Brokerage Ops the May 2015 issue

More Efficient Bad Business Practices

It’s time to rethink and disrupt your business model.
By Chris Gagnon Posted on April 30, 2015

Every firm in our industry is faced with the same basic challenge. At the heart of our revenue stream is a segment of small- and middle-market commercial business that is low premium and high touch. This segment of business is the bread and butter of every agency. It’s also the most at-risk for our traditional way of doing business.

Commercial insurance for small- and middle-market businesses is usually handled by the business owner or someone who wears a lot of hats. From the perspective of the insured, placing and renewing these policies is a time-consuming chore that, while required, takes away from the primary focus of the business. In a sense, this reality is good for agents and brokers. These businesses truly appreciate our ability to translate their needs into reasonable quotes, make changes to policies and handle myriad other technical details. Indeed, this is truly the value of agents and brokers, but there’s an inherent problem. As we’ve grown and merged over the past several decades, we’ve continued to do business basically in the same way. A main street independent agency servicing its local region can operate in person, on paper and in a manual fashion. Managing 1,000 customers isn’t a terribly complicated affair. It takes hard work by servicing teams, but the work gets done. But most of our firms don’t have just 1,000 of these accounts. We have 15,000, or 40,000 or, in some cases, 100,000.

So what’s been our response to the compounding servicing problem as we grow both organically and through acquisition? In most cases we’ve done nothing. When you look under the hood and dig deep enough, you find that nearly every agency is managing these accounts in at least a partially manual way with teams of dedicated employees working furiously to meet the needs of accounts that often generate only hundreds of dollars in agency revenue per year. When the method is challenged, the producers and often the service teams insist this is the way all their customers want to be serviced. Driving around town handing over paper policies is believed to be the high point of the firm’s value to the insured. 

Of course, this just isn’t true. Don’t get me wrong: In some cases, small commercial customers want a personal touch. I’m not suggesting we ban the practice, but it’s unwise to apply the needs and desires of a handful of your 50,000 small commercial clients to the entire collection.

So why do we continue down this path without considering real change? Every firm is different in their reasoning, but most reasoning falls into a few basic areas.

Misplaced Value Proposition

I’ve worked directly with many firms, and the first questions I ask every one are: “What is the unique value of your firm? What makes you successful?” Every firm gives me the same answer: “Our people, our technology and our values.” I don’t want to knock anybody’s vision of themselves, but more often than not the service teams are incredibly committed to their clients, every agency has a mix of stellar and lackluster producers, we all use one of three agency systems and our value statements are pretty much identical. So we’re missing something here.

Why do your customers choose you? If you can’t answer this question, backed by data, you should consider engaging an analyst to speak with current and former customers to find out. As a leader you should seek out the truth even if it’s unflattering. Perhaps you’re the only agency in town. Perhaps some customers think it would be more painful to change brokers than to stay. While this might not be what you want to hear, it’s absolutely critical information. This kind of insight helps you identify truly at-risk accounts. In my experience, every producer who loses an account never saw it coming. To them, it’s mind-boggling why someone would choose to leave even if the writing has been on the wall for years. If you understand the value your customers perceive, you’ll empower your firm to make meaningful adjustments.

Don’t Break the Machine

As risk management firms, we are hard-wired to identify and mitigate risk. Most firms simply don’t have the talent on staff to design and implement evolutionary change in their business processes. And external resources? The technology vendors specific to our industry rely on the old model because that’s the model their systems were designed to automate. Besides, they’re software companies, not business process innovators. Even the Big Three consulting firms would struggle to identify and execute meaningful change, as they aren’t engaged day-to-day in our industry.
The innovation of our underlying business model has to come from within. If we lack the necessary internal resources, our risk of breaking the machine is just too great. From an industry perspective, our firms have been historically successful operating just as we are. Until we evolve our view of data and automation as an integral component to the firm, it’s unlikely we will be willing to make the investment and bear the risk of internal transformation.

Why Change?

Self-reinvention doesn’t usually happen without a reason, at least not in our industry. The problem is if you wait for a reason you’re probably already dead. The most successful companies in recent history have figured this out and are constantly challenging their assumptions and processes. If you need a reason to consider change, here it is: The disrupters are here. We operate in a complex industry, and they haven’t quite figured it all out yet. But given enough time, they will.

When an outside firm figures out what our customers want, develops a synchronized way to meet those needs and brings along a war chest of cash, their lack of expertise in our complex industry is reduced to merely an annoyance, a problem to solve along the way.

Regulatory hurdles? Throw lobbyists and lawyers at it.

Lack of existing industry depth? Hire that away from existing brokers. 

Stick and move—that’s their way. It’s time our industry borrowed some of this strategy.

Challenging decades-old assumptions about the way you do business is a big job, and it has to start at the top. The key is to realize they are all just that: assumptions. To truly understand our value, our customers and our industry, we must back up these assumptions with hard facts. Steady annual growth is a great thing to have, but it’s not a data point that proves your customers are happy, your methods are ideal or the future won’t be significantly different.

Steady annual growth does not prove your customers are happy.

It’s time to step out of your comfort zone and start thinking like a disrupter. We have the industry knowledge, the market clout and the capability to transform from within. The time is now.

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