One of the things that always provides amusement, for older people, is to hear children plan to do something difficult and complicated.  Their plans are always simple and underestimate the difficulty and time required.  This is because children are natural optimists!

I find that insurance agency entrepreneurs are also optimists, and occasionally share the lack of understanding of the difficulty of doing things that our younger selves did.  This is a tremendous advantage for them because it allows them to try things, and become successful, when others are fearful.

For example, the successful personal lines producer, who sees greater opportunity and income in commercial lines, often underestimates the complexity of the business, and thus, the time required to master it.  The good news is that mastery isn’t required for success!  As I noted last time, mastery seems to take about 10,000 hours of practice, which can take many years.

Proficiency is required to achieve success.  While less costly in time and money to obtain, it isn’t cheap or inconsequential.  Proficiency can be defined as, “a high degree of competence or skill.”  To acquire proficiency in anything requires effort.

I spoke to a highly intelligent and driven young man, several years ago, who wanted to immediately begin his career in insurance as an agency owner specializing in commercial insurance.  I pointed out that all professionals require a great deal of training and usually a lengthy form of apprenticeship before being able to competently work in their field.  As examples, I pointed out doctors, lawyers, and engineers, all of whom study for years, and then work under close supervision for many more years before working independently.  Only when they achieve proficiency are they free to go their own way.

In my experience, commercial insurance is similar.  A talented person can make a living in commercial insurance from the beginning, even though they aren’t skilled or proficient, just as a young doctor can earn a living doing simple tasks while learning the complex.  The difference is that the doctor is supervised in his lengthy training by other doctors whereas the young insurance agency owner may only be supervised by his unsuspecting customer!

Our business is a profession, and requires that we exercise due care to calibrate our business to our knowledge and ability, not to do harm to our customers through unnecessary mistakes.  As we gain proficiency we can work on increasingly complex risks, but we do our own development, and our customer’s finances harm, when we work outside our own proficiency.

Expertise in the field of commercial insurance takes at least 10,000 hours to develop.  Proficiency in a limited area of the field may only take a few dozen hours.  Luckily, we can build an income, and a business, by being proficient in limited ways until we are able to become expert in many!


Ginsu Knives

I can remember watching TV commercials as a kid featuring Ron Popeil and his amazing kitchen gadgets, and commercials for Ginsu knives with fascination.  Not only were the products amazing they also seemed a bit unbelievable.  They did so many things for so little money.

Of course other people were suspicious too and that was why these products always offered “free gifts”.  The free items were there to enhance the already incredible value.  But they were also there for an even more important reason: risk reversal.

One of the problems all marketers face is how to get potential customers to take the risk to buy the products they are selling.  People don’t want to waste their money and they are skeptical.  One of the smart marketers deal with this is to reverse the perceived risk by not only offering money back guarantees but actually making people better off, even if they don’t like their purchase, with items of value they get to keep.  Thus, “if you don’t like it return it for a full refund – but keep the knives as our gift” tag line of all those early TV commercials.

This is powerful!  The question is how can insurance agency owners make use of it?  After all rebating premium, or giving gifts worth very much, is usually against the law.

One way to do this is to develop a basket of services, or inexpensive goods, that you provide to new customers that come with every new account.  Even if the customer is unhappy later they get to keep those things.  I’ve seen this work as a real value add in agencies.  You don’t have to spend a lot of money to put things like iTunes gift cards, electronic devices, vouchers for restaurant meals and similar things in your basket.  Promote its value and let people know that even if they try your agency and don’t like the experience they can “keep the knives”.

There are lots of ways to reverse risk, and it’s still an important psychological marketing tool even to today’s sophisticated consumers.  What ways can you think of to reverse risk?


Managing Sales = Managing Activity

When I started in the insurance business, I needed to create income.  All of my career since then, priority one, has been to create income!  The problem is always forecasting and planning.  It’s very hard to try to manage “sales” because when you do that you’re trying to manage the small end of the sales funnel.  The simple way is to manage what goes into the top of the sales funnel, and that’s activity.

What I do is determine three facts first.  They are:  what is my average premium, what is my average commission amount, and what is my closing (or “hit”) ratio.  If I know these three facts, I can back into a sales activity rate that will give me the results I need.

Let’s start with average premium.  This is easy to obtain from your management system or, if you’re new, your marketing reps.  Average commissions are obtained the same way.  Your closing rate you need to determine by looking at the number of quotes you have done (or your producer has) and divide that by the number of sales made.

