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Why Agencies Slow Down

Most, if not all, independent insurance agencies say they want to grow. However, the actual organic growth rate for most agencies does not reflect this.

According to a recent report, even the national brokers had an organic growth rate of only about 3% last year. While their 3% translates to a much greater dollar amount than the average agency, it’s still only 3%. Considering these are the agencies that are supposed to have the best producers, the best markets and the best everything, to me that’s a truly lackluster figure.

Any agency that’s growing just enough to stay ahead of the ever-increasing cost of doing business is barely maintaining profitability. Accordingly, there’s little or nothing left to invest in obtaining the best people, automation and outside services. So the need for organic growth is self-evident—or is it?

Key reasons for the slowdown

As I began to ponder why more agencies aren’t growing at a greater rate, it occurred to me that the better question might be, “What makes so many independent insurance agencies slow down?” Based on my years of experience and observation, I’ve come up with the primary factors that cause agency growth to slow to a crawl.

Increased Competition: Back in the “old days,” it was pretty easy to make a great living in the insurance business. All you needed was a nice office in a good location, attractive signage, a big ad in the Yellow Pages and an active presence in community groups and organizations. Upon request, you’d provide quotes on insurance and your agency would grow. But in the wake of increased competition and multi-media marketing, that traditional approach has fallen by the wayside.

These days, potential clients are bombarded with advertisements from companies like GEICO, Progressive, and State Farm and so many others. So even if you’re well known and very active in your community, and have a state-of-the-art website, prospective customers can easily get another quote from a growing number of competitors out there.
Commoditization of the Business: There’s never been a more convenient time for consumers to shop around than now. Theoretically, a person could spend an hour on the phone or online and get four competing quotes. In fact, in many cases they can get a quote almost instantaneously without ever having to speak to a human being. With so many timesqueezed, price-focused prospects willing to sacrifice personalized service for low-cost insurance, writing new business is a growing challenge.
Aging Producers: When you look at the average age of your producers, you’ll find that the vast majority are closer to retirement than not. This isn’t necessarily a bad thing. As long as they’re profitable, their age is irrelevant. The ones I’m talking about are your RIP (Resting In Place) producers. Typically, they’ve been in the business for quite a few years, they’re making more money than they ever thought they would and they live quite comfortably. They aren’t terribly motivated to grow their book of business because they don’t have to. They’ve plateaued.
Aging Staff: As with producers, I’m not targeting productive staff members of a certain age. After all, in our industry, a 40-year-old might have been with an agency for 20 years. What really matters is not so much the number of candles on your birthday cake or years of agency employment, but the amount of energy you bring to the table.

When I used to consult one-onone with agencies, I could tell so much about the business based on the energy of the internal staff. If everyone was slump-shouldered and less than enthusiastic, that usually signaled a problem. Employees who lack energy are a drain on an agency. If they’re not excited about what they do, they’ll have no desire to provide an unbelievable client experience.

It gets down to the culture of the agency. Are customers considered an annoyance or are they valued by the entire staff? Is the staff enthusiastic about coming to work or are they simply “making the donuts” and biding their time until they get to go home? If the staff seems lethargic and disinterested in learning new ways to be more productive, the agency is not going to thrive.
The Semi-Successful Trap: Agencies may find themselves in the semi-successful trap when they exceed their own expectations. This can happen, for example, when an agency grows larger than projected, has better automation than the owners ever thought they’d have, represents an abundance of carriers and/or has more employees than anticipated.

The agency may be successful, but if it’s not in the top 1% or 2% of agencies in its marketplace, it doesn’t have financial freedom. If the agency overall doesn’t have financial freedom, neither does anyone associated with it, whether they’re a receptionist or the CEO. They may all be making good money—but not great money—so they’re semi-successful.

Furthermore, the owner(s) may not be investing back in their own company. So at the end of the day, not only are they NOT growing, they’re not improving profitability and they’re not increasing compensation at the level they should. They’re caught in a trap.
Past Greater than Future: I once heard that when your past is greater than your future, you’re in trouble. You see this in a lot of former professional athletes reminiscing about their golden years on the field or court. That’s all they seem to talk about. The same is true with agencies. The ones that slow down tend to revel in their history. Too much time is spent reflecting on the “good old days” when there was a lot less competition and a lot more opportunity to make a great amount of money. They’re so busy living in the past that they can’t grow. Conversely, the agencies that are growing have a future that’s greater than their past. Their entire staff is always looking forward, eagerly anticipating what lies ahead.
Lack of Commitment to Grow: Another reason why agencies slow down is that the owners accept it as a normal part of being in business. There’s not a real commitment to grow. In many cases, growth has occurred over the years simply because the agency was there. In other cases, the agency has purchased its growth through acquisitions. • Lack of Capacity to Grow: Often, agencies will blame their lack of growth on what they don’t have, such as too few producers or ineffective marketing. The reality is there hasn’t been sufficient reinvestment in the agency. They don’t have the capacity to grow because no one has invested in the resources needed to grow.
Spending Money on the Wrong Things: Agencies that invest vast sums on “stuff ” they don’t use are wasting their money. As obvious as it sounds, we see this many times in agency automation. The agency will invest in the latest and greatest automated system, but then never get around to learning how to maximize it. That’s like joining a gym and then never going to work out.
Lack of Discipline: I get tremendous satisfaction when people have said to me how much they love my Rough Notes articles. Invariably, they also say they will implement the principles “when they get a chance.” The problem is, there’s really no discipline to work ON the business vs. IN the business.

One of my most successful clients was also one of the most disciplined. He committed to spend every Wednesday working from his home office primarily on strategies, not tactics. He made sure he dug into his numbers and analyzed what was working and what wasn’t. As he often told me, that one day a week he spent away from the office had the greatest positive impact on his business. Obviously, he understood the power of discipline.

As I’ve noted many times, 90% of what you do out of the office is better than 90% of what you do in the office. From a management perspective, I don’t know many people who have had a significant professional breakthrough while sitting at their desk dealing with hysterical activity.

When agencies lose their energy or their commitment to growth, it’s usually because they’re not disciplined to work on their business. Many will use the excuse that they’re simply too busy to get better. However, if you spend just one day out of every quarter, that’s only 1/90th of your time. One of our best agencies just had its 44th consecutive quarterly Sales Retreat. That’s 11 years—now that’s discipline.

The bottom line

Agencies tend to stagnate and then slow down without understanding why. Well, it’s really pretty simple. They’re not reacting to the things that are slowing them down. If you’re not reenergizing your producers and staff, bringing in new people and new technology, you’re not going to grow. You’re going to keep slowing down. It’s your choice.