Tag Archives: agents

Agents Must Better Explain Their Value

If agencies can’t do a better job of explaining their value, better marketers will convince consumers they are more ethical than you.

A recent press release from an insurtech caught my attention and ire. What first caught my eye was how the startup measured success in coverage placed, i.e., total policy limits rather than premiums or commissions, to make themselves look successful. For people who don’t know the difference, it was impressive that a 12-person startup agency could place $2 billion in coverage in four years! The average 12-person agency only has $1.2 million to $1.6 million in revenue. This insurtech is outperforming the average agency by 1,430 times!

$2 billion in coverage at $1 million in liability only is just 2,000 policies. Assuming there is some auto and comp and whatever else in there, let’s say 1.5 policies per customer; that is only 1,333 customers; or, in other words, they basically wrote one account per day over four years. Those kinds of policies average around $500 commission each, which may be generous but I’ll use that figure. That amounts to $667,000 in revenue. Divide that by 12 people, and the result is $55,000 revenue per person.

Insurtech is supposed to be about scale. The definition of scale, in all directness, is doing more with fewer people. Scale is nothing else. $55,000 in revenue per person is not scale.

What next caught my attention was their statement that the traditional insurance model provides agents incentives to sell customers policies they don’t need or contain inflated coverage limits. I’d really like to see solid proof that this regularly occurs. I don’t know the captive agent world well, so maybe it happens there, but I doubt it. I know the independent agency world extremely well, and I have rarely seen this happen.

The system actually works the opposite of their statement. In the traditional agency model, for many complex and intertwined reasons, agents actually have more incentive to sell clients less coverage than they need even though they are threatened with E&O suits for doing so! I have seen a large number of agents sued for not selling adequate limits or the right coverages. In the COVID-19 world, has anyone seen an agent sued for selling too much business income insurance?

For 25 years, I have been cajoling, arguing, demanding, yelling and screaming at agents to use coverage checklists, and yet agents are no more likely to use coverage checklists today than 25 years ago. (I’m a failure!) It has been proven over and over in E&O studies that using coverage checklists to ensure clients are offered adequate coverages is the best solution for both clients and agents!

I have only seen one suit brought in the independent agency world for selling too much insurance, and the suit was aimed at the carrier because it was the carrier’s practices, not the agencies’ practices, that allegedly resulted in excessive and unnecessary limits. I’ve never even heard of an agent being sued for selling clients too much insurance.

This insurtech advised that their model works because they make up the difference with finance fees. Their story sounds great to a large proportion of consumers. Consumers do not know how much insurance they need because no agent has ever educated them on how much insurance they need. I teach a lot of insurance classes and have conducted a lot of E&O audits; few people ever discuss the importance of drop down UM coverage on an umbrella policy (in fact, many agents and customer services representatives don’t even talk about the importance of an umbrella policy). Selling unnecessary coverage is really, I mean really, really hard when most agents do not even offer necessary coverage. I was with a retired family member who had paid off his mortgage and wanted to drop his homeowners’ insurance. I explained he would lose his liability coverage. This is an extremely smart person and yet not one single agent in 40 years had ever explained the importance of liability coverage to him!

Professional agents will lose if they don’t educate their clients as to why they need more coverage. They will lose to agents who actually advise those same clients, who do not have enough insurance, that their incumbent agent has actually sold them too much coverage! Pay for what you need, they say, but the consumer has no idea what they need!

See also: 4 Post-COVID-19 Trends for Insurers

A huge proportion of producers exacerbate this problem when their client asks, “How much liability should I purchase?” The producer frequently answers, “As much as you can afford.” What is the difference between this “professional” advice and insurtechs’ advertising, “Buy as much as you can afford.” It’s the same advice! The correct response is to help your customer figure out what they can afford to lose and then recommend that they buy an appropriate limit.

The insurtech’s press release articulates so much of what I see as wrong and unfair in this industry. Yet, the failure of agents to educate their clients and offer the right coverages and their own lack of knowledge about coverages has opened the door wide for this kind of upside-down and sideways marketing pitch to actually make sense to consumers. A low down payment with significant finance fees has been a successful business model for a long, long time.