What we do with these facts to determine activity needed for a given result works like this:

  • Determine Income Needed
  • Divide income goal by average commission amount
  • Divide that result by closing rate

So, if we need to generate $50,000 and our average commission per account is $400, we need 125 sales.  If our closing rate is 30%, we need 417 prospects who will let us quote.  As a manager, I can focus myself or my team members on finding 417 prospects to quote.  I can manage the “activity” required to get those 417 whether it is cold calling, asking for referrals, a mail program, or something else.  I can ignore the peaks and valleys of sales and just focus on generating the activity required to get in front of 417 people.

Managing activity is much easier than managing sales.  You can establish weekly or monthly targets for the activity and measure actual results against it.  If you don’t see the necessary level of activity, you can adjust easily and much earlier than if you wait to measure sales.  This helps you get and stay on track to reach your goals and gives you the ability to make any needed corrections more quickly.



Thinking about the Disconnection


There is a lot more interesting nuggets to ponder in the Accenture Independent Agent Survey.

When agents were asked what they thought was their greatest competitive threat 71% listed “lower price”. Not even a close second was “Better brand recognition and more effective marketing” at 48%.

Let’s explore the IA’s disconnect from consumers and reality for a moment…

First let’s consider that 67% of consumers are willing to purchase insurance from organizations that don’t typically sell it. Do Google, Amazon, IKEA, General Motors and Walmart have “better brand recognition and more effective marketing” than local independent agents? Hell yes.

Do consumers value a lower price? The answer is obvious – of course they do. But they also value something they can only get from agents – advice. 66% listed independent agents as their top choice for “trust most to provide advice…”. “Retailers” got 8% on the same question. THIS is the IA’s value proposition.

Why then do we stupidly insist on focusing on price?

Also, when asked “would you be willing to pay more to get personalized advice or assistance when buying insurance” those in the YOUNGEST age group (18-24) said either “yes certainly” or “yes probably” a total of 49% of the time. Those 25-24 said the exact same thing. Guess who favored “no, probably not” and “no, certainly not” the most? 76% of those 55 and older said that! 66% of those 35-54 said that! It’s weird! Younger purchasers value what IA’s have to offer more than older ones! So, why aren’t we addressing these technically savvy people with something other than cheap?

My conclusions from reading the survey are that agents have no clue about what their customers want, how they want to buy it, how they should market to new customers and what consumers think by generation group.

I also conclude that IA’s have tremendous advantages with respect to the massive online selling and marketing power of the online mega merchants. This is exciting. What is very worrisome though is that they seem to have exactly the wrong idea about what consumers want, who their competition is and what their strengths are. This is leading them to emphasize and market exactly the wrong thing in a competitive environment in which they can’t win doing that.

So, listen to the consumer! Provide services the online merchants can’t. Don’t be afraid not to be cheapest. Find a way to connect with consumers online as well as in person. This is the current recipe for survival and success.


The Most Important Number

As agents and agency owners we live in a world of numbers!  Numbers are our business and we deal with lots of them every day.  When you stop and think about it a lot of them are really important to us:  sales number, profit number, our “nut”, minimum production requirement number, etc.

With all those numbers to consider what is the most important number?

It’s the loss ratio with each of your carriers.  Production numbers are nothing in comparison.  You can’t make up losses on volume right?  Total sales numbers pale in comparison if you’re losing money on every sale and so forth.

For the long term survival of an independent agency, not to mention current year profitability, nothing is more important than loss ratio.  Consider that with poor ratios you’ll get your contract cancelled, you won’t be able to convince competitive companies to give you a contract, you won’t make “profit sharing” (the profits of the typical small agency), you’ll continually have to remarket your customer’s accounts raising your costs, your retention rates will suffer as customers are cancelled or move their business for pricing reasons, you’ll spend more time looking for new carriers than selling and on it goes.

