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captureChris Burand is an active consultant in the independent insurance industry specializing in financial analysis, sales, and marketing.  Chris writes a well-respected column in the “Insurance Journal,” and I find his writing to be entertaining, informative and thought provoking.  I frequently find myself quoting him to agents, or groups of agents, with whom I speak and work.

In a recent column, Chris has written one of the best defenses as well as criticisms of independent insurance agents!  Without attempting to summarize his writing here, I would just like to suggest that you read it.  If you’re not a subscriber, simply go to www.insurancejournal.com and select the April 3, 2017 issue.

OAA hosted the first Circle of Excellence of the year at our new facility!  OAA has a new training room at 1220 N. Robinson Ave in downtown OKC.  We had lunch with our Elite OKC members and discussed Sales Forecasting.  Each member received a sales forecasting tool developed by Tony Caldwell.  We will be hosting the OKC Masters group on 3/15 and we look forward to another informative meeting.  Thank you to all our Circle of Excellence members for your  participation!logocoeteacher12

hayEver since the election in November, I’ve been talking to business people about the results.  Regardless of party affiliation or candidate preference in the election, one thing has been coming through loudly and clearly: excitement!

Like the coming of spring when the clouds depart and the sun shines, business people seem to be full of enthusiasm for the future in ways I haven’t heard in a long time.  Almost every business owner I have spoken to is thinking about how they plan to increase investment to take advantage of what they see as an improved climate for business.

Obviously, we insurance agency owners are probably also excited by and large.  I know that I am.  As I’ve thought about what I hear about lower taxes, perhaps the end of the death tax, less regulation, etc., I’ve also thought about how we as agents can leverage this optimism to grow our businesses.  Here are just a few ideas:

Now is the time to review with business customers their plans for increased sales, payrolls, and property values so we can make policy adjustments early.  This helps our customers plan better, may increase premiums and commissions, but certainly cements the idea that we are valuable advisors.

  • Optimism will lead business owners to purchase coverage, like higher auto limits, excess liability policies, and increased employee benefits that they may have dropped in recent years.
  • For consumers, whose measured confidence is increasing, we need to be doing coverage reviews to make sure our policies are keeping up with their spending.
  • For personal lines customers, now is the time to suggest an umbrella policy, additional life insurance, or other products that they may have been putting off until now.

It also appears that increased expensing allowances and reduced taxes are going to set up an opportunity for business owners (like you!) to make additional investments in your business with new technology or other needed items.  This news coming at Profit Sharing time means that you have the means and the motivation to consider how to invest in your business to grow even faster this year.

What do you think?  How can you leverage the new political climate and the optimism it is engendering to grow your business?

prioritizeThanksgiving has passed us, so it must be planning season!  Planning season in the insurance agency business involves not only thinking about where you are relative to your short and long range business goals but also receiving a lot of input and sometimes pressure from others.

Most successful business owners are pretty focused people.  They understand that resources like time, capital, and people are limited.  Regardless of their relative level of optimism (an absolute requirement for success), they understand that they can’t do everything or at least not all at once.

Another hallmark of successful people, as compared to those who are not, is that they have an abundance of opportunity.  They not only see lots of different opportunities, but the more successful they become, the more realistic actual opportunities are for them.  So, as they go about building a bigger and bigger future, choosing which opportunities to pursue becomes an ever more important task.

During planning season as we face the next year and the demands of many others who want us to focus on their priorities (opportunities!), choosing those things we will concentrate our efforts on becomes a critical decision.  Last week, I was having lunch with a successful entrepreneur in a completely unrelated business to mine.  He asked me a wonderful and powerful question during our meal “what are the best opportunities in front of you right now?”

That question really focuses the mind.

I was able to give him an immediate answer and listed for him four priorities for me and my team.  We have more than four opportunities in front of us, so I was interested in my own immediate reaction.  You see, like most entrepreneurs, I am constantly seeing opportunity and weighing my capabilities and interests.

I answered my friend with four things and a quick note as to why they were important and valuable for our business.  The question really helped me to focus, prioritize, and verbalize what I want to capitalize on out of the many choices.  It happened in an instant and will now guide us as we plan for the next year or two.

What about you?   What are the best opportunities in front of you right now?  Those are the ones to focus your planning around!

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I just read the most complete, comprehensive and entertaining warranty I’ve ever seen.  I invite you to take a look at Saddleback Leather’s (whose slogan is “They’ll Fight Over it When You’re Dead”) warranty at www.saddlebackleather.com.

Saddleback offers a 100-year warranty, and the owner offers to have the customer’s descendant’s contact him if they have a problem!  Powerful.  Direct.  No excuses.  Remarkable.

There are thousands of leather goods companies in the world selling products.  Saddleback’s goods look nice, but let’s face it:  leather goods are a commodity.  Really, when you look at their website, they are selling some version of the stuff everyone sells.  But they are selling it for a premium price, and they make no excuses for that.

