I’ve written about the critical importance of cash flow, and the difference between that, and profits, before. These two things, and understanding them, are critical to the new business’s survival.

Critical to its continued growth is a healthy balance sheet! To revisit Accounting 101, the balance sheet is the other half of any business’s financial statement. Their report shows the assets of the business, its liabilities, and how much equity the business has.

Obviously, it’s important to have more assets than liabilities at all times, but there are a few other things every business owner should measure every month:

– Quick Ratio. This is the ratio of current assets to liabilities. The ratio should always be greater than one. If it isn’t insolvency on the horizon, you should be taking immediate action to collect or generate cash! Target a ratio of 1.25.

– Days of Working Capital. This is simply how much cash you have (some include short term receivables, but I don’t recommend this as you may not be able to collect when you need to) divided by your monthly overhead. In other words, without taking expense reduction measures, how long can you stay alive if you don’t receive the income you expect in any given month? Everyone has a different risk tolerance, and new businesses never have enough cash, but I recommend a minimum of 30 days. You’ll sleep better with 60 or more.

– Debt Coverage Ratio. When you apply for a loan, your banker is going to calculate this before he gives you an answer. If you want the answer to be yes, make sure you have free cash flow (not profit) for the last 12 months, and preferably 36, equal to 1.25 times the proposed debt service.

If you have Agency Bill businesses, or other receivables, I recommend 25% for 30-60 days, 35% for 60-90, and 50% for anything uncollected between 90 and 120 days. If you have receivables older than that you’re kidding yourself if you think you will ever collect. Write them off.

I find a shocking number of new businesses owner’s don’t have a balance sheet or don’t understand what it means. If that’s you, find an accountant to help you, and explain to you what you’re looking at and show you how to do these simple calculations. They will keep you safe and keep you growing!

“We choose to go to the Moon in this decade and do the other things, not because they are easy, but because they are hard; because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one we intend to win…”
– John F. Kennedy


Moonshot thinking changes the world. By setting our minds to seemingly impossible ideas – much like landing on the moon – we push ourselves to our greatest potential, break new ground, and open a wealth of opportunities for ourselves and others. We are proud to say that OAA (our team members, members, insurance company partners, incredible entrepreneur partners, and SIAA) is comprised of individuals dedicated to audacious goals – we hope you all will join us at the 2018 Success Conference and Celebration, as we reach new heights together.

Mark your calendars for May 16th, 2018, to attend one of the largest gatherings of independent agencies in the region! The conference will take place at the Embassey Suites by Hilton in Norman, OK. You will have the opportunity to sit down with representatives from Safeco, Travelers, The Hartford, Mainstreet America, Metlife, OGA, and more. We look forward to seeing you as we celebrate the success of another year, as millions and millions of dollars go to OAA members.  Stay tuned for registration details.  

This Wednesday, OAA hosted Foundation Academy IV, at OAA’s Training Center. Ten new members joined us in discussing all the ways OAA and its partner carriers, along with SIAA, will help these new agents become Agents of the Future. OAA is here to support all our members, and ensure they stay “ahead of the curve” in the insurance industry. Whether that be taking advantage of up-and-coming technologies, maintaining strong partnerships with carriers, or keeping open lines of communication between all agencies, OAA is here to develop and cultivate success for years to come.

Truly, our experience, team and influence in the industry cannot be matched by any other partner in the nation. We are so excited that these new agents chose to join OAA, and are witnesses to the enormous potential the future holds for us all, individually and as a community. We are looking forward to the next Foundation Academy!



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!

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?

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.



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.

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!



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…