Let’s do something about this!  Let’s manage our loss ratios.  Here are 10 quick, easy, practical and essential ways to do this:

  1. Account round.  That’s right the more lines of business the lower the claims ratio on an account basis.  Plus you make more commission!
  2. Review all open claims quarterly and ask for lower reserves when justified.
  3. Write the business where it belongs.  Don’t force business into a carrier just to get the lowest price.  This always backfires.
  4. Don’t write the business with anyone for the lowest price when you don’t have to.  Protect your companies from themselves!  Give customers the best value not the cheapest price and your loss ratios will improve.
  5. Move customers to markets that don’t pay profit sharing, or you have low volumes with when they file lots of claims.  Who says you have to slit your own throat just to give someone who doesn’t deserve it the lowest price.
  6. Advise customers to “right size” their deductibles based on their claims history and ability to withstand loss.  Everyone doesn’t need the same deductible!
  7. Counsel customers about claims filing.  Sometimes they should think about it carefully before just filing a claim.
  8. Fire customers who are poor risks.  Think about this.  If you write a guaranteed loser you will make some commission.  Maybe a few hundred dollars.  But you may destroy thousands of dollars in profit sharing.  Manage your own business risk.
  9. Be proactive when losses happen.  Believe it not it’s cheaper to get claims settled quickly when they do happen than to let them linger.
  10. Set standards for where business goes and then ENFORCE IT with your  staff.  The excuse that its “the CSR’s” that are the problem is BS.  Manage your business.
  11. Here’s a bonus.  Know what your stop loss options are and use them!  The thing we as agents have to manage is our Ex Cat loss ratio and this is an important tool.

Here’s to a “profitable” 2015 for you and your carriers!



More Impacts of Moore’s Law on Small Agencies


As I continue to think about the radical, transformative impact of the geometric progression of computing power that Moore’s Law posits I am increasingly excited about the future!

Here are some more things I think are likely to happen in the next 5 to 10 years as a result of relentless increases in computing power and the profound change it will usher in:

– It is very easy to know a lot of things today.  But it will be a simple matter to know everything soon.  Access to information is increasing dramatically.  So, soon you will be able to determine, at a household level, which insurance company offers the best coverage and price.  You won’t be targeting zip codes you’ll be targeting people.  And you’ll know all about them.  Privacy is already dead.  The ability to mine the data is increasing at exponential speed.  So, the question is how do you compete with others with the same information.

– Relationships will be more valuable than ever before.  When everyone can know everything the key will be translating that knowledge into relationship.  Technology will make this much simpler.  Customer Relationship Management systems of today are analogous to walking compared to flying jets of tomorrow.  How you apply insight will be the critical factor.  Since the cost of servicing clients will also plummet with the rise of computerized robotic and very robust data systems, agent’s resources can be devoted to developing the relationship.  Cost for this will also plummet which is good because so will commissions.

– Insurance companies will allow virtually anyone to sell for them.  The old days of minimums will disappear as carrier’s costs to service agents drops.  Carriers will also be able to price much more accurately at the individual risk level as they develop better means of mining the data that already exists, and the data that will become available.  The challenge for agents will be to match risks with carriers in sufficient quantity to maximize income as well as to “know” the capabilities of hundreds of carriers instead of the handful agents deal with today.

There is a lot more than what I have listed in the last three blog posts.  Some of the changes, like the ones I have described, are obvious.  Many are not.  The key to survival, and prosperity, of agents in the future is to stay on top of all of this and adopt changes early.  When you’re busy running a business every day this is difficult and so I believe that the agents that band together to pool knowledge resources will have an edge on everyone else.  That is what OAA is all about…


OMG! Another Meeting…

How many boring meetings have you sat through in your life?  I’ve endured a bunch!

In general I have found that “staff” or “team” meetings are boring!  Probably the ones I’ve led have been the worst…

Lately, I’ve been thinking about why meetings are so awful.  I don’t think I know all the reasons but here are some that I’ve come up with:

–     They discuss things everyone already knows or should know

–     Time is spent on things that aren’t relevant to everyone in the meeting

–     There is no agenda

–          The emotional result of the meeting is not intentional

Now, I hate to be negative so I apologize for that list but I think to improve something we need to diagnose the problem and that usually means a critique.  In this case let’s make it constructive!

So, here are my “rules” for great meetings:

1.  There must be an agenda!  It doesn’t have to be written but everyone in the meeting should know what will be discussed.  Then they can come prepared!  And they will know when it’s over!  And the meeting can stay on track and accomplish its purpose without wasting time, emotional energy or anything else!

2.  The meeting must only have content that is relevant to everyone in the room.  If something to be discussed isn’t relevant to everyone, then it is BORING to them.  Also, they feel left out which is a terrible thing to do to anyone.  So, if you’re having a general company, staff or team meeting be sure the topics are relevant to all.  Otherwise you need a smaller meeting.

