Tag Archives: independent agencies

Private Equity Drives Agency Change

The independent insurance agency industry is being disrupted, but the disruption is not necessarily coming from the place everyone fears, which is technology. The sustained boom in agency acquisitions by large national brokers, regional agencies and especially private equity organizations is, in effect, hollowing out the middle of a traditional industry. In fact, my recent discussions with industry experts suggest that if the pace of recent agency acquisition continues, the remaining “investable” agencies could be depleted in just four years. 

The acquirers are bringing increasing financial sophistication and technological capability to the industry to earn a return on the increasingly high prices they are paying for the underlying asset. This fact has important implications for agency owners who are interested in preserving the legacy of their business by not selling to a larger organization: To remain competitive and maintain traditional profitability levels, locally owned independent agencies must match the big organization’s sophistication. 

The biggest difference between private equity or other acquirers fueled by the stock market and locally owned agencies is their ability to gather, analyze, manipulate and use data to improve their operations, cost structures and organic growth. There are two pieces that agency owners need to understand. The first is the human capital capability for analysis and decision making; the second is the systems, software and other capabilities these organizations invest in to provide the data and analytics they need. Let’s begin there. 

Data-Driven Change

For an agency to grow beyond a couple of million dollars of revenue, it needs a deeper understanding of the books of business and clients. As agencies grow, they tend to make increasing use of their fundamental software system, the agency management system (AMS). However, that is just the beginning point for an agency fueled by private equity. Such agencies also use software like Risk Match, which tells them at the account level what carriers will pay them for the business they’re writing and how individual accounts will afect profit sharing. This granular data and analysis helps large agencies make very sophisticated decisions about the business that they will and will not write, as well as where they place it in the companies they represent. 

Systems like this also give tremendous insight into carrier compensation, which increasingly sophisticated operations are able to use to negotiate arrangements that are tailored to their individual operations. These software tools not only assist the agency’s organic growth but also facilitate reductions in expenses through greater marketing efficiency. 

See also: Of Independent Agents, Heirloom Tomatoes

Private equity-owned and similar organizations also use sophisticated customer relationship management (CRM) programs customized for their operations. These programs manage sales teams and prospecting activities much more intensively than small agencies and gather data to reach potential clients with very targeted marketing messages. This capability, along with flexible teamwork, improves client acquisition. 

Increasingly, private equity-funded agencies are also purchasing services and software that until recently were only the purview of carriers. The agencies are able to purchase data and analytics from third-party providers to gain additional insight into their existing books of business and also opportunities in the niche markets they choose to serve. 

These firms are also investing huge sums of money to give clients what they want, which increasingly is the ability for self-service. While many independent agencies are using off-the-shelf capabilities provided by their AMS, the private equity firms are opting for a bespoke approach with the understanding that the incremental capability they are able to deliver clients will help them increasingly win and retain business. 

In addition to opting for self-service technologies, larger agencies are rapidly adopting what many local independent agencies continue to shun. That is the use of account servicing technologies like CSR 24/7, insurance operations and business process solutions providers like Resource Pro and even company service centers to drive down expenses. These large agencies recognize they must take an aggressive approach to cost-cutting to generate the profits necessary for an adequate return on their investment. Once the returns have been realized, these efficiencies contribute to capital and the capability to acquire even more business. 

Finally, large, well-funded private equity groups are able to bring to the party sophisticated human resources required to make the best use of this technology from an analytical point of view. Simply put, because of their size, these groups can hire data scientists and data experts to inform better, more sophisticated decisions. The groups expect staff in the acquired agency to use the technology, the data and analytics; increasingly, those who don’t will have no place in these organizations. 

The Agency Bottom Line

What all of this implies for the independent agency that intends to remain independent is the need to make increasing investments in similar capabilities. The challenge for smaller organizations is the cost of these human and technical capabilities, which  is exacerbated by the fact that the technical capabilities are expanding at an exponential rate and that agencies can no longer assume that software they purchase will have a useful life beyond the time it takes to pay for it. 

Increasingly, to remain competitive, agencies will have to make investments, not knowing in advance what the return will be. The good news is that, for the vigilant and adaptable organization, much of this technology will become increasingly less expensive. However, the fundamental choice remains for agencies: Are you willing to adapt at a rapid rate to remain competitive with much larger organizations that have a local presence in your community, or will you attempt to grow your business by either moving down market or reducing your historical profitability?

See also: 4 Keys to Agency Modernization

In many ways, the independent insurance agency industry has not fundamentally changed in the last 100 years. Yes, we are using computers to do faster what we did with typewriters 50 years ago, and by hand before that. But we are still doing things essentially the same way. Today, though, sophisticated data analytics, automated submission systems, outsourced service capabilities, dynamic self-service and other technologies — along with increasingly sophisticated human capabilities — being brought to the industry by private capital are making fundamental changes to the traditional industry. 

Agency owners are, therefore, increasingly faced with the difficult choice of selling to one of these organizations and giving up their traditional independence, accepting lower profit margins in an attempt to hang on or embracing similar technologies in a renewed effort to compete in a changing business. For agencies, the question is: Which choice will you make?

Stop Tolerating Old Tech From Carriers

Waiting on hold. Faxing underwriting forms. Apologizing to customers for insurance-company errors. Sound familiar?

Up until now, you and your staff accepted this conduct as the status quo. Your customers did, too.

They won’t now! Today’s consumer expects a different experience. She expects to control her interaction with your agency on her terms, 24/7. This change in behavior occurred because of advancements in technology. Propelled by the Web and the computing power of the smartphone, consumers today expect to be able to digitally purchase a policy, make a change to the policy or file a claim.

