It's tough decision time—are you prepared?
Successful agencies make difficult changes to excel in today’s market
By Roger Sitkins
It’s certainly no secret that we are facing unprecedented times in our economy, times that are having major effects on most independent insurance agents. It’s not unusual for agents to have accounts that last year might have had 50 employees, but now only have six. Obviously, on both the property and casualty side, plus the benefits side, premiums and commissions are down.
Consequently, between the combination of tough economic times and soft market conditions, agencies are having to work very hard to stay even. Many of our Sitkins International members are still experiencing growth above and beyond last year’s because they’re making some tough decisions.
This is the time to choose to make some very tough decisions, before you have to make some very tough decisions.
Historically, the best companies in any industry excel when times are tough. They actually do their best in the worst times because they’re prepared; they’re always ahead of the game. They have the right structure, the clarity, the cohesive management team, and the strategies to get to the marketplace, and they have more knowledge than anyone else about how best to serve their existing clients.
Perhaps more important, they have continually invested in themselves. They haven’t had their heads in the sand, believing that they are uniquely wonderful. They consistently have taken steps to better themselves. The same is true of the best agencies. They are proactive about making tough decisions; they don’t wait until they’re forced to make them.
Identifying tough decisions
So what are the really tough decisions? Here are some we’ve found to be among the most challenging:
•Non-producing producers. What will you do with them? And what about the “plateau producers” and those whose books are going backward? Are you willing to go to those producers and develop true proactive marketing plans for 2009 and beyond, or will you allow non-producing producers to just hang around? If so, you should recognize that there’s a big cost to that. One of the basic rules for vertical growth: Never allow profitable producers to subsidize unprofitable producers!
• Legacy employees. Fortunately, we rarely see this within our membership. However, many agencies still have legacy employees—people who have been around forever, don’t want to change how they operate and, because of that, tend to disrupt everything around them. But because they usually handle one or two big accounts, no one wants to anger or alienate them. In fact, many of their co-workers are actually afraid of them!
Because these energy-sucking employees have been at the agency forever, they’re difficult to fire. Furthermore, depending on the state, there may be employment practices laws and concerns. But none of that should ever justify keeping an employee who won’t do things the way they’re supposed to be done. It’s neither efficient nor profitable.
• Non buy-in employees. This is not to be confused with the legacy employee. When you look at changing internal agency culture and/or management, there will always be a certain number of employees who don’t want to buy into change. This happens when the owners and/or managers aren’t clear about what they want the culture to be.
As a result, the non buy-in employees are a constant drain on management and don’t really do the things needed to improve the top and bottom lines for the agency. It’s okay for employees to fail, as long as it’s on someone else’s payroll!! Are you willing to keep them on yours?
• Accounts receivable issues. One of our overriding themes from an operations side has been “no accounts receivable over 30 days.” Unfortunately, we find that most agencies do a relatively poor job of collecting their accounts receivable.
I remember visiting an agency a number of years ago and looking at their automated accounts receivable list. As I reviewed one relatively small account, I saw that it had been 14 months since the agency had received a payment from this account. What’s worse, the agency owner told me he had just renewed it! When asked why he renewed this non-paying customer, he replied, “We just didn’t want to lose the account.” He failed to grasp the concept that if you aren’t getting paid, you don’t have the account!
Sadly, in light of the current economy, we believe that receivable problems are going to become more prevalent. Are you willing to make tough decisions in order to have a strong process in place for managing receivables? This means committing to never paying a dollar to an insurance company that hasn’t already been paid to your agency. Are you willing to make the tough decision to end relationships with non-paying clients?
• HPTs vs. LPTs. High Performance Teams (HPTs) are made up of a producer and account manager or managers who work together on obtaining and retaining ideal clients. The highest-performing HPTs are the ones in which the producer really wants it to work. The producer doesn’t hide behind activity and make excuses for poor performance. On the other hand, if you have some Low Performance Teams (LPTs) that are not keeping the producer in the game at least 80% of the time and that are not retaining clients and doing the right things, are you willing to let them stay?
Tough economic times are no excuse for low- to no-growth producers. In fact, we continue to get calls every day from members and producers who are growing their books. They may be working harder on their renewals due to current market conditions, but because they’ve been doing the right things for many years, they’re not naked! The tide went out, but their pipelines are full.
• No offense/producer islands. If you still have a bunch of producer islands out there, with producers doing things their way and with no set offense, are you willing to make a tough decision and say, “What we’re doing today isn’t working”? Or will you let them continue operating that way? Just because something worked well in the past doesn’t mean it can work in today’s market.
• Profitable vs. unprofitable accounts. Everyone should be aware of the 80/20 Rule. Our studies continue to prove that the average agency loses money on 50% or more of its customers. And that’s just a fact! Isn’t it time to make some tough decisions and no longer allow profitable accounts to continue subsidizing your unprofitable accounts?
