercial
Each ROC has a personal lines department that handles most of the marketing and campaigns for the area. The marketing campaigns are developed in response to availability of certain products from one of Heffernan's insurance company partners. "We use e-mail or fax campaigns with a strong emphasis on our Private Client area," Mike says. The Private Client area handles personal lines clients that generate approximately $10,000 in revenue. "Every office has a private client representative who is able to offer personalized service. We also have an asset management company, TREK Investment Advisors, to assist our clients in wealth management."
(From left): Brant Watson, Amy Robfogel, Jeff Hamlin and Emily LoSavio are all in various stages of the Producer/Account Manager development program.
Small commercial lines business (under $5,000 in revenue) is handled by the Special Accounts Department. Approximately 95% of Special Accounts business comes from phone sales, led by sales personnel within the department. Large account producers are fully compensated if they bring in Special Accounts business, but that compensation drops in subsequent years and servicing of the account is moved to the Special Accounts Department.
New opportunities
The hard market has opened up a whole new world of opportunities, Mike notes. "We've been able to compete for large business accounts. It's been a pleasant situation for us. Our strong relationship with our insurance carriers that has been built because of our success in providing them with profitable business means that they are willing to make more of their capacity available to us. And many of the large clients who were handled by non-independent brokers are finding that their size no longer gives them the kind of clout they once had to control their insurance costs. Our superior service often makes the difference. They like the fact that the producer who sells them the product is also the person who will be available at all times for service."
Mike concludes: "In the end, it's really been our people who have made the difference. And we've been able to attract tremendously talented people with our entrepreneurial, casual atmosphere where we do everything we can to allow people to succeed. We don't believe in management by intimidation. If a problem does occur, we identify the problem and handle it on an individual basis. We don't use a blanket approach that stifles creativity, and we don't blame. We solve and move on. We experience very little turnover, at every level, and I think that says a lot.
"Our board of directors also has been extremely helpful in keeping us on target. We have an eight-member board--five internal and three external people. The three external people are an attorney, an ex-insurance company representative, and a banker. I wanted to have people from outside the industry with other professional expertise so that when we get stuck thinking in insurance terms, they can bring us back to the real world. The board has been a very effective steering committee."
Giving back
While financially successful, the Heffernan Group realizes the importance of giving back to the community, with annual contributions averaging at about 5% of pre-tax profit. With programs like employee matching funds as well as group volunteer activities, a big part of the company culture revolves around coming together to give time and money to those in need. Formalized by a committee that meets yearly to evaluate applicant charities, Heffernan Insurance Brokers hasn't forgotten its neighbors who need a helping hand.
For its unique mixing of fun with success, we salute the Heffernan Group as our Marketing Agency of the Month. *