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New Strategies, Directions for Agency Survival

Featuring Al Diamond, President, Agency Consulting Group, Inc.


Posted on 06 Oct 09

This week we are speaking with Al Diamond, president of Agency Consulting Group, a consulting firm dedicated to the needs of independent agents throughout the U.S. for more than two decades. Al is a 42-plus-year veteran of the insurance industry with agency, stock company and direct writing experience. He has been deeply involved in all facets of insurance agency operations including mergers, acquisitions and divestitures, perpetuation and strategic planning, organizational development, compensation and salary administration programs, administrative and financial operations and marketing and automation planning, ESOP much more.

We will be conducting a series of interviews with Al over the course of the next couple of months, beginning in this issue with an overview of agency survival strategies. We will then go into further detail about these strategies and more in future issues, including: shifting from a quote/price model to relationship selling; enhancing efficiencies and profit by outsourcing automation responsibilities; converting producers to a tiered compensation program; providing incentive compensation options; and looking at an organizational option, the Virtual Insurance Agency (VIA), that will permit small- and medium-sized agencies to continue to operate in their own names while having all of the assets and opportunities of large agents.

Annie George (AG): Let’s begin with a discussion of how the current economy and the industry market have affected agencies?

Al Diamond (AD): “A confluence of factors -- the industry’s soft market and poor economic times for consumers -- is affecting agencies throughout the country. These factors are combining to put a great deal of downward pressure on agencies. The revenue losses they’re experiencing today are not what they’ve traditionally experienced with people going to other agencies for price or product. What’s happening now is that people are going out of business, or they can’t afford insurance at all, or would be going bankrupt if they tried to pay for a comprehensive insurance program. What’s more, with soft market conditions, you have insurance companies cutting prices to get business and market share, further stoking competition and reducing revenue for agencies. You also have direct writers and financial institutions looking to breach the market any way they can.

“Agencies unfortunately are suffering the brunt of all of this, and they have to do more and more servicing for less commission dollars for the same number of customers.”

AG: How do they respond to this?

AD: “Agencies need to start selling insurance differently. They have to market, which was previously not done to obtain additional customers. There are customers available to agencies, everyone is suffering from the same problems, and everyone wants to control costs. If you can see these potential customers, you can help them with their insurance needs. It’s a matter of getting into seeing more customers and this requires marketing efforts."

“The second part of the equation is to shift from a price approach, which became prevalent over the last 20 to 30 years where we do nothing but quote insurance policies, to relationship selling."

“Thirty years ago when we conducted our first survey, we found that agencies were converting upwards of 40-50% of quotes, now they are converting less than eight percent of quotes. In essence, agencies are getting a lot of practice quoting price, with clients still remaining with their current agent, asking the broker to match the competitor’s price, or shopping the marketplace for insurance as a commodity product. In personal lines, it is primarily a commodity product; in commercial lines, you still have the opportunity to tailor the insurance needs to a customer and that’s what needs to be done.“

Al says to survive and experience success agencies need to evolve from quoting price in your operation to adapting a consultative model. This involves working with fewer prospects and doing so more intensively, which will result in writing a higher percentage of those prospects.

“In a nutshell, the relationship selling, the consultative model, is much different than what agencies are used to,” says Al. “Those of us who have been in the business for many years know that our predecessors used this model and today most successful agencies in the country are relationship selling. When you approach a prospect, don’t approach him/her to sell. Evaluate his/her needs and fulfill those needs. Whether this results in a sale or not isn’t as important as establishing a long-term relationship where you can eventually convert a prospect into a client for whom you provide all of his/her insurance products."

“In order to implement relationship selling, producers need to be trained and you need to work much closer with carriers than you have in recent years,” says Al.

AG: You have discussed the concept of marketing to other agents, to begin to set up the foundation for a future, for perpetuating the agency.

