Growth and agency value depend on your decision
Innovation has become somewhat of a buzzword in our industry. Everyone seems to be talking about the need to innovate and how much they want to innovate, but what most are doing about it is questionable.
In our unique approach to agency growth—The Vertical Growth Experience™—we state that there are four types of growth that the agencies and their producers experience: Negative, Flat, Horizontal and Vertical.
Even though you may have read about this in the past, let’s review them:
- Negative Growth: Getting progressively smaller each year
- Flat Growth: Working hard to stay the same. Like treading water, there’s lots of activity but very little forward movement.
- Horizontal Growth: Growth of about 10% a year, which is certainly not all that bad. However, because the expense growth tends to match the revenue growth, agency profitability is not really enhanced. Thus, the value of the agency is not really enhanced.
- Vertical Growth: Annual growth of 15% to 25% or more. If your profits are growing and your revenues are growing, your agency is worth more. Enough said.
When looking at the agencies and brokerages we work with, the “best of the best” are the ones that have embraced innovation. Being innovative is part of their DNA. That’s great, but what does it really mean?
What is innovation?
I looked up the word “innovation” and found the following dictionary definition: “the introduction of something new; the application of better solutions that meet new requirements, unarticulated needs, or existing market needs.” Synonyms include Invention, Revolution, Origination, Novelty, Modernization, Improvement and Advancement, among others. What’s the antonym of innovation? Stagnation.
As an entrepreneur, you have a choice to either innovate or stagnate!
I just returned from a sad trip to Rochester, New York, where I attended a Celebration of Life for one of my very best friends and clients, Chris McVicker, who recently passed away. Chris was Chairman/ CEO of The Flanders Group and a former Rough Notes Agency of the Year. I can’t tell you how many lessons I learned from him over the years, both while advising him and being challenged by him.
The day after his memorial service as I was leaving for the airport at 4:30 a.m., I struck up a conversation with the driver of the hotel’s shuttle van. As we were talking, he told me he used to work at Kodak, which is headquartered in Rochester. Formerly known as Eastman Kodak, the driver told me the company once employed 80,000 people in Rochester alone. Today, the number has dwindled to 3,000! Who would have dreamed that photographic film would ever face extinction, along with the cameras themselves? Why didn’t Kodak see what was happening in its industry? Why didn’t the former industry pioneer continue to innovate?
Something similar happened with travel agencies and stock brokerages. Did travel agents ever imagine the airlines would stop paying them a commission? What about stockbrokers who made a commission on every trade? Did they foresee a day when their clients would be handling many of their own trades online?
Obviously, the best companies adapted by redirecting their skills in ways that would be useful to the consumer. For instance, when personal computing allowed customers to book airline tickets and hotel rooms directly, the most nimble agents and agencies quickly shifted focus becoming trip planners and concentrating on group tours. Similarly, as online stock traders began to proliferate, many stockbrokers used their knowledge and experience evolving into wealth advisors and retirement planners.
Not all that long ago, there was a day when people laughed at the innovators in our industry who saw the need to automate. Excited about advances in office equipment, computer software and other cutting edge technologies, many industry leaders and pioneers urged insurance agencies to go paperless. The naysayers discounted their advice and scoffed at the paperless concept.
Let’s take a look at your agency, to see whether or not you’ve innovated in the following four areas: Product Offerings; Sales Approach; Customer Service; Automation.
Product offering
If the only product you offer is insurance, you surely have not innovated. Insurance should be ONE of the solutions you offer to clients and prospects— not the ONLY solution!
Agents typically only deal with hazard risk and risk transfer, but should also be addressing strategic risk and business risk. If you’re overlooking these key areas then you’re not unique. You’re just another insurance person.
Sales approach
If you think I’m going to start this section with my normal, “Don’t Sell The Old Way” speech, you are correct. Still employing the “Look, Copy, Quote and Pray” process? That method is outdated and the epitome of stagnation. If your agency’s sales mindset is the same as it was five, 10 or 15-plus years ago, you are in trouble.
Your approach to the marketplace must be truly unique. How can you tell if your brand is exclusively one-of-a-kind? How do you gauge originality? By listening to the people you talk with about your business. You do not want to hear things like: “You insurance people are all the same,” or “We’d like an apples-to-apples quote,” or “Sure you can give us a quote; we’re just trying to keep our current agent honest,” or “We bid it out every three years, here are our bid specs.”
If you’re consistently hearing any of the above comments, you have done nothing to differentiate your agency from your competitors. And how many of them do you think will be in business 20 years from now?
Another question to ponder: Could you ever get replaced in the distribution system? Absolutely! In fact, many have been displaced or replaced by automation, Web-based selling and super-sized insurance corporations with billion-dollar marketing budgets. For years, GEICO has been telling prospective customers to “spend 15 minutes, save 15%.” Now Esurance is trying to take some of GEICO’s market share by claiming it can do as much for customers in half the time— just 7.5 minutes.
All of this could have serious implications on the compensation side. What if the way you currently get paid develops into what you’ll do for free, and what you currently do for free turns into how you’ll get paid? Is it possible that one day, the pure risk transfer could be done without you in the middle? Yes it could! I’m not saying it definitely will, but it definitely could.
What if insurance companies continue to reduce their commission levels or everything changes strictly to a fee-based payment? To keep from being taken out of the process, you need to look at what you’re doing for free—the things that are totally value-added— and realize that may be the only way you get compensated in the future.
Customer service
What innovations have you established to attract new customers and retain existing clients? Do you have a defined and documented Customer Experience Process in your agency? Do you know how the customer feels after interacting with your staff? Have you discussed the way you serve customers as an agency and implemented a functional plan to make a positive customer experience happen?
For instance, when clients walk into your agency, how do you want them to feel? How do you greet them? What does the physical plant look like? How does your team dress? What’s their professional look? When clients call into your agency, how is the phone answered? To find out, try calling your company. If you don’t like what you hear, do something about it. What about email? Is it answered promptly, professionally and courteously?
That’s another lesson I learned from my friend Chris McVicker. When it came to communicating with clients, his credo was always be Quick, Kind and Correct.
Automation
What percent of your typical customer transactions can be initiated and/or completed online? The vast majority of today’s customers prefer to be able to take care of their day-to-day business via the Internet, any time of the day or night. Do you have a client portal that allows them to do that? Are you using the most recent, updated version of your automation system? While I’m not suggesting you be a guinea pig, I recommend that you upgrade to the best proven system and demand that your people do a great job with it.
The bottom line
Have you created a team/committee/work group that is responsible for identifying, planning and implementing the next innovation in your agency? All of the best agencies designate a team charged with strategic planning. They understand the importance of working ON the business vs. working IN it.
If you do not innovate, you’ll probably still do okay. While you aren’t likely to go out of business tomorrow, is doing “okay” good enough? What’s the real cost of not innovating?
For one thing, your profits are going to drop and, therefore, the value of your agency will drop. There’s also a real cost to employee engagement and retention. The more you innovate, the more your employees will feel inspired, engaged and invigorated.
Client retention is also closely linked to innovation. If you’re not introducing new ideas, your competitors will start doing things you’re not doing, forcing you to play catch up in order to keep your clients. I hate that game and its “me, too” mentality. What’s worse, it’s very hard to win.
Ultimately, the lack of innovation can carry a huge cost to an agency’s perpetuation. It’s much easier to perpetuate a firm, internally or externally, that has been focused on innovation and growth than one that has stagnated.
Innovation or Stagnation—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.