Classes, assignments, and grades help APPEX agents earn A's in performance
By Elisabeth Boone, CPCU
From left: Albert A. Lloyd, Senior Vice President and Executive Director; Donna M. Kolenc, Project Coordinator; and Toya L. Gorley, Managing Director of APPEX, pictured with several partner grade badges.
No more pencils, no more books ..." That childhood refrain, gleefully recited on the last day of school before summer vacation, celebrated the annual escape from classroom confinement into the carefree world of swimming, baseball, and long lazy evenings. Years later, most of us felt that same delicious sense of freedom upon tossing our mortarboards into the air at college graduation, or completing a rigorous course of professional study like CPCU.
For most agency owners, however, that freedom is short-lived. The pressures of competition, combined with a drive to excel, mean returning to the pencils and books. For 85 agency owners, the letters on the blackboard spell APPEX: Agency Peak Performance EXchange. Established in 1997, APPEX is an organization of independent agencies formed by the insurance industry consulting firm MarshBerry & Co. All are top-performing agencies that come together to exchange operating strategies, share strengths and opportunities, and hold each other accountable for success. APPEX's vision and mission statements are presented in the box on page 151.
Unlike agent groups that focus on marketing, APPEX shows its members how to understand and improve on the internal operations of their agencies, using key indicators of performance in a variety of areas. To that end, "The APPEX Solution" is directed toward:
* A more profitable agency
* A better return to agency owners
* The generation of increased revenue
* More productive and cost-effective employees
* An agency with more value and the realization of that value
Heading up APPEX is Albert Lloyd, executive director, who has been with MarshBerry for 10 years. Lloyd joined the firm as a financial analyst and is now a senior vice president and a mergers and acquisitions consultant. He also serves as executive vice president of MarshBerry's Bank-Agency NetworK (BANK), some of whose members belong to APPEX. "Overseeing APPEX entails working with our partners, bringing on new partners, and creating and implementing the future vision of APPEX," Lloyd says.
Among others, Lloyd is assisted by Toya Gorley, managing director, who joined MarshBerry in 2003. She has primary responsibility for the coordination and execution of the APPEX Executive Performance Symposium (ESP), at which members gather to exchange ideas and experiences. Gorley also is involved in recruiting agent partners and serves as a liaison between partners and MarshBerry consultants, called Agency Improvement Managers (AIMs). "I make sure APPEX partners receive all of the benefits that APPEX has to offer," Gorley explains.
Partnering with APPEX
APPEX has 85 members who are selected based on information provided in the membership application, including revenue size and equity. This allows APPEX to calculate what it calls the agency's PIN--Performance Indicator Number--which ranks the agency on a scale of zero to 10 based on 15 key ratios:
* Reward ratio (Executive and production payroll plus pre-tax profits divided by gross revenue)
* Non-compensation expenses (overhead) as a percentage of total commissions and fees
* Property/casualty servicing cost per dollar of property/casualty commission
* Total commissions and fees growth rate
* Contingent (income) consistency ratio
* Total commissions and fees per employee
* Total commissions and fees per production person
* Total commissions and fees per service person
* Employee marginal profitability (Revenue per employee minus total payroll per employee)
* Support staff as a percentage of total employees
* Average collection period
* Cash management ratio (Measures agency float)
* Trust ratio (Cash, investments and receivables divided by payables)
* Working capital defensive interval (Measures how many days of working capital an agency has)
* Tangible net worth ratio (Average tangible net worth divided by net revenues)
However, the numbers and ratios are only part of the criteria, Lloyd says. "We want creative thinkers, people who are using successful operating strategies and are willing to share them with others in the organization. Our partners also need to be committed to improving their agencies." The average APPEX agency has revenue of about $7.2 million. "In considering candidates for membership, we prefer agencies with revenue at or above $3 million, and we like their PIN to be at least a 5, on a scale of zero to 10," Lloyd says.
When APPEX opened its doors in 1997, the property/casualty industry was in the throes of the longest soft market of the 20th century. The terrorist attacks of September 11, 2001, the stock market decline, and the economic recession all have created a dramatically altered playing field for carriers, agents, and their clients as the market hardened dramatically.
"We're seeing softening of the hardness now," Lloyd says. "While the hard market aided agency growth, it also created many challenges for agencies. This is where APPEX really shines. APPEX can provide the resources, tools, and knowledge to help agencies navigate through changing markets."
Of the many challenges facing independent agencies today, Lloyd says, "The ability to perpetuate is a daunting task for just about every agency. Many agencies are not in a position to perpetuate right now. APPEX gives its members the tools they need to perpetuate either internally or externally. We want our partners to have the choice of how to perpetuate when that day comes."