One other possibly dubious claim is that insureds will still save 35% because carriers are willing to reduce their price because the insurtech agent is so efficient. This claim may be true in some instances because reducing acquisition cost is a huge goal for carriers today. However, a 35% savings? Let’s do the math on this:

The industry average loss ratio has been 61% over the last five years. The average profit margin is around 10%, including investment income. Independent agents are paid an average of around 13%, including comp. So, no matter what an agent does, the most carriers can save is 13% by eliminating agency compensation. An argument may exist relative to some additional savings relative to frictional costs, but not enough. The carriers’ average total expense ratio is around 28% excluding LAE. If I remove the commission of 13%, that only leaves 15%. A 35% reduction in expenses is impossible.

Additionally, using a 61% loss ratio, and if the rate is 35% less, the loss ratio would be 96%, all else being equal. Even if all commissions are eliminated, the loss ratio is still 83%. An 83% loss ratio is not sustainable.

Now, maybe the quoted 35% savings is meant to mirror other disingenuous price saving advertising such as, “The average customer who switched saved $350!” That is an entirely pointless but quite effective ploy. Let’s say 1,000 people shopped that carrier’s site, and 990 stayed with their existing carrier. The remaining 10 saved an average of $350. The people who did not switch may have saved an average of $350 by not switching, so they did not switch! Only counting one side of a ledger is illegal in finance, and perhaps advertising rules should be revised along the same lines. Either way, advertising that carriers are offering lower rates when it is just a math gimmick is mixing and matching in a manner that is highly questionable.

A true 35% savings from the same carrier requires special filings by that carrier or the use of a special purpose PUP company with previously filed deviated rates. That is an awful lot of work for a startup agency that has so little commission they announce sales in total policy limits.

See also: 10 Tips for Moving Online in COVID World

Always check the math on claims like this startup’s. More importantly, sell the right coverages, educate your clients on how much coverage they actually need and show them you won’t sell coverages they do not need. Don’t let firms like this insurtech beat you.

You can find this article originally published here.

How Can Brokers Grow in 2020?

There seem to be infinite possibilities for insurance brokers to grow these days. Here are a few tried-and-true strategies that brokers can take full advantage of in 2020 to stay relevant and elevate themselves to strategic advisers.  

Expand your product and services portfolio

Brokers need to challenge the idea of being specialists, especially because monoline insurance selling is not as prominent as it once was. It will pay off to operate as a generalist with a vast knowledge of multiple available coverages and services rather than focusing on a singular, niche area. Indeed, expanding their portfolio can help brokers manage clients’ entire risk profile, reach new segments of potential clients and elevate them from simply a vendor to a strategic adviser. For example, a broker with clients in healthcare, an industry with acute cyber concerns, might expand his or her portfolio to offer cyber insurance. 

Get out of the Stone Age

In today’s digital world, clients are accustomed to having service at the touch of a button, and brokers must adapt. Implementing technology that boosts efficiency, enables customers to manage their own products and expedites all processes has become a must as clients no longer have patience to work with businesses unwilling to make such changes, regardless of coverage options.  

See also: Realistic Expectations for Insurance in 2020  

Evaluating where strategic investments can be made specific to their business, such as adopting a new agency management system, using data and analytics, white labeling or partnering on risk engineering services, can also fuel growth. For example, using a system like CoverWallet to rate, quote and bind smaller accounts, frees up agents’ time to focus on larger accounts with more revenue potential. Or agents can tap digital partners like IVANS to identify emerging markets faster, which leads to quicker growth. 

Be comfortable with a “blank piece of paper” mindset

Every successful broker has a growth mindset. Although it can be uncomfortable, a great way to grow can start from a “blank piece of paper” mindset. That is, moving away from the “business as usual” mentality and just saying “yes” can lead to unimaginable possibilities and new ideas regarding the evolving service, technology and customer experiences. For example, insurtech companies are super comfortable with a blank piece of paper – it allows them to think, design, build and test new ideas in a fast environment.

Straying away from the idea of perfectionism can lead to meeting new people, creating long-term goals and working on projects you hadn’t considered before. Being willing to start from scratch and think outside the box allows brokers to learn about the field in new ways. The ability to adapt to overcome challenges and a willingness to embrace the unknown are essential skills for successful brokers. A way to work on honing this skill is by looking for new strategies to adopt that allow you to stay up to date on current trends in the field, and maintaining an optimistic mindset. Long-term strategies can come from not being afraid to start at the end of something and working backward toward your goal instead of trying to fix what might be broken.

