In the insurance agency system, it’s no secret that right now many agencies are merging or being acquired, increasingly by private equity firms. For some, this is a blessing because they have not been able to keep up with technology, their intended legacy plan has not worked out, or the impending talent gap poses such a threat that what is valuable today may become unsustainable in the near future.
About eight years ago, Insurance Journal published an article on our company that looked into the distinctive qualities of the Insurance Office of America (IOA) model — qualities that set us apart and differ broadly from the traditional way of running an insurance agency. From the very beginning, the firm was built on a producer-focused model instead of a profit-focused model. Despite the buyouts, talent shortages, and weak or nonexistent perpetuation plans that plague many agencies, we have always been positioned to do well.
However, it took being blindsided by a cancer diagnosis to open my eyes to the fact that every model can be taken to new levels. After a six-month dose of reality — and chemotherapy — both my body and IOA have a renewed emphasis on the future. That future is a very positive place to be, for me and for those I care about in my personal and business worlds, and it’s a place your agency can head toward even without the trauma of a health crisis.
Successful perpetuation is the cornerstone of agency longevity, but perpetuation is more than just saying, “Bill would make a great CEO someday” or “Beth knows a ton; she could step up in a heartbeat.” Bill and Beth might very well be excellent candidates in a perpetuation plan but not if they leave five years before it’s their time to shine. Agencies have got to implement a producer-focused model that develops and retains their core personnel, and that often comes down to making sure people have skin in the game.
Yet even the best models in the industry can face unexpected challenges. An illness helped push us to build a more comprehensive perpetuation plan that would protect our three main constituents: the agency; our people; and our clients.
Learning from the Unexpected
For me, staying in shape is important, so I play basketball with a group of guys half my age once a week. At nearly 40, I don’t have to win, but I certainly hate to lose, which means I come home pretty sore at times. After a tough Saturday morning game, I was stretching and working out some tight muscles when I discovered a lump. I was diagnosed with testicular cancer just three weeks after getting the all-clear in my annual physical, and I was completely blindsided.
Less than a year later, having been through surgery and chemotherapy, I’ve had my six-month scan, and I’m clean. Looking back on it, it’s something that I would not trade because there was growth and so many learning experiences that came from it that I don’t think a type A guy like myself could have learned any other way. It’s opened my eyes to appreciate the things I took for granted — my family, health, and work. It also helped me lead our agency to new and better levels that will benefit others, and that is gratifying.
Truth is, I’m not a control freak, but I was living in a world where I felt like I had things under control. Anyone who believes they have things lined up and in control is believing a lie.
My cancer diagnosis was a reality check: I might have been doing a great job at the things I had control over, but there are things we don’t run that can affect (or ruin) our lives and businesses. My diagnosis caused our firm to look at our perpetuation plan and take greater control over the things we could to promote our agency’s long-term viability and strength.
Some ask me if we were prepared. We were not as prepared as we are today. There were conversations about possibilities but not the formal plans we have now. In many ways, that experience has caused us to be better prepared for the next time we have something come up that we weren’t expecting. We have our flowchart for who we believe have the potential to be our next board members. It is planned out that, if something happens to me, our president, or our chairman, we know who moves into the roles. These are steps all agencies can take right now.
What Sets You Apart for the Future
Perpetuation was built in as a cornerstone of our model because more than just a personnel chart is needed to create an effective leadership-handoff plan. You’ve also got to keep your future leaders. That requires a compelling compensation program, appropriate technology investment to facilitate sales and client retention, and ownership opportunities for those who want to be more integrally involved in the success and future of the agency.
For example, when you look through the lens of what you would want as a customer service partner or a large producing agent — key players in perpetuation — you’d likely want to be compensated fairly. You wouldn’t want your commission cut in half year two, and you’d want to be paid the same for renewal business because retention is important. As we all know, it’s more profitable to retain a piece of business than it is to write a new one.
In addition to the same commission level every year, you’d likely want equity in your book of business and an opportunity to actually have something of value when you retire over and above what you put away. But that is not the typical model.
Other unexpected factors also play a role in preparing for the future. Outside of healthcare, there’s probably no industry riper for disruption than ours. Part of that is due to technology, where there is a lot of money getting expended right now, but an even a bigger part of that potential disruption is culture.
It’s one thing to be wildly attractive as a business, but it’s another thing to have an organizational culture where people feel like they’re part of something bigger than themselves, where they feel like they’re part of a family and they never want to leave. Creating this environment is particularly important today as baby boomers retire and the number of millennials in the work force grows. As a group, millennials tend to want to derive a sense of meaning and purpose from their company.
As our industry continues to see the big getting bigger and the small folks going away, more private equity companies and more public companies are running our agency channel. That can leave us without a lot of culture and heart in the business. I believe a firm’s culture is a huge differentiator, and at IOA, we work hard to grow all aspects of our identity. We can bring improved technology and value to our clients but also stay focused on cultivating a culture that people never want to leave; something that is completely different in an industry of sameness. Ownership in the future of the agency is crucial, whether it’s through compensation, equity holdings, or simply the chance to have your talents and intellect affect business decisions.
When your model focuses on the people building your business instead of merely putting money in the pockets of top brass or stockholders you don’t know, you send a signal to partners and employees that they are valued and they matter. That, my friends, is a huge part of talent retention, transformative innovation, and perpetuation. In this industry, that makes you a true game-changer and typically makes you more appealing to clients and top-quality hires.
Most agencies are focused on the next deal or the next acquisition. But if you are intensely focused on adding value to people and the client experience, you can expect a long and healthy future.
Article written by Heath Ritenour
Originally appeared in insurancejournal.com