Making it happen
To help member agencies achieve this goal, APPEX offers an array of resources and networking opportunities.
Perspectives for High Performance (PHP) Reports. Issued quarterly, these reports benchmark an agency's performance and compare it with some of the industry's proven performers. The PHP serves as a member's quarterly "report card." Twenty-six pages in length, it is a highly detailed document containing tables, color graphs, and statistics. The PHP report rates the agency's performance on a scale of zero to 10 from several perspectives:
* Profit Perspectives: Revenue and expense management
* Operational Perspectives: Employee and profit center management
* Equity Perspectives: Receivables, cash flow, and asset management
* CEO Perspectives: Most critical measurements summarized and converted to an overall agency performance score
* Synergy Group Perspectives: Performance of a specific group of agencies that are sharing perspectives with one another
Executive Symposium for Performance (ESP). Offered semiannually, the ESP is at the core of APPEX membership. Attendance at the symposium is mandatory, and at least one agency principal is required to attend. If an agency misses an ESP, its 12 PAX (described below) votes on whether the agency should remain in APPEX. An APPEX symposium is an intensive two-and-a-half-day working event conducted in a classroom environment. During the symposium, issues identified as important by APPEX partners are addressed, financial strategies are shared, and current business and industry trends are explored. Members also benefit from attending presentations by outside consultants and industry leaders.
The ESP has two components: the 12 PAX and the Mentor Groups. The 12 PAX is an intimate forum for agents to exchange information and learn about their peers' successful strategies. The 12 PAX is a group of no more than a dozen agents sworn to confidentiality and pledged to listen, advise, share, critique, and guide one another toward the accomplishment of agreed-upon goals. When areas for improvement are identified, partners are held accountable by their peers for devising plans of action.
A high-level exchange of concepts and successful practices is delivered through Mentor Groups, which are facilitated by APPEX staff, partners, or industry experts. Mentor Groups are formed for each ESP and explore topics suggested by members as well as needs uncovered through the ongoing study of financial data for the entire membership. Qualified partners who are strong in certain areas serve as mentors to help their peers excel. What's more, APPEX maintains an electronic audio library of Mentor Group sessions and distributes the sessions to members via compact disc.
"The 12 PAX meetings are probably the most valuable sessions offered at a symposium," Lloyd remarks. "We call the 12 PAX a virtual board of directors." The participants' PHP reports are available for everyone in a 12 PAX to see. This allows members to understand the benefits of improving performance and to see what factors are driving or perhaps impeding performance. Competitors are always assigned to different 12 PAX groups to preserve confidentiality.
At the Executive Symposium, APPEX partners wear their agencies' "grades" on their name badges for their peers to see. This practice isn't meant to embarrass anyone; it's designed to help an attendee who needs improvement in a certain area to find a partner whose high score indicates expertise in that area. Partners sign agreements promising to honor the confidentiality of the information, so everyone can be comfortable speaking freely.
"We use a set of 10 benchmarks, which APPEX refers to as disciplines, to measure the performance of each agency," Lloyd says. The disciplines are cash flow management, asset management, revenue management, expense management, profit center management, business acumen, sales management, continuity management, staff vitality, and carrier vitality. Based on the agency's performance on a particular ratio, the partner earns a "degree": a bachelor's, a master's, or a Ph.D. Each discipline has several ratios, and a partner must achieve a certain level of performance in each ratio to obtain a given degree. Each partner wears a badge that lists the 10 disciplines, along with the agency's ratio or "grade" in that area. Different colors are used on the badge to indicate the degree a partner has earned in each discipline.
"Once a partner has earned degrees in a certain number of areas, we award a diploma indicating that the partner has achieved a certain level in the organization," Lloyd explains.
"Partners who earn diplomas unquestionably are high-performing agencies," Lloyd says. "Some partners who are receiving Ph.D. diplomas are in the 8.0 to 9.0 or higher range for the Performance Indicator score as measured by the PHP report. These are some of the highest performing agencies in the industry." Displaying degrees on badges, Lloyd explains, "creates healthy competition; it creates a certain amount of peer pressure; and showing the various degrees validates the performance of the individuals in the group as indicated on their quarterly PHPs."
