Three principles to maintain control of your agency
“Future. That period of time in which our affairs prosper, our friends are true and our happiness is assured.”
— Ambrose Bierce (1842–1914), U.S. author
To achieve the future you envision for your agency, it takes hard work and planning. Taking shortcuts with your perpetuation plan is like signing the dotted line before reading the fine print.
Rick Wittmann, assistant vice president of marketing operations, is General Casualty’s in-house expert on perpetuation planning. He’s seen many agencies lose value due to poor planning. To make sure this doesn’t happen to you, he offers three basic principles to chart your agency’s own destiny:
-
Plan strategically for the future.
-
Become a star sales agency.
-
Seek balance when managing financials.
1. Plan strategically for the future.
You know you need a plan. But Rick says owners often put off defining and outlining their expectations for their agencies – especially when it comes to long-term goals. Do you want to maximize owner distributions, increase retained earnings, reinvest in staff or fund perpetuation?
Think about what you really want. Be specific. Then set written goals that help you get where you want to be.
“The biggest thing with agencies is they tend to get wound up in the day-to-day,” says Doug Terrill, senior vice president of Marsh, Berry & Company. “Instead of looking at long-term and high-level objectives, they’re too busy putting out fires.” (Doug shares strategic planning tips below.)
2. Become a star sales agency.
You can generate organic growth and maximize value by becoming a star sales agency. A.N. Ansay & Associates of Port Washington, Wis., has done just that.
We have a culture of growth engrained in our agency,” says Ansay’s commercial lines operations manager, Mike Anderson. “It’s crystal clear the number of appointments and quotes each producer needs in order to make their goals.”
Ansay producers have a minimum account size they can work on. In addition, each year they “trade down” the smallest 20 percent of their book, which goes to a dedicated small business unit. “In essence, this forces growth, while also keeping producers focused on our most valued customers,” Mike says.
Mike adds that Ansay employees are specialized by business unit, which develops employee expertise, focuses growth within each line and makes it easier to absorb books of business from newly acquired agencies.
Ansay also has a dedicated business development unit, led by Sue DeRuyter. Her team made 21,000 calls in the first half of 2008, helping generate thousands of new leads.
Their focus on sales strategy is an essential part of Ansay’s perpetuation and long-term growth plan. And the numbers show they’ve been successful: The agency has grown steadily over the past several years, including a 6 percent increase in core revenue this year despite the soft market.
3. Seek balance when managing financials.
“You’ll need to fund growth initiatives in order to reach your goals, while at the same time coming up with a good balance of growth and profit,” Rick says. For example, he suggests paying producers less commission for renewals than new business. “A producer is not going to be as aggressive in writing new business if they are being paid the same commission on renewals as they are on new business.”
If you want certain producers to focus on drumming up new business, you’ll also need to support them with time and resources. For example, use the money saved on renewal commissions for support staff and services that help manage the renewal books – like Ansay does with its small business unit.
Similarly, Rick emphasizes paying for performance. While working on agencies’ perpetuation plans, he says it’s not uncommon to find producers who are paid more than they bring to the agency. He also suggests installing a new business requirement of 15-20 percent of the prior year’s book to keep the producer title.
In addition, Rick points out financial best practices, such as growth budgeting that includes an allocation of no more than 5 percent of annual revenue for growth investments. He also suggests reducing your agency’s dependence on contingent or supplemental income for pre-tax profit.
By following these three principles to plan, sell and spend your resources deliberately – always with your goals in mind – you can chart your agency’s destiny.
Planning tips from MarshBerry
Doug Terrill, senior vice president of MarshBerry, says that when a strategic plan is done properly, it gives agency owners more options – including perpetuating internally or externally – and yields the best sale price when the owner retires. He shares these strategic planning tips:
- Step away. To make a long-term, strategic plan, you need to get your mind off day-to-day agency business. Work on your plan away from your desk, phone and PDA.
- Use the plan. Don’t create a plan that just sits there. Monitor objectives quarterly, and revisit the plan annually.
- Set three to five objectives. Agents are entrepreneurial and ambitious by nature, but if you have 30 objectives, you won’t get anything done.
- Get it down on paper. Every owner has a vision for his or her agency’s future; they just need to make a point of writing it down. It doesn’t have to be a big binder to be a sound, strategic plan.
- Invite your key players. All of your stakeholders should be involved in setting your long-term strategy.
Marsh, Berry & Company, Inc. is the U.S. insurance industry’s preeminent provider of financial, operational, sales management and organizational services.