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The agency system is dying! So say many industry pundits, among them a few company executives. To some companies, the independent agent is an anachronism. Our experience with companies and agents suggests otherwise and we caution the company executive who, through aggressive agency cancellations or unreasonable volume demands can make his own prophesies of the demise of the system come true.
The independent agency system has its flaws. Too many agents are in business to support a life style rather than to build a successful agency. Too many agents are less than competent to meet the demands of a more complex risk-based society. Too many are unable or unwilling to invest in the level of technical staffing or automation required to bring about the increased sales, enhanced service and cost reductions required to make the system efficient. And yes, too many are worn down by the very business to which they have dedicated a lifetime. But, it is our experience that many, many agents are highly competent, committed to building a successful, efficient business and, most importantly, are concerned about the financial health and success of their companies and want very much to forge a positive relationship with each.
It is important to recognize the agent alone didn't create the problems. Many of the very companies that rely on the independent agent and are critical of the system have contributed to its problems. Worse, many companies are unwilling to accept their share of responsibility for the inefficiencies, lack of competitiveness and the aging of a system they are quick to criticize.
For many companies the agitation for change is resulting in a diminished interest and investment in, even abandonment of, their most valuable asset; their agency plant and their reputation therein. We believe this is shortsighted and we offer a few ideas for strengthening and better utilizing your existing agency organization.
Recognize the reality that well managed agencies are succeeding; devise support programs for enhancing performance. Notwithstanding industry growth and earnings trends, well-managed agencies are growing and producing attractive earnings. Re-evaluate the importance of investing in agency management training programs for the qualified agency manager. Our experience is that agents who understand financial management, who have developed legitimate growth and perpetuation strategies, who know how to attract and acquire smaller agencies and who have hired, trained and motivated their staffs are outperforming the market. Too few, however, get the chance for legitimate learning in many of these areas and fewer still get the follow-up support required to capitalize on the knowledge acquired.
Select agents regionally to develop sales of special products, programs or niches through other independent agents in their region. A dozen good producers could probably cover most of the major markets. You would enlarge the size and dynamics of your selling force considerably and with some special training, a tailored product, sales and service support and - above all - competent underwriting assistance achieve an enhanced market position. Notice, we make no mention of competitive price. Our analysis shows there are many examples of quality marketing programs overcoming the single advantage of low cost. Consider paying your agencies an override for learning the program and developing a network of producers to produce the product. The overall cost should be lower than an extensive field network of generalists and a solid program can often get local agents to see the advantages of accepting a lower commission rate in exchange for increased commission income.
Don't compromise on field underwriting. Though many companies don't want to hear it, many of their field underwriting people are inadequate to the task of supporting the professional agent's need for creative, technical underwriting support. Too many local underwriters live by 'the book' and too often 'the book' just isn't enough (or even right!). Agents need and want help in finding solutions to difficult or unusual underwriting problems. Good agents can find good business, but to sell it they often need creative underwriting support.
Support legitimate agency efforts to expand through acquisition. Hand pick a selected group of well managed agencies. Provide them with the training, encouragement, and support to make modest acquisitions. By building an agents' books of business through careful acquisition, the supporting carrier has the first opportunity to participate in the acquired premium growth.
Put your own house in order before asking the agent to do so. It is our observation that agents develop the character of individual companies. When companies incorrectly issue policies or provide tardy underwriting responses, they beget in return sloppy communication and inadequate underwriting information. Ever changing product emphasis or underwriting standards beget inappropriate submis-sions. Uncertain, unclear communications beget similar responses.
Understand that most company people just don't understand the agent or the agency business. In a seminar we completed recently for one large agency company, it was surprised to learn that its field sales and marketing staff got only 20% of a simple questionnaire about the agency business correct. It is difficult to sell to or gain the confidence of your agent if you don't understand him or his problems.
Why not make your self-fulfilling prophecies positive ones? By investing creatively in your agency plant, you just may find your marketing department will soon be prophesizing its success rather than its demise.
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