What Saddleback Leather is really selling is themselves, not leather goods.  In this regard, they aren’t really any different than a typical “designer” product like Louis Vuitton for example.  Vuitton makes nice products, but what they are really selling is their name.  Same for Saddleback.

The difference is that Saddleback doesn’t have the international reputation or the marketing budget that Vuitton does to drive up the value of the product.  All they have is quality and confidence.

The things I really like about Saddleback’s warranty is their confidence in their product’s quality and their willingness to stand behind them.

Something else I like is that they tell the truth to the customer about what they won’t do.  If you get fat, they won’t take their belt back. If you damage the product, they won’t give you a new one.  They make it clear that they expect their customers to have integrity, too.  In essence, they tell the world the kind of people they want to do business with.

This is a compliment to prospective customers and also a power selling technique in itself.

Contrast this to the typical insurance agency who guarantees essentially nothing.  The agency makes a lot of promises but backs those promises with nothing but hot air.  How powerful would it be if an insurance agency offered a money back guarantee or something similarly different, unique, power, direct and without excuses?

What about your agency?  Do you offer a warranty of performance of any kind?  What would happen to your sales and your retention if you did?  Take a look at Saddleback for inspiration!

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I sometimes think we get so busy just trying to get the work done in our agencies that we forget why we took the risk to start our own business in the first place. Most of us started our businesses so we could control our own destiny, and make more money. Remember?

I do too. But sometimes we forget.

Recently, I spoke to one of our member agents and asked her why she was placing $200,000 of business with an Excess and Surplus Lines broker instead of writing that business through a Strategic Partner Carrier of OAA. She told me it was because she liked the broker and didn’t want to offend her.

I don’t like offending people either, but like what Kevin O’Leary, the hyper-successful “Mr. Wonderful” from the television reality series, Shark Tank, always says: “It’s the money that matters in business!” Let’s look at the financial consequences of this agent’s decision to ignore the money:

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Our agent partner was forgoing $32,000 in additional compensation (260%!) to not offend someone? Incredible! But, that’s not all. I asked the agent “would moving this business require any more work?” The answer was no. So, where does the revenue go? To the bottom line of course.

Agencies are valued on a multiple of profit. Eight times profit is the going rate. So, this additional $32,000 in income meant the agency value would increase by $256,000! That means the total value of moving the business, to the agency owner in business to make money would be $288,000. That is a 1,440% increase in economic benefit to the agency owner from one simple change.

We are all in business to make money. Yes, we are busy. But are we busy doing the right things? The primary responsibility of a business owner is to maximize the money the business makes. Is there a chance you have some profit and income leaks in your business?

*I know this level of bonus seems incredible, but it is fairly typical for OAA members. If you’d like to learn more give me call or send me an email.

I want to talk to you today about a way to drive growth to your agency, by creating retention of your existing business. I have a few ideas to share with you.

The first thing you can to do to make sure you “lock the door” to make sure customers don’t leave is to develop a welcome package when they first arrive. This is a great way to orient them to your agency and all the products and services you offer. Let customers know how you will protect them and their families. This is the first thing you can do to make sure you can keep customers forever.

My next suggestion is to communicate 8-10 times a year with every customer, in at least 2-3 different ways. Tell them about things they care about. Remind them it is about to freeze, remind them of other ways you can help protect their families, etc.

Third, be early with renewals. Provide the renewal 60 to 90 days ahead of time and be sure to give the customer options. Show them you are working overtime to take care of their needs.

Lastly, be grateful. People love to be appreciated and needed. Be sure to say thank you.

These four suggestions will help drive tremendous growth in your agency by “locking the door” and keeping customers forever.

About 10 years ago I attended Dynamics of Sales Management, which is a program put on by the folks who have the CIC and CISR programs.  It was excellent. Not just for the class content but mostly for the opportunity to visit about managing producers with a bunch of successful insurance agency owners. 

One of the topics we addressed was the real cost of getting an insurance producer from date of hire to validation.  Validation means the day on which the producer is finally earning his keep.  It is not the date on which he has paid back the agency’s investment in him.  That comes much later.   

This discussion related to commercial lines producers in the central U.S. so your mileage may vary.  But, at that time, the consensus was that it takes three years and $250,000 to bring a producer to validation.  On average.  Certainly, if your base salary expense, your service expense, marketing costs, etc. are lower the cost may be less.  But, let me remind you that we’ve had a lot of inflation in 10 years so it could be worse.  And remember, not all producers validate!

Ok, so we’re making this expensive investment.  What are our expectations?  

We could manage based on a certain amount of production each year.  Ultimately that is critically important.  But I’ll argue that initially we need to manage on activity.  

The reason for this is simple.  We know that certain activities lead to sales.  We know this is just a numbers game (and we know our numbers right?).  We know the right activities, in the right amounts, given our average sale size will lead to predictable results.