Deciding how to do it is another tough decision. That might mean putting the account in a service center, changing your agency’s internal struc-ture or changing your commissions. In some agencies, the only way to make certain accounts profitable is to sell them. The good news is that someone will always buy them.
Tackling the toughies
There’s no time like the present. And right now it’s time to:
Turn bad news into good news. We can’t change the insurance market conditions or the slumping economy, but we can identify and pursue the opportunities in the marketplace. Just because you can’t change the environment doesn’t mean you shouldn’t or can’t change your perspec-tive and way of doing business.
Eliminate short-term reactive knee jerks. We often see that when agencies and producers get in trouble, they’ll “knee jerk.” As they flail about trying to drum up business, they’ll try a thousand different approaches to their core problems rather than stand back and examine the long-term strategies and plans they need to be successful.
Of course, it’s always easier to be reactive than proactive when you’re looking for a towel and the tide has gone out. However, you’ll find that once you make the tough decisions, you can start employing a long-term strategy. Besides, the things you’re making the tough decisions about are the very obstacles that have been blocking your growth.
Replicate top clients. Statistically, we know that the top 5% of the average agency’s customers are 50% of their revenue. Are you really taking care of those accounts, and do you plan to replicate them?
Although we’ve said this many times before, it bears repeating: Your very best customers are your best competitor’s best prospects. Therefore, your best customers need to be taken care of at a very high level. To do so, you should be implementing what we call The Ultimate Marketing Strategy: Round Out, Retain and Replicate.
In other words, make sure you’re selling that account all of their insurance, put your retention strategies in place, and then do the things that will earn you a referral and an introduction to other customers just like them. It’s a great way to grow your business by 50% in a relatively short time.
Eliminate the agency’s and producers’ self-destructive habits. There are things that agencies and producers do, day in and day out, that undermine their efforts. Ultimately, they’re what destroy an agency and its producers’ books of business.
One example is when producers are doing nothing to fill up their pipelines. As a result, their pipelines are empty and they have few, if any, at-bats. When they finally do get a quality at-bat, they don’t effectively prepare for the appointment. Their presentation is unimpressive because they haven’t done their research, and ultimately they end up practice quoting.
Deal with the elephants. When agencies are facing big issues that they really don’t want to talk about yet, that’s the time they should be totally open and honest. For agency leaders, this means discussing the painful issues with employees. For instance, if your agency is overstaffed and suffering from low average revenue per employee, it’s time you communicate that, along with the fact that it’s hurting the business.
Or maybe it’s time to tell the entire team that you have a very expensive automation system that is being underutilized or used improperly, and that it’s hurting the business. Or if the management team itself is not cohesive or able to tackle issues collectively, it’s time to stop avoiding these things and deal with them.
Get in the game. The average producer is not in the game and is spending fewer than 10 hours a week face to face with clients, prospects and centers of influence. Producers simply have to get in the game and spend a minimum of 20 hours a week face to face with customers and potential customers.
Take advantage of pipelines. It’s time to take advantage of the pipelines you’ve built for the last 20-plus years. Usually, agency owners have the best pipelines because they built them from scratch years ago through networking. But what we also find is that most owners don’t want to follow up on their own pipelines, primarily because it requires a lot of work! That’s a major mistake because the owner should be the great rainmaker.
If you’ve been in the business for 20 or 30 years, chances are you’ve become well known in the community through your church, service organizations, social clubs and industry involvement. Certainly, you’d have no trouble coming up with a list of at least 20 top business owners who know you well enough that you could call them and they would welcome the opportunity to meet with you to talk insurance. What’s the point of being well known and developing a personal brand if you can’t take advantage of it? Now’s the time to do it.
Create consequences for poor performance. For years, the idea of paying full renewal commissions to underperforming producers has driven me crazy. These are the producers who do things they shouldn’t be doing and don’t fully earn their renewal commissions and yet they still get paid for them. Well, here’s my solution for producers who don’t do a good job: less pay for renewals.
If producers are not growing their book of business, they’re not creating enough profit for the agency. Therefore, they should be penalized financially. That way, they’re recognized—not rewarded—for poor performance.
Another consequence for poor performance is job loss. There’s no reason to keep people employed who are poor performers.
The Bottom Line: It’s time to make the tough decisions NOW. Make them before you have to make them.
As always, it’s your choice. *
Roger Sitkins is CEO of Sitkins International, Inc., which offers the Vertical Growth Experience™ programs exclusively to its client group, known as The Sitkins 100™. These programs focus on continual improvement of agency operations, thus providing members with ongoing development and strategies that literally force vertical growth in the agency’s critical indicators of Closing Ratios, Revenue per Employee, Revenue per Relationship, and Revenue per Producer.