Stop believing these timeworn ideas and avoid costly mistakes

By: Roger Sitkins

If you hear the same things often enough, repetition becomes reality. And through the years in our industry, certain ideas have been repeated so often that they’ve become widely accepted as the truth when, in fact, they’re nothing more than myths. As a result, many people in the agency business have made some very serious mistakes caused by believing in these myths. Here’s my list of the top seven myths to avoid.

 Myth #1: Every Account is a Great Account

Most think that every account is a great account, which simply is not true. This is especially true with newer producers, who tend to confuse activity with results. In their minds, anyone who can fog a mirror and pay in U.S. dollars is a great account. These are normally order-taking accounts. Typically, the prospect will call for an insurance quote after seeing an ad or will click to receive a “Free Quote” through the agency’s website.

So the producer follows up and provides a quotation and winds up taking an order on about 2 out of 10 opportunities. They sell just one policy that the prospect had requested, with the plan to round them out someday. The problem is, that day never comes. If it did, we’d certainly have a smaller percentage of single-policy accounts. But the reality is that more than 50% of personal lines and small commercial lines are single-policy accounts. You wind up with low revenue per customer and lower retention. No wonder the average agency loses money on 80% of its customers.

I’m a firm believer that you have to know your numbers. You may recall my comments in past articles about “Knowing versus Guessing.” It’s important to complete a profit-center analysis on your various types of clients. For example, if all you had were personal lines, what would be your income and expenses? Most agencies—not all, but most—will lose money on the vast majority of their customers because they don’t even take a look at it; they don’t “know.”

Myth #2: Hire People with Insurance Experience

When most agencies have an opening, because they say they don’t have time to train or any New Employee On-Boarding process, they look to hire people from inside our industry. Typically, they want service people who are already licensed and producers with experience at another agency. But when you go that route, in most cases, all you’re really doing is hiring a bunch of baggage.

If someone is going to move to your agency, you should be questioning why. Assuming they’re not working for a terrible agency, you have to wonder why they’re leaving their current employer if they’re really that good.

I remember one of the early interviews I conducted as an agency owner in Michigan. The prospective employee was working for a reputable competitor in town and had applied for a personal lines CSR position with us. Naturally, I asked her why she wanted to change jobs. Her reply: “If I can make a few bucks more per hour, that would be great. I’ll move.” Wrong answer! What happens next year when someone else offers her a few dollars an hour more?

I mentioned above the importance of knowing versus guessing your numbers. It’s equally important to know your people, both existing and future employees.

Hire Attitude and Aptitude. I believe in hiring attitude and aptitude first. I also believe in hiring to match your overall agency culture. If we can hire great people and train them, we’re better off. Okay, I realize that it’s not that easy, but you can always teach insurance.

With producers, look for sales talent first. Again, you can always teach them insurance. In fact, at one point, everyone reading this article knew nothing about insurance. You’re not born with innate knowledge of the insurance business—you have to learn it! My two grandsons will attest to that—once they learn how to talk (right now they’re only two weeks old). And right now they know nothing about insurance. And at some point in their life, even the most successful producers in the industry didn’t either.

Similarly, seek out service people with the qualities that can’t be taught. Look for customer service people with empathy, those who truly enjoy helping people and have a “customer-first” attitude. Don’t hire someone who’s rude just because he or she knows insurance.

Get Profiling Assistance. Work with a profiling firm such as Omnia. Profiles can help you take a closer look at people so that you’ll know what you’re getting. What’s interesting about this service is that they ask nothing about insurance, yet they can tell you very clearly what it takes to be successful in this business. Their profiles tell you how the candidates’ characteristics match up against the traits needed to be successful at a specific job. It’s really remarkable how accurate profiles can be, so if you are working with a reputable profiler, listen to them. If they advise you not to hire a certain candidate, believe them. No matter how much you like a prospective employee, it’s never a good idea to hire against the profiler’s recommendation.

Myth #3: You Can’t Have Too Many Insurance Carriers

Are you proud that your agency represents so many companies? If so, you’re not alone. I’m amazed at the number of carriers the average agency has. But what’s even more amazing is when they figure out how many they have. In reviewing their “insurance company accounts payable,” most agencies are shocked to see how many carriers are listed. Sometimes, when looking at all companies and E&S brokers, it’s in excess of 75.

Often, agencies will take a contract with one company or one E&S lines broker for one piece of business. We always talk about the 80/20 Rule, but were you aware that it applies to your carriers also? Basically, 80% of your premium volume is written with 20% of the carriers that you represent. Take a look at your own book if you don’t believe me.

Today, more than ever, you need relationships and clout with your carriers. That way, you’re more likely to get their cooperation when you need help with a client who is high-risk or hard to place. Chances are you won’t enjoy that benefit if you’re trying to “spread the wealth.”

