TIPS FOR MAXIMIZING YOUR AGENCY'S RESULTS
National Underwriter - Property & Casualty Edition, November 2003
In today’s competitive environment, many agency owners are faced with the inability to grow their top line results without making significant sacrifices to their bottom lines.
With the emergence of many well-capitalized public company brokers and banks that breed bigger and better competitors, smaller retail agencies find themselves in a tough battle to succeed and remain competitive.
To survive, and thrive, there are several key steps agency owners can take to enhance their operations, improve their bottom lines, and allow for reinvestment in personnel and infrastructure.
• Make a business plan
First, each owner should make a formal business plan. Such a plan serves multiple purposes, including the creation of discipline wherein all key people involved in the business are heavily focused on achieving targeted results.
A business plan also presents and answers questions on the financial performance of an agency. It focuses employees on fiscal sensitivity. If done well, it can identify profit and loss leaders within certain clients and markets.
The administrative burden of this strategy follows very closely with the business planning recommendation. It is surprising to note how many agency owners do not know their profitability by major line of business, client, and commission yields by carrier or by product. Through the use of basic accounting, finance and technology, an agency can transform itself and increase profitability and shareholder value.
• Introduce performance-based compensation
A highly successful strategy to improve success is performance-based compensation, which some of the most successful privately held agencies have implemented. A "shared fate" mentality among employees creates a much more efficient, cohesive and profitable agency environment.
Many agency owners would never consider sharing a commission with a customer service representative. But agents rely heavily on CSR’s to handle customer inquiries, rate cases, interact with carrier personnel and resolve claims issues.
By providing a plan that promotes qualitative and quantitative results by personnel, the overall results can be astounding and well worth the additional compensation costs. This sharing of agency earnings can greatly stimulate the focus on efficiency, productivity and cost sensitivity.
• Partnering
A strategy for smaller agencies is to move toward partnering with peers rather than being acquired.
These agencies are banding together to form "hub and spokes" operations whereby they can relieve their operations of the administrative burdens that exist and capture a portion of the savings by relying on a larger agency to handle the "back office" operations. These types of operations have proven to work very well for many agency owners.
Agencies can also look to enhance their revenue through the aggregation of carrier agreements, whereby two producers can capitalize on the laws of larger numbers by combining their carrier agreements and capitalize on greater yields through aggregating. The main issue is to select the right partner that compliments the agency.
The key benefit of formulating such a strategy is that joint ventures allow the two independent agencies to legally remain intact, but work together as one entity. This gives the individual owners the flexibility of being able to dissolve the joint venture at a later date, if they wish.
• Use Technology
Technology can also assist in enhancing profitability. With more cost effective technology solutions available for business owners, it remains a mystery why many smaller agencies are not deploying greater technology within their firms. These systems can enhance profitability when used properly.
Technology can measure performance as well as instill greater forms of accountability throughout business. Sales and services can be improved through Web technology as well as through fairly sophisticated client services systems. There are countless solutions that can create efficiencies, reduce operating costs, enhance services, help to promote the agency and generate new revenues.
It is advisable that technology initiatives be carefully thought through prior to commitment to any purchase. There are numerous solutions that provide a number of products within one suite. Unless one looks to solve a technology problem from a global perspective first, the agency may end up overspending in pursuit of the right solution.
• Acquisition Strategies
Smaller agencies are seeking growth by acquisition. Low interest rates today translate into low cost of capital to make acquisitions.
Acquisitions remain a highly viable option for many agencies to confront the competitive landscape where greater efficiencies are created, products become expanded, territories enlarged, as well as possible removal of a formidable competitor.
It is very important to develop an acquisition strategy that makes sense for your agency. There are numerous risks involved in acquisitions. Before embarking on an acquisition strategy, it is critical to develop a strategy that can create value and can minimize risk. It is highly recommended that agents rely on professional advisors to assist them in developing and implementing such strategies and to help navigate through the acquisition process.
Any of the aforementioned tips, when deployed properly, can create additional value within the agency. Not all enhancement alternatives are right for every agency. An equally important point is to explore each enhancement opportunity and, if chosen, determine priorities and implement each fully and remain patient and committed. |