So, working backwards determine the annual production requirements.  MarshBerry, the insurance agency consulting firm, recommends 25% of annual base salary at 6 months, 50% at 9 months, 75% at 12 and 100% at 15.   These numbers make sense to me.

Now, based on closing ratios and average sale size how many initial and closing appointments does the producer need?  How many prospecting calls must he make to achieve them?  Now, we have numbers we can manage with.

Using a simple activity sheet we can see week by week, month by month and quarter by quarter if the activity is going to generate the required sales!  

If the producer is doing the activity and not getting the sales you need to evaluate:  The market – is he in the right one?  Account size – is the producer closing business but the size is too small?  Do you have the right producer?

The day you decide it’s the producer is the day to let him go.  How long should that take?  I don’t know.  Three months at a minimum.  Fifteen at a maximum.  But, the first day you know it’s not going to work is the day to fold ‘em. 

In my last post I ran through the real costs of hiring an “employee” known as a producer.  Some of you, I am sure, are arguing with me that I have overstated the expense.

Maybe.

But I don’t think so.  I’ve been running an agency for a long time.  We believe in being profitable.  We are building an asset.  We pay attention to agency operations and agency value.  We talk to other agency owners.  We benchmark, every quarter, our results against the Growth and Performance Study and the Best Practices results (see my earlier blog post on this topic).

I am very confident I know what I’m talking about with respect to the numbers.

So, let’s talk about “Producer” compensation.  Clearly, we have about 30% to work with.  I will give a little on this subject in that OAA members really can count on getting bonus income every year and our commissions are higher than the typical agency.  So, if you want, you could use 35%.  Those of you who aren’t OAA agencies should do so only with extreme caution.

Now, how do we pay? 

If you read much on this subject you will come to the wisdom that it is better to pay more for new production than renewal.  This should be obvious.  If you’re hiring someone to sell pay for that.  Pay someone else for service or pay the salesman less for service.  If you don’t you will find that the “producer” plateaus in 3 to 5 years.  Bank on it. 

If you’re selling personal lines you can’t pay as much as for commercial lines because the service transactions are higher and cost more.  25% is usually the limit for a personal lines producer.  While we’re it what does a PL producer do on renewal?  Anything?  Or is that all done by a CSR?  If it is, as it is in my agency, don’t pay renewal commissions at all on PL renewals?

Finally, do we pay a salary while the producer is building the commission volume?  Only if you want a quality employee.  Think about it?  What kind of employee do you get when you make them take all the risk by working on straight commission and you’re paying a rate, that makes long term sense, but makes it hard for someone to build a living fast?  That’s right.  You get the bottom of the barrel.

And you get lots of turnover and lots of headaches.  Does this make sense?  Or would it be better to hire another support person so you can spend more time selling.  You already know you’re good at it right?

Still looking for an insurance producer?  Ok hard case!  Next time we’ll talk about managing this prodigy!

If you’ve been reading my blog you already know I think this is a bad idea for most small agencies.  Insurance producers take a lot more management time, cost a lot more money than most realize, and actually cause the agency to grow slower in most cases than if the agency owner focused on production.

But, you’re going to ignore my advice aren’t you?

Well, then, let’s at least do a few things right!  First, the producer MUST be an employee!  That’s right he cannot be an independent contractor.  Why?  Because it’s against the law. In the insurance agency business you simply cannot meet the Employment Security Commission’s, Worker’s Compensation law’s and Federal Wage and Hour law’s rules for independent contractors.

I was an expert on this in the Oklahoma Legislature.  I tried for years to develop a work around.  It’s not possible.  So, you can either break the law and wait until you get caught, with very expensive consequences, or do it right from the beginning.   

So, as an employee make sure you understand what the producer is costing you in non direct compensation expenses.  That’s 7.65% for FICA and 3% for Unemployment Insurance.  Maybe you can avoid health insurance, vacation pay and other things but these you can’t.  Plus you need to factor in additional overhead costs like rent, E&O, telephone, etc. that will be increased by this addition.  You will have expenses for additional CSR and clerical support.  

You may think you will avoid all these costs.  And you may in the beginning avoid some of them.  But, eventually, they will all be necessary and you need to anticipate them from the beginning.  Otherwise, you will be tempted to overpay this bloodsucker, I mean producer, you want to hire!  

So, if you want a nice round number to work with use 50% for total overhead costs, not including Commission Expense and Profits.

Speaking of profits it is wise to always plan to make one!  So, what do you get out of this Mr. Agency Owner?  

Let’s assume the average agency makes a 10% profit.  Do you really want to be average?  Most successful agencies, that are professionally run, want to do better than that.  They will plan for about 20%.  The plan (budget) does not include profit sharing or bonuses. You can’t count on that. So treat it as just what it is. A bonus. 

So, now, where are we?  We are hiring a new employee and to pay the agency (profit) and cover overhead we need 70% of the revenue.

How much can we afford to pay the producer?