Several forward-thinking carriers anticipated this trend at the turn of the century and started to upgrade their technology platforms. The goal: Speed transaction processing and reduce cost. Many executives complained, however, that the benefits of their technology improvements couldn’t be fully realized because agents refused to improve their technology.

Fast forward to today. Because of the advent of cloud computing, agile software development and more powerful processors, agencies can transform their customer experience quickly, at low cost. Leading management systems enable an agency to reconfigure its operations to provide a robust, up-to-date, real-time customer experience. This is one of the greatest advances for the independent agency system in many years. With agile technology and an online presence, successful independents are slowly but surely recapturing market share from less agile captive-agency behemoths.

Unfortunately, many agencies encounter a roadblock — their carriers’ outdated, inflexible systems. This creates a competitive disadvantage for the agency because it detracts from the customer experience.

In today’s market, it’s too easy for a customer to switch. Agency owners can no longer put up with a carrier’s antiquated business processes.

Remember that point the next time you are looking at two competitively priced quotes from two different insurers. Ask yourself, which one has the best technology interface that leverages your modern agency management system? It’s as important a question today as the commission rate.

What You Should Expect From a Carrier’s Technology Platform

Customer access: Does your system allow my customers to access your policy processing system from our agency website?

  1. Claims filing: Does your first-notice-of-loss system alert my agency by email or text when a customer files a claim? Does your claims system allow my customers to access your first-notice-of-loss process from our agency website?
  2. Data analytics: Do you have data analytics tools to allow me to determine the risks to target in my local community?
  3. Agency management system integration: Do you interface with my agency management system?
  4. Straight-through processing: How much do I have to interface with carrier personnel to issue a policy, make policy changes and adjust a claim?

Become a Brand Behemoth — Locally

Suppose you walked into a store to look for a new television. If the store only carried one brand, would you shop there? Of course not, but that’s just what today’s insurance behemoths want you to do when you buy insurance.

With an abundance of information just a few key strokes away, today’s consumers demand choice. From automobiles to zucchini, consumers do research online before they make a purchase. Today’s policyholders no longer accept a single company quote. It’s hard to satisfy this consumer demand if you’re an agent who can only offer one product. It’s why the era of the captive agent is coming to an end. Only independent agencies that “meet” their customers online by leveraging their customers’ desire for information and choice will succeed.

The rise of digital media—the web, social media, the smartphone and other mobile devices—has leveled the playing field and even tilted it toward independents. Independent agents can now compete against the industry’s brand behemoths by making their brand even more powerful in their area. They can become local brand behemoths.

Digital tools enable you to provide a better experience to existing clients. Online lead generation allows you to more efficiently find new clients.

Improving customer experience

In a commoditized industry like insurance, the only way you can differentiate yourself is to provide excellent customer service. In the digital age, that means providing your customers with the opportunity to interact with your agency whenever and however they want. From policy changes to evidence of insurance, customers today would rather do things themselves online than have to wait to call your office when it’s open.

One of the most surprising things is how much people love self-service. Surveys show that companies of all types, including insurers, consistently get better service scores when they let consumers manage their account themselves.

Does your website allow customers to make policy changes, track their claim, get a quote or review their policy limits? Consumer tastes also require that your website be mobile-compatible. The smartphone has replaced the computer as the device of choice for consumers. A mobile-compatible site must be clean, because smartphone screens are small. Users must be able to navigate and read your site quickly on a smartphone. Is your company’s website easy to use on a smartphone?

Your website can’t be static and one-dimensional. People don’t want to read gobs of copy online. Your site should give visitors interactive experiences. For instance, display the icons of the companies you represent instead of listing them.

Attracting new customers

Use online resources to expand the reach of your marketing efforts.

LinkedIn provides a great example. Start by identifying people on LinkedIn whom you are connected to indirectly (i.e. through an existing contact but not directly) or are members of the same business group as you. These are your LinkedIn prospects. Next, go through your existing business network and identify a service provider like an accountant, photographer or other small-business owner. Ask if they would be willing to provide a discount to customers you refer to them. If they agree, send an email to your prospects identified from LinkedIn letting them know they can receive a discount. This creates a win-win for both of you.

Here’s a real-life example: I received an email from an executive coach introducing herself and offering me a 75% discount on professional executive photographs. All I had to do was contact the photographer, mention the promotion and schedule a time for my photo shoot. At the end of the email, the executive coach asked me to add her to my network on LinkedIn. While I didn’t need a professional photo taken, I was intrigued by this online joint venture.

It turns out that one of the executive coach’s referral sources is a professional photographer, and they created a photo day for the executive coach’s clients and prospects. The photographer could give a deep discount because he only had to set up once for all of the photos that day.

Thirty people set up appointments. Existing customers of the executive coach were impressed with the value she brought in addition to her coaching. Prospects were introduced to the executive coach in a positive way – you just saved me a lot of money and introduced me to a quality photographer. The executive coach attended the whole day and used the time in between photo shoots to introduce herself or reacquaint herself with past clients. It was a win-win situation for both the coach and the photographer.

Digital giveaways

No one gets excited about a birthday card from his agent. Instead, how about giving away a mobile app so your business can stay top of mind? An app that gets your name on a client's phone is a great way to stay in touch—and provide something of real value.

Facebook, Twitter, Tumblr and more….

You need to be on social media. Although engaging with social media takes time, what you learn online provides you with valuable customer insights. It’s like getting the questions to a test in advance. You have a real advantage.

Social media isn’t just about following people. Post or tweet information about how to prepare for catastrophes unique to your area so people can prepare for them. The more you engage digitally, the more relevant you become online.

You’re probably thinking: “I don’t have time for this!” You’re right! Find someone who uses these tools everyday – a student or a young person in your office and put that person in charge.

All the pieces have fallen in place for independent agents. Seize the digital moment now and prosper!