AD: “In addition to moving toward a relationship-selling model, agencies need to adopt a marketing approach to attract other agencies. This is for insurance agents who are not old enough to be looking at retirement. They have about 10 or 20 years to go. They know they need to grow in order to survive. Up until a few years ago, the rule of thumb was that once you reached $1 million in revenue (commission), you had enough to survive as an agency; now that has gone up to $1.5 to $2 million in revenue. In order to get there, you need to either sponsor internal growth one client at a time, or you accomplish it by melding books of business together, acquiring new producers, acquiring agencies, merging agencies or associating in more creative ways.

“The marketing program for insurance agencies is very much like targeting clients. You identify your agents within your strike zone. You visit them frequently, quarterly is best, you become friends with the ones you have a good chance of relating to. These become part of your prospect base. What’s more, if you are with them offering to help them any way you can to keep their agencies strong, you will find that they will talk to you when the times arises about doing something together. It’s your opportunity then to discuss an acquisition, merger, or a form of association.

“Many agencies have merged in the last two to three years with the objective of lowering costs and sharing resources, capitalizing on economies of scale, as it is the only way they can stay in business. This is only accomplished through the establishment of relationships, friendships with other agents, when they get to know that you are in the marketplace.“

AG: You developed the Virtual Insurance Agency (VIA) concept. What is this?

AD: “We have had mergers, acquisitions, producers shifting from one agency to another with non-competes, for years. In the last 20-30 years agencies started clustering, most of them for marketing purposes. Now they realize that these clusters are only the first stage of association.

“About 15 years ago, we developed the concept of the VIA, which brings agencies together for total operational issues, not just marketing. Under this concept, agencies still maintain ownership integrity, run their own piece of the business in their location, but are a part of a corporation with millions of dollars of revenue and access to greater expertise in the core functions of insurance. They are dependent, but each agent makes his/her money based on operating his/her own profit center. The difference between a cluster and a VIA is that the virtual model is a mega merger. We have established a VIA for two to 140 agencies. The economies of scale are phenomenal with a merger of this kind. You run your own profit center but take advantage of the assets of a major insurance business. This provides the agency with a much better computer system, access to better financial advice and resources such as loss control, risk management, claims handling – expertise and services that a small agent may not have. The VIA is ideal for some agencies.

“This approach shifts from an agency stand-alone to an Asset Protection model. With a marketing program in place you are putting yourself in front of agencies to set up associations that make sense for you, with the far spectrum including a merger, acquisition or mega merger of a Virtual Insurance Agency.

“If you don’t push forward, you’re rolling back. You can’t stand still… Agencies that find themselves losing a few percentage points of revenue each year may not consider it a large amount in one year, but over a 10-year period, you can have a firm that is 20% smaller than previously.”

Overall, Al recommends changing the way your agency operates, moving away from a quote model toward a relationship model; getting into marketing and looking at other agents to do something together for mutual benefit. Look for acquisitions and consider something that will bring you together whether it is a merger, acquisition or a VIA to ensure you have a future to perpetuate the agency 10 to 15 years from now.

We will continue our discussion on each of these topics in future issues. In the meantime, if you would like additional information on relationship selling, Asset Protection, and the Virtual Insurance Agency concept, please feel free to call Al at 800-779-2430 or email him at: al@agencyconsulting.com. Also you can visit: www.agencyconsulting.com.

About Al Diamond

Al has been president of the American Association of Insurance Management Consultants (AAIMCO) and belongs to the American Arbitration Association. He was a charter member of the Quality Insurance Congress. Al also serves as an independent moderator for disputes arising from insurance agency operations, and as a facilitator for mergers, acquisitions, divestitures and internal perpetuation plans.

He is a qualified instructor for the Best Practices of Insurance Agencies programs of the Independent Insurance Agents of America. He has been named Business Skills Department Head for the Independent Insurance Agents of America’s Virtual University. Al is an identified Expert on business management issues for the AllExperts Website.

Al is the author of THE PIPELINE, a national newsletter for insurance agency principals and insurance industry executives. THE PIPELINE is distributed to agents, associations and carriers throughout the United States. As a consultant for over 32 years, Al has been a professional speaker for hundreds of agency groups.


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