Winning Strategies

Warning signs: How to expect the unexpected

Act now to keep problems from becoming disasters

By Roger Sitkins

Have you ever lost a large account or a great employee? If so, did you feel blindsided when it happened?

Although people often seem shocked when "the unexpected" occurs, I can guarantee you that someone saw it coming. In fact, they probably said something like, "I knew it!" or, "It was only a matter of time." Naturally, you might think, "Thanks for not telling me!" and wonder why you were the last to know.

The reality is that even those who "saw it coming" probably didn't acknowledge it on a conscious level. However, if you take a forensic look at the "unexpected," you'll probably agree that the warning signs were right in front of you. You just weren't able—or willing—to see them.

In this issue, we're going to review the major warning signs that I see in many agencies, but that are often ignored until it's too late. Remember, a problem left unattended becomes a crisis! Therefore, if any of the following signs appear in your agency, it is critical to deal with them immediately, before the worst happens.

Key warning signs

• Low Production. Pay attention to producers who spend the majority of their time in the office, hiding behind service and hiding behind activity, but who are not really producing.

• Producer Excuses. These go hand in hand with low production and are meant to explain why the producer isn't selling. Excuses run the gamut from the bad economy to unexpected renewal pressures to not enough time. However, these excuses are actually just symptoms of deeper problems.

• Internal Backlogs. Is there paper all over your office? If so, that's a double warning. When I used to consult with agencies all over the country, I could predict almost immediately just how backlogged they were based on the clutter and disorganization in the office. More often than not, I'd find that employees were hand writing customer claim reports, policy changes and other requests on paper first and then entering them into the automation system later.

Beyond being outdated, the "paper first" system is extremely inefficient. Hotels, car rental companies and airlines were among the first to understand this and are now among the many businesses that essentially have gone paperless. If your firm is buried under piles of paper, it's probably backlogged. (You do measure backlog, don't you?) Both are warnings.

• Accounts Receivable Problems. The stated goal of our Vertical Growth™ Model is zero accounts receivable over 30 days. Our rule is to never pay a dollar to an insurance carrier that hasn't already been paid to you. I realize that collections can be a challenge in today's economy, but if you're still doing a fair amount of agency-billed business, accounts receivable problems often indicate problems with workflow, renewals, invoicing and collection.

• Low Energy Level. If you look around and it feels like a morgue in your office—no fun and no excitement—be warned that you're going to lose good people. Whenever I think of a low-energy environment, I think of the old Dunkin' Donuts commercial, in which the glum-faced baker gets out of bed each day because "it's time to make the donuts," not because he's looking forward to his job.

Energy levels wane when there's no purpose-driven culture (i.e., behaviors and language that are normal) and no brand being established and promoted. Without purposeful leadership and nothing to look forward to other than the daily grind, workers will just show up to do their job and go home.

• Empty Pipelines. We've talked about it a thousand times, but it bears repeating: If your pipelines are empty, that should be a huge warning sign that you don't know where your next client is coming from. We all know that the roast duck marketing plan doesn't work! So if you're sitting in the office and waiting for one to fly into your mouth, please reconsider.

• Price-only Selling and Unpaid Consulting. When price is the only way that you get—and lose—business, that's a warning sign that you're being viewed as a commodity-based sales organization. Unless you can differentiate yourself from other agencies, you're just like everyone else.

A symptom of price-only selling is unpaid consulting. If people are thanking you for all your hard work and promising to call you next year, you're solving problems without getting paid. That makes you an unpaid consultant who probably is practice quoting. The client is happy, but the incumbent agency gets paid—not you!

• Renewal Challenges. I'm amazed at the number of agents who tell me they're having trouble getting renewals this year. Certainly, it's caused by the economy, risk shrinkage and the soft market, as well as the intense pressure on business owners to save money every way they can. Further, the number of agents doing price selling only is accelerating exponentially.

My concern is that if you're having increased renewal pressures, you haven't insulated this account. You don't have the strategies in place for clients to understand that you, as their agent, are representing them to the marketplace. As their trusted advisor, it is your job to go to the marketplace on their behalf and market their account and get the best possible deal on their behalf. If your agency is not properly positioned to represent the account to the industry, that's a major warning sign.

• Average Producer Age. If there are no rookie producers and the age of your average, validated producer is over 50, that should be a warning sign. Please note: We're not talking about age discrimination here. It just means that you're not proactively searching for your next-generation producers. Here's how you can tell where your agency stands: Is the average age of your producers closer to retirement or college graduation?

Within the Sitkins membership, we consistently see a strategy (even among the mid-sized members) to add two new producers per year. That doesn't mean we don't value the more mature producers, because we absolutely do! It's just that if most of your producers are closer to 65 than 25, how many more years will they want to work? Further, the most experienced producers tend to lose their energy; they plateau and become service people. Without rookies to replace them, you have a problem.

• No Perpetuation Plan. This is a widespread problem in our industry and should be a major concern to agencies controlled by senior partners. If you are a sole owner approaching retirement age or have a partner who is a contemporary, you should have a plan or you will have a problem. Everyone needs a five- to 10-year plan for financial perpetuation as well as leadership perpetuation, yet fewer than 10% of agencies do. Even if you have an heir apparent—a child or younger relative—you must spell out the terms of compensation (for you and your successor) and other details that are critical to a smooth transition.

• No Business Model. If I called you and asked you to tell me about your business model, what would you say? If your "plan" is to just to go out and sell insurance, hoping to make a profit, that's totally unacceptable. Most plans involve projections—to be a $10 million agency, for instance. That's great! But how will you get there? What behaviors and strategies have you outlined? How will you monitor progress and accountability? What's your development plan? All of those things must be in place in order to succeed (or even survive) in our industry. The days of "dumb luck" are long gone.

• Unmet Sales Goals. Everyone sets sales goals on January 1, but by the time December rolls around, few people actually review them, usually with good reason. If no one meets their goals by the end of the year, that's a huge warning sign. Don't accept sales goals from producers when you know they won't or can't meet them.

Unfortunately, most producers will give you their goals with no concern for accountability or consequences. Setting a goal is one thing. Being able to explain specifically how that goal will be reached (in monthly increments) is much more important. Without accountability—on a monthly basis—goals are meaningless.

• Poor Underwriting Results. There's an old joke that if you're writing insurance on a building that's already on fire, you're going to have a bad loss! But it's also a warning sign when the loss ratio with your insurance carriers is terrible. It means that you're writing accounts you shouldn't write. If you're not aggressively doing front-line underwriting and you're getting poor loss experience, you're dramatically reducing your contingency income.

• Top 2% Problem. Our studies continue to show that the top 2% of accounts in the average agency generate more than one-third of the total agency income. This creates a false sense of security when profitable accounts are subsidizing the unprofitable ones. You need to make sure you don't lose the good ones, but, more important, you need to balance your book.

The bottom line

These are just a few of the most common warning signs; no doubt there are many more. If you recognize too many of these in your agency, it's time to take a very hard look at your operation. Waiting for "the good old days to come back" is pointless. They're old, they're over and they're not coming back. So if you identify with any of these warning signs, what are you going to do about them? Something? Nothing?

As always, it's your choice.

The author

Roger Sitkins is founder & chairman of Sitkins International. He is the creator of The Vertical Growth Experience™ programs which are offered exclusively to their private client group. These programs focus on continual improvement of agency/brokerage operations, thus providing members with ongoing development and strategies that literally force vertical growth in the agency/brokerage's critical indicators of closing ratios, revenue per employee, revenue per relationship, and revenue per producer.