Have a referral strategy

Putting a referral strategy in place can help brokers capitalize on growth opportunities. Failing to take this step is essentially leaving money on the table.  It’s important to set goals before crafting and implementing a strategy. From there, brokers can make it a habit to think about who they can tap for a referral two or three times a week, and then bring the referral to life. These efforts will add up over time with persistence, gratitude and creativity. 

Referrals are a major business builder and money maker for brokers. When trusted clients, friends, family and colleagues recommend a broker’s services to others it can quickly translate into a new customer. However, brokers can’t rely solely on word-of-mouth referrals. To break free of the referral rut, brokers should leverage both social networking and traditional, in-person networking to organically grow their business, strengthen relationships and reach new audiences.

See also: What a Safer World Means for Brokers  

Invest in strategic partnerships 

Strategic partnerships can allow brokers to push their capabilities to the next level and expand into new areas of insurance. There are three main potential partnerships for brokers to explore: agent aggregators, merger or acquisitions and gaining access to an online marketplace. Agent aggregators offer immediate expansion and resources. Mergers or acquisition can prove successful when two firms specialize in the same niche area or have symbiotic offerings. Lastly, gaining access to an online marketplace is an increasingly common option with the evolution of insurtech.

Tough Questions for Agencies

It was the ARM Partners Conference in New Orleans on April 18, 2012. I was to speak on change. The attendees, many with bloodshot eyes, were slowly filling the room. The program was the first of the morning. Slow and bloodshot are part of the culture of early a.m. in The Big Easy.

I placed a trash can in front of the group and a bottle of baby aspirins on the podium. I explained that “my intention today is to create chest pains, because chest pains change behavior. If the chest pains get too serious, take a baby aspirin and place it under your tongue. If I upset your already queasy stomach, you can throw up in the garbage can.”

Nervous laughter followed.

An early slide included two quotes. The first: “Fat, dumb, and happy, commercial banks are being quickly replaced as financial intermediaries.” (Time magazine, June 28, 1993, Bernard Baurnohl). Agencies, not just bankers, needed that warning. The second quote was from Peter Drucker: “Whom the gods wish to destroy, they send 40 years of success.” That one was because recurring revenue from renewals makes many agents too comfortable.

As John F. Kennedy said, “There are risks and costs to action. But they are far less than the long-range risks of comfortable inaction.”

See also: Are You a Manager or a Leader?  

How would your agency look if your marketing and sales were audited to see how well you were taking advantage of your opportunities? Is your organization about performance, sales, marketing, customer intimacy OR the daily transactions and the comfort of your staff and yourself?

Auditors are tough: One with the Centers for Disease Control and Prevention in Atlanta said, “When the war is over, the auditor steps onto the battlefield and bayonets the survivors.”

Is your agency and your team bruised and bloodied from battles of yesterday or up and running forward into the future? Will the marketplace, the ultimate arbiter of success, bayonet you or reward you? Are you the past or the future?

Max DePree says, “The first role of the leader is to define reality.” The following questions may help you begin to define your starting point for tomorrow:

  1. Do you and your team share understanding of and commit to the vision, values, mission and objectives established for your future? Will each of you and all of you be accountable for your performance and results? Are these your X commandments or X suggestions? Are these right for the world as it is and as it will be?
  2. Is the marketplace you serve or hope to serve in decline, level or in ascendancy? If your answer is in decline or “flat lining,” can you find new products to offer your existing clients? Can you offer your existing products to new clients or, even better, can you offer new products (services) to new clients?
  3. Is your team compatible with the market niches you serve? If you are blessed with some really experienced and wise baby boomers, will they be right for the Gen X and Gen Y that is your tomorrow? Will your English-speaking producers be right for a Laotian population? Will your clients shop producers based on their knowledge or their cultural/gender compatibility?
  4. How will you sell in a non-verbal world? Is your delivery process (sales and service) of choice the preference of your clients and prospective clients? Are they comfortable with what and how you do business? Are you comfortable with what and how they want the relationship to be? CAN YOU ADAPT TO THEIR FUTURE?
  5. What products, important today, might not be available tomorrow for you to sell? Is the National Flood Insurance Program sustainable, for instance, or will its vulnerability to adverse selection ultimately cause it to collapse? Will auto liability coverage be needed with self-driving cars? Will Gen Ys prefer private ownership of cars or Uber or public transportation? Will they have the appetite for home ownership that we had? Will your community survive? Will coastal properties be readily available, or will global warming have moved them all off of the coast?
  6. What new opportunities might be available to you that are not in your “briefcase” today?
  7. Will the advances in technology allow you to do more with your clients and prospects more efficiently/effectively? In a virtual world, might 7.5% commission be adequate where today you are blessed with 12%? Who will dictate commission levels in the future – you or your clients? Will carriers determine your commissions on what you need or what the market is willing to pay? Could you sell effectively with full disclosure of commission or quotes net of commission?
  8. What will the world of retail – malls and Main Street — be like tomorrow? Will all the action be on the banks of the Amazon?
  9. Will the government finally move to a single payer healthcare system? Will your local doctors now satisfy their needs through their network versus as individual business owners? Will they be entrepreneurs or employees? Will they be in the business of business and the business of medicine, or will they specialize in only medicine?
  10. In the future must you be “too big to fail,” or will you be too small to succeed?

