Lessons in Leadership

2020: What will the agency system look like 10 years from now?

Storm clouds threaten, but opportunities abound

By Robert L. Bailey

In 1958, when I entered the property/casualty insurance business, the independent agency system, according to most predictions, was doomed to fail. New, low-cost auto policies from direct writers and exclusive agency companies were just coming onto the scene and causing competition to intensify. Prognosticators said there was no way that the independent agency system could survive these new competitive threats.

Since that time, there has been a steady stream of announcements of funeral services for the independent agency system. All have been premature. The agency system, in my view, is as vigorous today as it was then, and probably even healthier.

Does this mean, then, that the decade ahead will simply present more of the same? Do what you’ve been doing and everything will turn out right?

I’ve been making predictions about the future of the property/casualty industry for many years. I recall a speech titled “1994” that I gave in 1984, a takeoff on George Orwell’s book written about 35 years earlier. That presentation broke all attendance records for the sponsoring organization. (It was only incidental that the meeting was held at the then-popular Playboy Club in Columbus, Ohio! As it turned out, the meeting took place in a second-floor room with nary a bunny in sight.)

Storm warning

In the view of a long-time observer of our industry, here are the storm clouds that will threaten our business over the next decade:

•Rampant inflation will return, fueled by an unprecedented increase in the money supply. Inflationary pressures will drive up your costs of doing business and the costs of the products and services you offer. Real growth will suffer, and savers will be punished.

• Taxes will increase. It will be harder to make ends meet. Passage of the proposed cap-and-trade tax will dramatically drive up the costs of all forms of energy, from electricity to gasoline.

• Americans will buy smaller, more fuel-efficient automobiles. Government will insist that automakers build them and will encourage American families to buy them. Small cars give less occupant protection, bringing about higher injury severity costs.

• Higher inflation, along with greater accident severity, will produce a “two plus two equals five” effect on personal auto rates. Regulators will resist higher rates, bringing about harder markets. The industry’s public relations problems will return.

• The recent financial meltdown will cause greater reliance on underwriting profits rather than investment income, again placing upward pressure on rate levels.

• Our industry will consolidate at an increased pace, and there will be fewer but larger companies and agencies. This trend will be driven by narrowing profit margins, the demand of consumers for instant service, and the high cost of state-of-the-art automation.

• Oppressive government regulations will drive up operating costs, similar to those in Great Britain where the government has created 20,000 new laws and 1.25 million new public-sector jobs to enforce them. Expect new legislative mandates on health care, time off, flexible work hours, and so on.

• The federal government will become involved with insurance regulation, but it won’t be a substitute for state regulation. Like it or not, we’ll have both—another higher cost of doing business.

• Any form of conspicuous extravagance will be frowned upon by government, the media, and the public. Agencies and companies that prosper will be forced to become more efficient, bare-bones operations.

What makes a winner?

The following attributes will characterize the winners over the next decade:

• Your staff will be the most professional in history, providing instant, no-hassle, friendly, caring customer service 24/7. The complexities of the business and a better-informed buyer will require better-informed sales and service people.

• Greater professionalism will require continual learning and outstanding leadership, the kind of leadership espoused in my new book The New Leader (please excuse this blatant commercial message).

• Consumers’ service demands and the need for operational efficiencies will require cutting-edge technology (but not necessarily bleeding-edge technology. It’s usually better to be a fast follower, gaining the advantages of new technology but avoiding many mistakes of earlier adopters).

• The public still wants to do busi­ness with people—people with excellent people skills, people who are totally honest and ethical, people who go beyond the call of duty to meet the needs of customers, people who are an integral part of the fabric of the com­munity. These folks will build customer loyalty for generations to come and will give you the strategic advantage that will assure your success.

Never before has government so significantly threatened the future of the free enterprise system. Your odds of prospering over the next decade can be improved by building close relationships with your legislators.

Business people must become more involved in government. Most political leaders have never worked in the private sector, have no understanding of what it’s like to meet a payroll, and don’t comprehend the ramifications of many legislative mandates. Become an adviser they can trust. Or run for public office yourself.

Get personally acquainted with both your state and federal legislators. When they don’t support your views, you have to let them know. If they don’t listen, you have to select different ones who will support free enterprise. Yes, this may cost you a few bucks each year (it seems the election cycles never stop), but it may be one of the best investments you can make to keep your business healthy. You can’t rely on your trade associations and Chambers of Commerce to do it for you. You have to do it yourself.

Great companies and agencies can compete with the best. But even great organizations cannot compete with the government. For the most part, business leaders don’t do a good job of defending free enterprise. They are busy working 70 or 80 hours a week to meet payroll and make their businesses successful. They don’t have time to posture for the TV cameras (and it’s not their nature to do it anyway). They just keep their heads down, work their tails off, and pay their taxes.

How certain am I that my predictions are correct? Well, don’t bet the farm on it. But if I’m wrong 10 years from the date of this publication, look me up and I’ll buy you lunch. It might be better if you all don’t show up on the same day.

The author
Robert L. Bailey is the retired CEO, president and chairman of the State Auto Insurance Companies. He is now a public speaker and author of two new books, The New Leader and What Do You Do When You’re Having a Bad Day. Visit Bob’s Web site at www.bobbaileyspeaker.com or contact him at (941) 358-5260 or bobbailey1@comcast.net.