First, you’ve got to know your numbers. You may not agree with the 80/20 Rule, but find out if it applies to you. Just look at all the carriers that make up the bottom 80% and ask yourself: “Why do we have this carrier? Who else could take this premium volume? Who could we take this premium volume to, continue to do a great job for the client but, more important, be negotiating better deals because we have the clout to do so,” etc. Currently, there are a few major companies that allow the business that you place with E&S facilities to count towards your premium volume requirements on your contingency income contract because they own the E&S facilities also.

Myth #4: 90% Retention is Great

Everyone thinks this is such a great business because 90% of your customers stay with you. As wonderful as that sounds, here’s another area where you have to know your numbers. For example, let’s say that you have 1,000 customers and a 90% retention. Here’s how that would play out over a five-year period.

• Year 1: 1,000 Clients
• Year 2: 900 Clients
• Year 3: 810 Clients
• Year 4: 730 Clients
• Year 5: 660 Clients

Basically, in four renewal cycles, you’ve lost one-third of your business! And when you look at it that way, if you’re not growing by 33% every four years, you’re going backwards. So the fact is, 90% retention is terrible.

There are several keys to retaining clients, starting with taking a hard look at writing full-time clients only (for the 10 millionth time). Also, you should have formal relationship management programs in place for your A and B customers and do stewardship reports for them, as well.

Myth #5: We Can’t Compete with GEICO and Progressive

GEICO and Progressive each spend $1 billion a year on advertising. When was the last time you watched TV and didn’t see a gecko or Flo?

GEICO’s gimmick has been that customers who spend 15 minutes can save 15% on their insurance. Now Esurance is saying that 15 minutes is too long. They claim they can save you just as much on your insurance in half the time—just 7.5 minutes. You really can’t compete with that (and I hope that you don’t want to) because it’s strictly a commodity-based business. However, you can compete—and you will win—if you decide that you want a relationship-based business and everybody is a VIP.

A couple of questions to ponder: Have you ever been the lowest price and not won the account? Have you ever been a higher price on a renewal but you still kept the account? That should tell you that relationships are important, and it’s not always about price.

Granted, some buyers care only about price. But again, those are the commodity buyers that will leave you for $100 a year. Since you can’t build a career or an agency around them, let them go—you’re not making money on them anyway.

Myth #6: You Can’t Earn a 25% Operating Profit

People are constantly refuting the idea that it’s possible to earn a 25% operating profit, but the truth is, yes you can. How? (And here comes the big trick.) You simply can’t spend more than 75%! Seriously, I could earn a 25% operating profit if I truly managed to a financial model designed with that in mind. In that case, the bottom line would become the top line and you would live by the 25-50-25 Financial Model (a 25% operating profit; 50% service and administrative expenses, and 25% on sales expenses).

What’s your financial model? At some point, you have to draw a line in the sand and commit to earning a 25% profit. Make it a defining moment.

Myth #7: A Website and Social Media Will Solve All of Our Problems

I can’t believe how many agencies will spend $50,000 on a website and expect the public to knock their doors down. Apparently, their theory is “Build it and they will come.” But after seeing some of these sites, I wonder how much time (if any) the agency owners actually spend on them. Some of the sites are atrocious. What’s worse is the owners are often oblivious to what’s on them. They don’t visit them and don’t realize that their website is their brand, that they need to protect. Instead, they’re using their website for automated practice quoting: “Click Here for a No-Obligation, Free Quote.”

While that may seem like a great way to get leads, those leads are only as good as the follow-up. Usually, agencies respond to automated inquiries either with an automated online reply or a phone call or, in rare cases, both. But more often than not, they do none of the above, which understandably doesn’t sit well with most prospective customers. After all, if they can’t follow up there, I’d hate to see how they service their accounts.

Social media is another arena to approach with caution. Be especially careful about what you and your employees post on Facebook. If you don’t want your customers to see it, don’t post it. For instance, if you’re asking customers to “like” your page, don’t be posting wild and crazy party pictures on it. And speaking of pictures, if you’re part of an online professional networking group such as LinkedIn, make sure that your profile photo looks professional. I’m often invited to connect with other professionals and am frequently surprised by the poor quality and casual, “after-hours” look of some of the photos. Do you really think that a photo of you partying on a boat projects the appropriate professional image?

The Bottom Line

Obviously, myths abound in our business and these are just a handful of the most prevalent. It’s your job to avoid them. Don’t make them the future of your agency. Prove them wrong. Or you can ignore what you’ve just read, continue buying into them and watch what happens. It’s your choice.

The author

Roger Sitkins is founder and chairman of Sitkins International, a private client group and membership program for some of the top independent insurance agencies and brokerages in the United States, Canada, and Latin America. Members participate in training, advising and networking opportunities focused around innovation, sales, growth, profitability and value. Sitkins International is inventing the future of the independent insurance system by providing intellectual property that empowers agents and brokers to become the innovators.

© The Rough Notes Company. Reprinted with permission.