Winning Strategies

No longer paid for insurance placement…now what?

Plan for the future or lose

By Larry Linne

Industry prediction: In the future, insurance agencies will give away what they get paid for today and get paid for what they currently do for free.

I heard this prediction numerous times from different consultants when I was selling insurance and consulting for risk management in Albuquerque, New Mexico.

Not only did this seem logical and exciting to me, it looked like an opportunity to get ahead of other agencies. If we could come up with the model to be a company that could get paid for services others were doing for free, it could be a true-blue ocean strategy.

Our leadership team accepted this belief and began planning how our agency could capitalize on it. We developed products in the risk management, benefits, surety and bonding, and wealth advisory lines of business and enjoyed great success.

When I joined the consulting world four years ago, I strongly advocated this message. After all, it made perfect sense that business owners would want to stop paying a premium for the placement of insurance products for several reasons: (1) technology would bring us to a place where most insurance could be purchased directly; (2) insurance would be offered by the government; or (3) insurance would become an auditable automatic renewal policy. In all cases, agents would remain a vital part of the transaction.

Since then, I’ve noticed how quickly people will nod in agreement when they hear this revelation about the future of our industry. In fact, many agency leaders tell us they are already seeing these trends with fees and additional services being offered by some agencies. Add to that the ongoing e-mail and phone calls I receive on the subject, and I’d say that most people in the industry accept this concept…intellectually.

Over the past 60 days, I’ve received an increasing number of urgent requests for advice via phone, iChat and Skype. Typically, it involves something the person read or heard about the future of health care and what the new administration is going to do. For example, according to one recent caller, a White House official was quoted as saying, “Insurance agents will not be needed with the simplicity of the new health care plan.” Then they ask me what they should do, such as whether or not they should eliminate or drastically cut back their employee benefits department.

As a boy, I was told by my father, “You will know a man’s true beliefs when he comes face to face with those beliefs, and you see his actions.” Well, here’s what we believe is about to happen with health care: Health insurance is about to become something we won’t get paid to place.

Now, before you run off and start firing people, let me emphasize that this is not the end of our industry! Although I predict that about 50% of benefits agencies will go out of business within the first few years of this change, I am convinced that our industry will still do very well. But the change will prompt a reinvention of what agencies do. Namely, they’ll have to figure out how to get paid for what they’ve been doing for free.

If this sounds familiar, it should, as it’s been predicted for quite a while. I further predict that the top 10% of agencies (probably not the big alphabet houses) will be the big winners. They will develop products that address what clients need. What’s more, they will package unique processes in a way that creates a value product that businesses will gladly pay to receive. Ultimately, these firms will make more money than traditional employee benefits firms in our current model.

Those who don’t close their doors and who don’t create the big value proposition will sell life insurance, ancillary products, disability and other “product”-focused items. They will make 30% to 50% less than they make today but will hang on and stay in business.

Winning traits

In the future, agencies that will get paid for what the industry gives away today are likely to possess the following attributes:

Client experience. They will create unique client experiences. I have hired and fired restaurants, auto dealerships, CPA firms and many other companies based on the experience I have received when working with them. The product and the price are never as important as my experience as their client. This behavior is becoming more prominent with buyers. Buyers have a lot of choices and are willing to pay more money if the experience is worth it.

To get paid for what we give away today, agents will be required to create a “unique” experience (i.e., unlike any other). We have adopted the “Goldilocks Experience” as part of our brand. Making sure we are error free (not too cold) and not over the top with too much flash (not too hot) so our clients can focus on the intellectual capital we deliver toward vertical growth strategies equals Goldilocks (just right).

Unique processes. Agencies will create unique processes to help their clients. Methods of accessing insurance companies’ and agencies’ video phones, iChat or Skype communications; a risk review process; enterprise risk management analysis systems, and packaged delivery of services will increase the likelihood of getting paid for services. The sales system should be a unique process that brings value to the prospect or client. “The Sales Process” will bring value IF it helps a business learn something or get clarity it wouldn’t get otherwise. Accordingly, the client should be willing to pay for it.

Beliefs. Successful agencies will believe they have a role in helping clients become more attractive to the insurance markets. They will establish broader strategies around total cost of risk and total cost of benefits because they believe they can make a difference in reducing those costs. Hazard risk will be only one area of expertise.

They will become advisors in business and strategic risk. Many agencies have chosen to provide personal trainers to executives, leadership development to client CEOs, team-building training and support, and more. From Web site reviews to intense loss control, from hiring support to identity theft prevention strategies, agencies will bring more value because they believe in prevention and mitigation vs. solely relying on transfer and financing alternatives.

Vertical strategies. A vertical strategy is bringing new products and services to existing clients. We see return on human capital solutions, productivity improvement programs, legal, health and wellness, nutrition, team building, management consulting, business perpetuation strategies, marketing consulting, and many more strategies to help with risk in business. Some of these products are in-house, some are outsourced and some are new businesses created by the agency ownership. Delivering broader value will potentially create a client experience built on a broader definition of risk. Clients will be willing to pay for vertical strategies that bring new value.

Horizontal strategies. A horizontal strategy takes current products and services and delivers them to new clients in different markets. For example: a safety culture process from construction that can be applied to manufacturing; a health and wellness plan introduced to small companies to increase productivity; or a risk review process introduced to a new industry. When an agency develops a strong product that allows it to be paid for what it does, it can replicate the product in another industry. Usually this process creates an efficiency that allows the product to be more profitable due to volume.

Value-pricing strategies. Agencies will have to learn how to value price. Cost-plus pricing will become a commodity. Value pricing will require agencies to quantify potential value when questioning prospects. Questions that create quantifiable value will allow for higher, value-based pricing. While this will require agencies to measure progress and quantify actual value to justify continued compensation, it should allow for greater revenue. Agencies that figure this out will be rewarded for their efforts.

The time has come for us to face the music. Are we ready? The health care industry is forcing our hand in the employee benefits arena. If you are not planning today, you may find yourself in the 50% that is out of business. And don’t get too comfortable in the property and casualty business, either, as we foresee similar trends for it, as well. Furthermore, wealth advisors, P&C, employee benefits, and surety and bonding will also be subject to changing trends in the industry. We can embrace the future or we can fight it. However, only those who embrace and plan for it will have an opportunity to benefit from it. n

The author
Larry G. Linne is president of Sitkins Group, Inc., which offers The Vertical Growth Experience™ exclusively to its membership, known as Sitkins International. Larry’s background includes agency/brokerage operations and sales management, CEO coaching, sales process consulting, performance management and leadership training.