How it happened
[I]t started gradually, and now suddenly—after
30 to 35 years—we fast forward to a multifaceted
operations crisis in full swing for far too many agency owners.
By Cheryl Koch, CPCU, ARM, AAI, ACSR, AFIS, and Mary Belka, CPCU, ARM, ARe, RPLU, CIC
This column and several planned installments have been nearly two generations in the making. As Ernest Hemingway put it in The Sun Also Rises, which we have quoted before, but which bears repeating, “How did you go bankrupt? Two ways. Gradually and then suddenly.”
We have even struggled with making our deadline this month, due to the number of 9-1-1 calls we are receiving from agencies on a daily basis. Overwhelmed account managers, producers too involved in servicing to sell, difficulty recruiting qualified staff, low profitability, questionable technology ROI. Sound familiar?
As the man wrote so many years ago, it started gradually, and now suddenly—after 30 to 35 years—we fast forward to a multifaceted operations crisis in full swing for far too many agency owners.
Fair warning: We are going to say some things out loud that some won’t want to hear; but it is time for a “fierce conversation” to understand where we are, how we got here, and the best pathway out of the maze. There are many reasons for the pain we are seeing; and we will do our best to explain it over several columns, as well as provide the necessary solutions—as we see it—to change this trajectory. Note: Props to Susan Scott, author of Fierce Conversations, a must-read for all.
How account managers became processors
We mentioned the daily frantic calls from agencies with their plethora of problems. How and why did these things happen?
Training and education stopped. There are reasons why it is hard to find qualified servicing staff. Most professional agencies 30-plus years ago fully trained their employees, mostly in-house, in all aspects of their positions from day one.
Account managers were expected to handle all components of client servicing, including a deep understanding of insurance regulations, contract law, agency bill accounting and policy forms and coverages. They were armed with paper files, no voicemail, copy machines, adding machines, mag-card typewriters, hand-written applications, rating and industry-based manuals with pages updated weekly, and emerging multi-part carbon paper ACORD forms. There were no assistants. And yet account managers generally were able to handle larger and more complex books of business more effectively than today’s counterparts by comparison.
Producers (mostly men) were sent to six-week carrier-subsidized producer schools while their spouses (mostly wives) held down the fort. The last attendees are now older Gen Xers. A few stellar companies still provide this type of training, but no one leaves home for six weeks straight anymore. Societal changes mean that today’s young parents are deeply and more equally involved in their children’s activities as they seek work/life balance.
In the past, a fair number of agency employees attended meaningful classes to earn designations with essay-based testing taught by insurance professionals, before CE credits became required by law, starting the death spiral of actual learning. Don’t get us started! All agencies had some sort of “library,” including applicable state insurance laws, bulletins, coverage forms, legal case studies, carrier underwriting guidelines, carrier financial ratings, and more, all of which agency employees were expected to use and understand. All were expected to know their stuff; that was the standard.
For nearly two generations, agency owners sought to hire “seasoned,” trained employees, yet many did not contribute to the knowledgeable account manager and producer pools by instituting training in their own organizations. One agency owner told us just today that when they purchased their agency 20 years ago, they sought out lower-level servicing staff they could affordably hire, who left the “big” agencies, in order to hire “trained” staff, since they did not feel they had the wherewithal to provide training and education.
Coincidentally, that was about the time that “big” agencies started sending their “service work” overseas to be handled, subsequently eliminating the very source of “building block” employees for smaller agencies. By the way, nearly all conscientious account managers tell us privately that they check the work of these outsourced “checkers.” The natural inclination of the best account managers is—you guessed it—to manage all aspects of their assigned accounts.
Technology started. The good news and the not-so-good news: Technology increasingly affects every aspect of our business, as well as the world at large. It started innocently enough and most tried to embrace it. Word processing machines replaced typewriters shortly before primitive, expensive agency management systems emerged, largely providing basic client database information, as well as invoicing, billing, certificate, and proprietary word processing functionality.
Connectivity evolved from mainframe computers to copper, cable, and fiber optic lines while the internet entered the scene. Management systems improved, paper went digital, email and texting replaced snail mail and faxing, and direct bill took off.
