Industry the April 2019 issue

Personal Lines Profits

Acquiring a personal lines agency that is generational and focused on a personal culture may offer a competitive edge.
By Brian McDowell Posted on March 27, 2019

According to Optis Partners, 2018 was the busiest year since the financial consultancy began tracking M&A activity, breaking several records.

Acquisition of personal lines insurance agencies is attractive due to the opportunity for quick return on investment that can be achieved with small changes. Where firms have lagged in technology, a simple process improvement can reduce costs and increase profitability. It’s a win-win.

When considering perpetuation, personal lines agency owners may find themselves in a bind for a host of reasons, such as changing technologies, unclear leadership succession and talent acquisition issues. Being purchased may be their best option. However, for owners who have grown their business from the ground up and have close relationships with their clients, it can be a heartbreaking prospect to sell and see the agency culture disappear into a highly corporate and less personal company structure.

According to Deloitte’s Global Human Capital Trends report, 87% of respondents said they consider company culture to be important, and 54% rate it as very important—nine percentage points higher than the prior year. Additionally, 82% said they believe culture is a potential competitive advantage.

Acquisition of personal lines insurance agencies is attractive due to the opportunity for quick return on investment that can be achieved with small changes.

A culture focused on being personal is at the core of personal lines agencies—it’s at the core of good business insurance relationships as well. You get to know about your clients and their lives. Despite the success of direct writers today, the vast majority of consumers still value an agency and its people. They want to be able to pick up the phone and speak to a person they know. They want that point of reference, which is why the need for the personal touch will never go away.

In the wake of an accident or a catastrophic event, the last thing policyholders want to hear when they call their agent is a recorded voice or a phone queue. When they have a claim and need help, that is the critical point an agent and insurer make good on the promises of the policy. The policyholder is anxious to connect with someone who can help get things back to normal as soon as possible.

One example of the personal touch in a large agency culture occurred during the 2017 hurricane season. Insurance Office of America’s offices in the Florida Keys, which had come on board with IOA just over a year earlier, were in the path of Hurricane Irma, as were their many clients. When devastation struck the Keys and much of the state, it became evident that the new relationship added value these agencies couldn’t provide previously.

Before the acquisition, these smaller agencies had access to limited carriers. With their new affiliation, they were able to access more carrier partners. Not only were employees proud to be there for their clients, who, in many cases, had lost everything, but they were also able to provide space in the offices for insurance carrier partners to set up shop, perform evaluations, settle claims and set up teams as the devastation unfolded. That personal touch, coupled with expanded services, was vitally important.

The power was out in much of the state, but because the agencies were now part of a larger organization, they were able to provide resources in areas that had the power and technology to get up and running much faster. As a result, clients were able to get their claims processed quickly. Because communications were down locally, it was particularly important that both clients and agents were able to check in on each other to find out if everyone was safe or anyone needed anything.

When you acquire an agency that has a niche in which it excels, forcing its team members to offer all lines may annihilate the special relationships they have cultivated with their clients.

For those agencies dedicated to a personal culture and to communicating that culture throughout the enterprise, high retention rates are their reward. It’s possible for large agencies to serve clients at a personal level, but it requires an entrepreneurial approach in which agents have the freedom to do what they do best, which is to serve their clients at an individual level.

Agencies that are generational and focused on a personal culture are rare. These characteristics together provide the environment not only to be a family business, a generational business and a big business but also to retain the personal touch over the long haul. That’s the competitive edge.

These factors also make an agency very attractive for business owners who want not only to be acquired but also to exercise their autonomy without the overarching governance of corporate insecurity.

When you acquire an agency that has a niche in which it excels, forcing its team members to offer all lines may annihilate the special relationships they have cultivated with their clients. Instead, determine to keep the personal touch and give them what they need to expand their footprint rather than upending their business model. Keep the relationship-led approach and support them from a central resources perspective to help them become even better.

While the pace of technology today has allowed (and sometimes forced) businesses to increase the use of automation to serve clients, a customer-centric approach is still an imperative. According to a recent consumer behavior report from Bain & Company, “Insurance customers aren’t thrilled with their digital experiences. They find interacting with humans easier and more personalized.”

People want the personal touch, and for insurance agency owners, it’s a constant challenge where technology is required. Creative approaches and consistent review must be part of an agency’s DNA. For example, instead of placing a customer in a random queue, thoughtful agencies create personalized teams where account managers look after a particular group of clients.

No matter the M&A environment, your agency’s underlying philosophy should be simple: purposefully keep the personal touch. That relationship focus must be a cultural commitment that is both transparent and genuine. Done right, you can enjoy the resources of a large agency while also providing the personal touch your customers seek.

McDowell is president of the personal lines and small business division at Insurance Office of America.

More in Industry

Underwriting for Social Inflation
Industry Underwriting for Social Inflation
Q&A with Dennis McGuire, Casualty Underwriting Director, Nationwide
Sponsored By Nationwide
Industry Beginner’s Guide to Premium Finance
How premium finance works—and what to keep in mind.
The Emerging World of ESG Climate Disclosures
Industry The Emerging World of ESG Climate Disclosures
If the SEC’s proposed rule is finalized, the challenges will come quickly.
Innovation Lab
Industry Innovation Lab
Q&A with Dawn Miller, Commercial Director, Lloyd’s
ILS Transparency Wins Investors
Industry ILS Transparency Wins Investors
Q&A with Samir Shah, Founder and CEO, Ledger Investing
The State of Commercial Insurance
Industry The State of Commercial Insurance
The Council and EY conducted a survey of stakeholders to exa...