Agency Improvement Manager. Each APPEX partner is assigned an Agency Improvement Manager (AIM), who is a MarshBerry consultant. The Agency Improvement Manager visits the partner's agency at least once each year to identify the agency's most critical operating issues. During this visit, the partner is required to sign a pledge that the agency will work toward resolving the identified issues. Then, using MarshBerry staff and other resources, the AIM works toward resolving issues and finding solutions to problems. The AIM maintains ongoing contact with the agency and monitors its progress toward solving problems. "I'm an AIM, and I work with several partners to help them improve their operations," Lloyd explains. "I talk with some partners once a week and some once a month. I'm always available to help them."
APPEX Query. Partners use electronic mail and an online message board to discuss topics of interest and to request and share information. Queries and responses are archived on the message board and are accessible to all partners.
Partner Directory. Available on the APPEX section of the MarshBerry Web site, the directory allows partners to locate a partner who is based in a different state, has a specific market niche, or uses the same automation system. The directory contains a comprehensive profile that identifies each partner by name, location, carrier, automation system, niche, related business, degrees and disciplines, and 12 PAX group.
Distance Learning Groups. Once a month, APPEX partners are invited to log on to a fully interactive online meeting to explore pertinent industry issues. This exchange keeps partners in touch with each other between Executive Symposia.
MarshBerry.com Web site. All APPEX partners have access to this Web site, which also features a section secured for APPEX partners only. The site offers an array of tools to help member agencies manage their operations. Among the tools are online calculators (producer validation, retained earnings, and more), published articles, surveys, and proven practices.
Given the array of services provided to APPEX partners--recently enhanced by the addition of sales management as well as work flow and operational arms--it's clear that APPEX membership isn't for lightweights. Partners must be serious about playing a major role in the process of improving their agencies' performance. "It's definitely a big commitment," Lloyd says. "Once an agency joins APPEX, the principal figures out pretty quickly whether he or she is committed to improving. If not, either the principal won't stay or we'll ask him or her to leave. We want only agencies that are dedicated to the improvement process."
Numbers tell the story
With each APPEX partner receiving a quarterly Perspectives for High Performance report that contains 26 pages of detailed rankings and ratios, it's clear that in the APPEX environment, numbers speak volumes. What kinds of results are partners achieving from their commitment to improving performance? "Agencies that have been in APPEX since 1997 have seen their revenue increase by 51%," Lloyd says. "Even more important, their value has increased 102%. To us, that's a 'wow': look at the leverage that's been created for these agencies. That's real proof of the value of APPEX. Our partners are becoming more efficient, more profitable, more professional; and their stock is becoming more valuable."
Adds Gorley: "Our partners have the ability to benchmark their performance against a group of proven performers, and that's an invaluable benefit of being part of the APPEX organization. We also receive accolades about our partners' ability to network with their peers, to exchange operating strategies, and to be part of a group where they and their peers are committed to the improvement of every aspect of agency operations."
A look at the future
What do the leaders of APPEX see as the major challenges and opportunities facing independent agents, and how does APPEX plan to respond? "The biggest challenge we're hearing about is agency perpetuation, which involves factors like attracting and retaining quality employees, improving sales management, and building value," Lloyd replies. "Agencies at all levels are concerned about talent not coming into the industry or losing talent to another organization." Further, "We see agencies having issues with regard to satisfying carrier requirements, and we also see a challenge for agencies to remain independent. We anticipate that the number of independent agencies will decrease to about 11,700 by the year 2010, down from about 20,100 in 2000."
To help agencies face these challenges head on, MarshBerry's own consultants provide services in the areas of agency valuation, perpetuation planning, and incentive compensation. The consultants are also skilled at guiding APPEX partners through the merger/acquisition process. "What we're doing at APPEX is providing the services independent agencies need to improve their performance and remain viable in the future," Lloyd says.
That's a tall order--and one that the dedicated experts at APPEX seem eminently qualified to fulfill. A sophisticated system of benchmarks, grades, and reports helps each APPEX partner move to the head of the class in building agency staff, profits, and value. For agency owners who want to roll up their sleeves and get serious about achieving top performance, a great place to start is the APPEX classroom. *
"Agencies that have been in APPEX since 1997 have seen their revenue increase by 51%--and their value has increased 102%. That's real proof of the value of APPEX."
--Albert Lloyd
APPEX Vision Statement
APPEX is an organization that creates and delivers the environment, the perspectives, the alternatives, and the means for building the value of independent agencies and that can assure the owners of those agencies that they will realize this value.
APPEX Mission Statement
The mission of APPEX is to enable independent agencies and the owners of those organizations to realize their fullest business potential as measured by:
* The personal income of agency owners
* The value of the owner's agency
* The owner's return on equity
For more information:
APPEX
Phone: (888) 371-9547
Web site: www.marshberry.com