3.  Is there anything worse than discussing things everyone already knows about?  BORING!!  Spend time in meetings sharing things that are new!  Sometimes this is hard because you don’t have anything new, right?  Well then, why have the meeting?  Just because it’s on the calendar?  Give me a break…

4.  People are motivated by emotion not information.  Information can create emotion but motivation comes from emotion not information.  Whew!  My point is what emotion do you want coming out of the meeting?  Excitement? Fear?  Boredom?  Commitment? Celebration? Plan the meeting to accomplish that purpose.

We have a monthly “team” meeting in our company.  It’s the only time every person is in the room.  We are trying to work on these ideas to make the meeting better, more productive, more enjoyable.  So, with that in mind here is my last “rule”

5.  Everyone participates!  Why be in a game where you don’t get to play?  This is not easy but find a way to allow everyone to play.  Then there is buy in, enthusiasm, interest and hopefully no boredom.

In our company we’re getting better and better.  Last month several people thought the meeting felt like a pep rally!  Some said it was the best meeting ever!  I think the result was, at least in part, by following these 5 “rules”.  I don’t generally like meetings for the reasons I’ve mentioned but I loved being a part of the last one!  I can’t wait for the next one to see if we can do it again.  Try it yourself!  Let me know if you have other ideas for how to make meetings better.


To Be Successful in Business You Must Be Willing to Risk Everything

There are two American dreams which dominate our economic life.  The first is to own a home and the second is to own a business.  Probably not everyone dreams of the second in the way they do of the first but many do.

Among the issues to think very carefully about before launching your own enterprise though is your tolerance for, and capacity for, risk.

Let’s discuss capacity for risk first.  But before that let’s consider the sobering fact that 64% of all service businesses (insurance agencies are in this category) do not survive beyond five years.

Capacity for risk simply means “how much money have you got”.  In other words how much can you afford to lose?  One of the principal reasons businesses fail is that they are undercapitalized.  Under capitalization combined with poor planning capabilities of many new business owners creates a lot of risk.  Back to capacity; if you have not saved up enough money to fund the needs of your business long enough for it to become self-financing AND you haven’t saved up enough money to live on until breakeven or better you have no business starting a business.

Having said that I recognize that many people start successful businesses with far less money in the bank than that!  I, for one, have done it several times!

I have done it, and I have been successful at it, because I have a very high tolerance for risk.  I was willing to lose what I’d accumulated in order to achieve a dream.  And I was willing to do whatever it took (that was legal, ethical and moral of course) to make my dreams a reality.  That included taking on debt, reducing my standard of living, working night and day and investing every nickel I had in the business.  These are serious risks wherever you start from.

I have known many people who wanted to be business owners who could not pass this bar.  In some cases they thought they could but when faced with the reality of loss just couldn’t do it.  These are the people who want to buy a business, or buy into one, who never think the price is fair or reasonable.  These are the people who want to hold something back in case the “investment” doesn’t work out.  These are people who don’t have an adequate risk tolerance to be entrepreneurs.  Unfortunately, many become business owners without understanding this.  Please don’t make this mistake.


Success in Business Comes from Never Giving Up

Hard work, long hours and vision as I have pointed out are required to be successful in building any business including an insurance agency.  Along the way to success though almost always comes adversity.

Adversity in business takes many forms including a poor economy, unreliable vendors, intense unrelenting competition, dishonest employees, lack of capital and credit, self-doubt and a myriad of other things.  The successful entrepreneur is always looking over his shoulder because he has learned through bitter experience that the bed of roses that is success is lined with thorns.

The question always is how will the business person respond to the adversity?

An employee can change jobs but the owner must persevere.   To become, and then remain, successful means never quitting.  It means never backing down from the vision.  It means that although one must listen and consider good advice one needs to always be self-reliant and willing to make the decisions regardless of the cost.

Richard Nixon said “A man is not finished when he is defeated.  He is finished when he quits”.  There are many struggles on the path to success and many dark and lonely days.  This comes with the territory and should be expected by anyone who decides to embark on the journey of building a business.

The reward does come from staying the course no matter how difficult.  Nixon again “Only if you have been in the deepest valley, can you ever know how magnificent it is to be on the highest mountain”.

Do you have the guts to try and never quit?  Then build a business!