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Ever hear the saying 'Keep your friends close and your enemies closer?' It happens to be a strategy that is especially sound for the independent agent today, as market conditions continue to challenge the average agent. Selective partnering with friends and, yes, even 'enemies,' offers the independent agent opportunities to bolster growth or cut costs. After all, practically speaking, there are limits to expense reducing your way to profitability, just as there are practical constraints to the growth you can achieve on your own.
Banks: An Offensive Strategy is Best
The agents that are least likely to be hurt by the entry of banks into the insurance arena are those that move quickly to capitalize on the fact that many banks lack the talent and infrastructure to sell most, if not all forms of insurance. Some insurance carriers, such as ITT Hartford Insurance Group, have moved quickly to convert the looming challenge from banks into opportunity. In ITT's case, it has apparently developed 'turnkey' programs on a joint venture basis with both banks and independent agents. Focused upon personal lines, the program targets the banks' customer lists. Although ITT's program is marketed, sold, and serviced by that carrier, the independent agent who brokered the introduction between the bank and the carrier receives a commission on each sale.
Practically speaking, in all but the largest urban areas dominated by national and regional banking powerhouses, similar 'offensive strategies' can be adopted directly by many independent agents and brokers. Opportunities are not and should not be confined to matchmaking on behalf of your markets when direct, on-going participation with the bank and its customers is a viable alternative.
A joint venture with a local bank is probably the shortest route you can take to obtain immediate access to an expansive, detailed prospect list without purchasing the expirations of another agency, supported by sophisticated marketing technology. In addition, you gain the advantage of being able to leverage off the good reputation and consumer awareness of that financial institution as well as your own. As a result, if you have chosen with care, presumably your 'hit rate' will be in excess of that formerly achieved by the agency alone. From the perspective of the bank, the joint venture provides a low cost and relatively quick means of entry into the insurance marketplace.
The different possible joint venture or partnering approaches are limited only by your imagination and, possibly, regulatory or legal considerations. An agents' income can be commission, profit sharing, fee, or even transaction based, among other things. A different income sharing approach can be negotiated for commercial lines sales than for personal lines sales, since arguably it is in connection with the former where banks are most dependent upon your expertise. Some agents may feel the need for a part or full-time presence in the bank itself. There is no one 'right' approach, other than the one that is right for you. You can determine that through a review of the financial outcomes of the different approaches, assuming varying levels of new sales and expenses.
Yes, you do have a niche!
There are other avenues for fruitful partnerships, although they probably do not hold out the same promise of short-term sales enhancement as do banks. Many different types of small businesses and professional practices today are experiencing pressures similar to that of the independent agency system. Just like your average agent, these business owners and professional practitioners are looking for creative, low cost means by which they can reach new clients for their product or service. Recognizing this, many agents probably already participate in ad-hoc partnerships, with local attorneys, accountants, realtors, car dealers, or others with whom an informal referral system has developed. Unfortunately, as long as the relationship is strictly ad-hoc, many marketing opportunities go unrecognized and untapped.
It is important to recognize that while all the participants may be generalists in their own professions, within this loose partnership, each member effectively does have a niche. If you are willing to allow your partners to 'exploit' your expertise on their behalf, you too will benefit. Consider meeting on some periodic basis with your referral partners as a group for a 'brainstorming' session. Ask yourself if there are ways in which you can share your insurance expertise in your respective partners' association meetings, trade publications, and industry fairs. Identify ways in which some of the partners can collaborate on local speaking engagements guaranteed to generate some free publicity in the local news. If direct mail is being used by one or more of the participants, it frequently represents an excellent vehicle for the other members to participate in the guise of a 'guest expert' on one topic or another. Luckily for the agent, there is almost always an insurance issue to be discussed! It's not necessary to formalize the relationship on paper nor are there necessarily any expenses associated with the partnership, save for the investment of your time. But if you pick your partners with care and you all have an equal commitment to the concept, there are benefits that will be reaped over time.
Now Hear This
A recent study by Conning & Co. predicts that the number of independent agencies will decrease by approximately 19% in the next decade, from 44,000 in 1996 to 35,777 in 2006. The agencies that are perceived to be among the most vulnerable are those that derive a considerable proportion of their revenues from personal lines business. According to the author of the study, one of the reasons this segment of the agency population is the most vulnerable is that '.....consumers are increasingly unwilling to pay a premium for local sales when the servicing can be handled centrally by service centers.' Since our clients have spoken, and would appear to have less loyalty than we would like, maybe it is time to reconsider the company service center concept.
For those agents who resisted company service centers on the grounds that their clients required the personal attention of a local agent, the study's findings should serve as a wake-up call. The study would indicate that many agents are bearing expenses for agency staff to provide the local personal service that the customer has effectively said just doesn't matter. There is little indication that service centers have had a negative impact upon retention. And the argument that service centers take away customer contact from the agent doesn't make any more sense now than it did when service centers first emerged on the insurance landscape. The only contact it takes away is customer initiated contact. Hopefully, things have not gotten to the point where all your interaction with customers is on a reactive basis.
For a number of reasons, service centers are not an option for everyone. But increasingly, the basis upon which to evaluate their merits is a financial one. Too much emphasis has been placed on suppositions regarding the consumers' reactions and the carriers' intentions. Too little has been placed on the internal due diligence that every agent should do in order to determine if one of two green light situations exist: 1) the commission reductions appear to be less than or equal to the reduction in total personnel costs that can be achieved, due to the transfer of certain CSR responsibilities to the service center, or 2) the commission reductions appear to be less than or equal to the new business that will be generated by CSR's in the time formerly dedicated to tasks now transferred to the service center. While the preceding is crude, it is only to say that it is important to begin to both objectify and quantify the service center issue. If you can find a service center that meets your standards for customer service with a carrier whose long-term strategic direction fits with yours, and the financial indications are right, it could be yet another form of partnership that will help you grow more profitably into the 21st century.
On a national basis, agency users of company service centers still represent a minority of the independent agency population. For some agents, the issues surrounding control of the expirations, control of the customer, and a corresponding lack of trust of certain carriers are the primary obstacle. For many others, use of a service center is not a practical consideration due to the size and type of their book, carrier representation, and/or the spread of their business.
For small to mid-size agents who cannot or will not use a service center, there are alternative partnering avenues to achieve improved efficiencies, through involvement with clusters or even, agency run, multi-company service centers. Though clusters exist in many different forms and for varying purposes, most automatically provide (at a minimum) common shared support services, thereby providing the small(er) agent the expense and time efficiencies that service centers can provide. Some agents may want to partner to achieve more than simple expense reductions, such as to obtain access to new markets, programs, and/or technological capabilities out of reach on a stand-alone basis.
As with any partnership, formal or informal, it is important that you clearly identify what your specific motivations are for even the loosest affiliation with other agents. If you intend to maintain a visible, separate office presence and are looking to the cluster only to provide the most basic support services and/or administrative functions, it would be a mistake to become involved in a cluster whose primary focus is upon providing its members enhanced market access or to meet carrier minimum volume requirements. The point is that there are partnering arrangements that can be struck with the sole purpose of increasing profitability through the sharing of certain expenses, and nothing more.
Partnering, with banks, carriers, agents or others, whether by formal or informal agreement, offer the independent agent a means to grow and/or achieve additional efficiencies, without loss of autonomy or control of the business. The agent who confuses the word 'independent' with going it alone, runs the risk of not going at all.
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