Yet agencies were slow to give up the paper; it was not until the forced remote environment of COVID that agencies finally became more automated than not. But they had to run to catch up. Many younger, talented employees chose other industries over ours as a result.
Carriers transferred tasks to agencies—while lowering commission. Carriers first placed modems in agencies to facilitate rating at the agency level. This is when assistants first began to appear to handle rating. Carriers began to eliminate underwriters and rating, increasing the parameters for “small” accounts, as they transferred more clerical responsibility to agencies, including answering direct billing questions. Go figure.
The first carrier call centers were created around the same time, with the original goal of eliminating agency servicing, so that agencies could focus on new business sales. Like bank ATMs, they started out as a free service and evolved into carrier profit centers over time. Agents often did not give up the client relationships, resulting in duplication and additional expense, while retaining the potential for E&O (errors and omissions) when continuing to insert themselves into the servicing of call center clients.
Agency commissions were reduced significantly around this time, as well. The first reductions were quite shocking, from 20% to 15% commission in many cases. Commission reduction has continued as carriers focus on reducing expense in order to remain competitive. Ironically, this has had the negative consequence of reducing agency sales, as producers are pulled into servicing when account managers are pulled into carrier clerical tasks, particularly in the case of personal and small commercial lines.
The carrier transfer of tasks has contributed greatly to the shift from true account management to processing. It benefited carriers, while undercutting agencies’ ability to produce new business.
Technology ramped up. On average, account managers utilize 20-plus software products of some type just to do their job every day. Producers are using technology more in their work than ever before. CRM (customer relationship management) software is a must; marketing tools abound, and information gathering is largely a digital exercise today.
Training is now generally online or DIY (do it yourself). At least one AMS (agency management system) vendor has eliminated training altogether. Your staff is increasingly required to learn on their own. How are you making sure that takes place? Your profitability is at stake.
Wisdom left the building. While all of these other factors were gathering momentum, people continued to age. Yikes! And can you believe it, they decided to retire? The nerve!
Societal changes are at work again: Boomers joined our industry, tended to remain, and often at one agency. Conversely, millennial and Gen Z employees, in particular, tend to want multiple careers and/or jobs during their working careers. They move from agency to agency and may endure uneven experience and training along the way. There is a difference between 20 years’ experience and one year of experience—20 times.
The wisdom leaving the industry has outpaced the experience and expertise of those entering it and who remain. Boomers tend to keep working during uncertain times, but the youngest are now 61; they have largely aged out of the workforce, leaving a knowledge gap that is now evident and affecting agency growth and profitability.
Unnecessary tasks are still rampant. No one should do them—not even AI. We’ve actually identified many, including the first 10 we’ve covered in earlier articles. Suffice it to say that having talented account managers handle direct bill payments, excessive remarketing (over 10% of your book), and contacting poor-pay clients are jobs that no one should do, including somehow relegating them to AI. These activities reduce your profitability and pull professional account managers and producers alike away from their core responsibilities.
Create more unicorns
The sad truth is that despite technological advances, revenues handled per employee and profitability have not improved as they should have over results from 30 years ago, commission changes notwithstanding. Standards have shifted so far from true account management to processing that what used to be standard is now considered rare and, like unicorns, equally hard to find. Unless you are fortunate enough to discover one, you’ll have to start looking for the right stuff to create your own.
In our next installments, we will discuss the importance of the right business model, intentional leadership, educational career paths, and exceptional operations management components in order to create unicorn account managers who can truly support the sales process—and to make sure your producers are worthy of these peers. Stay tuned.
The authors
Cheryl Koch is the owner of Agency Management Resource Group, a California firm providing training, education and consulting to producers, account managers and owners of independent agencies. She has a BA in Economics from UCLA and an MBA from Sacramento State University. She has also earned several insurance professional designations: CPCU, CIC, ARM, AAI, AAI-M, API, AIS, AAM, AIM, ARP, AINS, ACSR, AFIS, and MLIS.
Mary M. Belka is owner and CEO of Eisenhart Consulting Group, Inc., providing management and operations consulting to the insurance industry. She also is an endorsed agency E&O auditor for Swiss Re/Westport. A graduate of the University of Nebraska, Mary holds the CPCU, ARM, ARe, RPLU, CIC, and CPIW designations.