I don’t know the answers. I don’t even know the questions that are appropriate for tomorrow. Your future doesn’t depend on me. It depends on you. What do you know? What should you know? What will you do? Can you be profitable regardless of what the market is willing to pay?

See also: 5 Transformational Changes for Clients  

About 20 years ago, I was speaking to an agency conference and talked with one of the attendees. He was over 75, very traditional, successful, conservative and very comfortable in his ways. I asked if his exit from his agency by death or retirement would increase or decrease the value of his agency. His response was immediate, “Boy, you done gone from preaching to meddling.”

I now offer you the same question – are you and the agency you own or work with ready, willing and able to move from yesterday and today into tomorrow?

REALLY???

It’s your future.

9 Social Do’s and Don’ts for Agents

Social media can be a great tool for insurance agents. It can help connect them with current and potential customers, grow their network of industry colleagues and share and be aware of timely information that affects their business. However, being active on social media as a professional is easier said than done, for both new and experienced users alike.

Our team has outlined some key do’s and don’ts that agents should keep in mind:

DON’T disclose anything proprietary. It’s imperative that agents understand what is confidential when referring to their clients. You also don’t want to give away any trade secrets, your business growth strategy or the names of your partners that would give competitors a leg up.

DO use case studies on social media. They can be a great way to illustrate a point or show how you were able to bring a creative solution to a client problem. Just make sure the case study is generic, broad and doesn’t mention any participants specifically.

See also: Important Perspective for Insurance Agents  

DON’T use inappropriate language. Curse words are a given to steer clear of, but the importance of the language you use extends far beyond that. Make sure the language you use is concise and clear and, what’s more, that what you say is tailored to your audience. Using too much industry jargon and posting about things that your audience can’t relate to will alienate readers. Lastly, don’t be self-promotional or sales-y – for example, capitalizing on selling your flood insurance program after a natural disaster.

DO present yourself as a thought leader. Providing industry expertise by sharing timely articles on industry news and trends and commenting in a smart way on others’ posts when you can will set you apart on social media. Be timely and provide quality content – not just fluff. Give your audience something that is useful to them and, when appropriate, invite them to respond to what you post with a call to action, such as signing up for a webinar you’re hosting or joining you at a local networking event.

DO interact with your network. It can be intimidating at first to put yourself out there and interact with your network, but doing so is an important part of maximizing the potential of social media. Liking, commenting and sharing posts that you see in your newsfeed or that are posted by colleagues are the easiest ways to interact with your network. In turn, be sure to respond to those who comment on your posts.

DON’T let negative comments or posts linger. Arguably even more important than responding to positive interactions on social media is addressing the negative. While your first reaction may be to ignore a negative comment or post, knowing when and how to address them makes the situation much less daunting. First, always respond in a timely manner – but make sure you have your thoughts together and don’t respond brashly. Second, take the conversation offline as soon as possible. This can be as easy as responding with a polite comment and offering a direct number. It’s also important to recognize that each negative comment should be dealt with on a case-by-case basis – there is no one-size-fits-all approach.

DO measure your social media activity. Agents should have metrics in place so they can measure against true success on social – likes and follows don’t always mean success! One key way to do this is to be knowledgeable about engagement rates. For example, it’s much more meaningful to know how many people have seen your content and are taking an action on what you share (i.e. liking, commenting, sharing) – or, better yet, navigating to your website! – than if you’ve added one or two followers.

DO stay authentic. Independent insurance agents are based on community – the more you can be active on social media, the more you’ll raise engagement with your brand as a professional and with your business. That being said, show personality. People want an agent who is a human, not a social media robot.

See also: Find Your Voice as an Insurance Agent  

DON’T get intimidated. Social media is somewhat intimidating to independent insurance agents, in general, especially the ones who aren’t as familiar with social media and who are older. Regardless of age, don’t hesitate to get started. This is vitally important because, to be successful in today’s world, you have to meet your customers where they are. Ramping up your activity level on social media can be slow – break things down into manageable tasks. For example, start by spending 20 minutes per week on the platform connecting with people or sharing an article, or liking or commenting on three posts.

This article is provided for general informational purposes only and is not intended to provide individualized business, insurance or legal advice. It is not intended to be a substitute or replacement of any workplace policy on the subject matter.

Becoming a True Professional Agent

I have had the opportunity to ask many former Division I college athletes and a few professional athletes how much time they spent practicing. Plenty of articles exist that detail the many hours professional athletes endure practicing, studying film, lifting weights and doing stretches. Professional actors are similar in how they go through hours and hours of practice, readings, run throughs and vocal exercises. An interesting measure is how many hours of practice go into each hour of actual game time. Depending on the sport, the ratios I have calculated and seen range between five and 15 hours of practice and preparation for each hour of actual game time.

Professionals spend a tremendous amount of time practicing and preparing. When I ask producers how much time they spend practicing and preparing per hour of actual sales and client meetings, the answer is usually the opposite. They spend maybe one hour preparing and practicing for every 20 hours of sales and client meetings.

Some producers tell me they do not have time to practice, and, besides, professional athletes are paid much, much more, and the compensation delta is even higher between professional athletes and amateur athletes. Professionals make time to practice so they can earn more. I have found the same effect to be true with producers. True professional producers spend much more time practicing, even reading forms (preparing), than amateur producers.

See also: Do Consumers Trust Their Agents?  

A good example of this practice that is always amazing to me is how so many really good professional agents with big books find the time to use coverage checklists with their clients. Yet, in the same agency, other producers do not use checklists; their excuse is always, always the same: Their clients will not give them the time, or they do not have the time. How is it that a producer whose book is three times or even 10 times larger has the time and finds clients who give him or her the time to go through coverage checklists, while those producers with small books never have the time to act professionally? What a weird phenomenon!

Professionals in any occupation always find the time or make the time to practice and study and prepare. People who want to be seen as professionals, but are really just pretenders, never seem to find the time or make the full effort required to attain the skills necessary for success. These people want the recognition and the compensation, without the effort. Nice work if one can get it, and many insurance agents have succeeded doing just that for a long time because consumers do not know what they are buying until they incur an uncovered claim.

The industry is changing, though, and technology is going to reduce the compensation of amateur agents severely because, frankly, who needs an amateur insurance agent? Do companies need to pay full commission to amateurs when they can achieve the same transactional sales results at actual amateurs’ wages? That math is pretty easy to figure.

Why should a consumer pay the same price for an amateur agent as they pay a professional agent? In fact, why should a consumer pay an amateur agent anything?

A professional agent, a truly professional agent, is someone who puts in the hours to learn and know the coverages in depth. A professional agent is someone who takes the time to work with clients to identify their needs, and actually does this every year for every renewal. At the very least, the agent makes a genuine effort to meet with clients at least annually to go over their needs, changes in coverages, changes in exposures and changes in their lives and businesses.

Professional agents do not just “BOP” every account. They actually understand what coverages in a BOP need enhancement to provide their clients with the coverages they truly need. An excellent example of an amateur agent is when a producer tells a client that he has automatic cyber coverage in the BOP. At best, such an agent might qualify for flag football.

See also: Changing Point of Sale for Insurance  

Is this a harsh statement? Not really, because it is reality, and that agent can change reality by actually practicing and preparing and learning the coverages. These situations are fantastic examples of people being in charge of their own destinies. They can be a pedantic peddler of insurance, be lazy really, or they can endeavor to practice, to study, to prepare and to become a true professional who serves a vital purpose and protects their clients’ true well-being. The choice is completely yours, but the idea of actually being a professional while hardly ever practicing and preparing is dead. No more pretending.