Exclusive Membership
The Organic Growth Club, where the elite meet in the financial
jungle, is quickly losing its members.
Fast Focus
- Current environment offers agencies that want to thrive little room for error.
- Scott Addis offers six best practices high-performing agencies use to cultivate organic growth.
- Consultative relationships help win the battle against commoditization.
In the Sub-Zero, granite-clad kitchens of wealthier America, a revolution has been taking place. Americans’ tastes and attitudes toward food have gone from convenience and the wonders of big commercial agriculture to valuing food that is as fresh as possible, sustainable and—most importantly—organic. In an industry where growth in grocery sales is measured in the low single digits, organics have grown fast, in some years seeing increases of 20% to 25%.
While smart farmers have been making a profit in a tough industry by growing organics, smart insurance brokerage owners have been doing their best to profit in their own battered industry by growing organically.
Today, even with its increased popularity, farmers are worried about people cutting out their organic food fix due to downsized household budgets. Without carrying this analogy too far, brokerage and agency owners may also be worried that drastic budget cuts will also be necessary—if organic growth is not robust enough.
TURMOIL IN THE FIELD
The insurance industry is in turmoil. Most firms are seeing their overall value decrease— and at an alarming rate. Many would like to blame the marketplace—fewer buyers and more sellers making those valuation multiples plunge. That’s true, to a degree: Valuations have come down, and the heady, high-economy days of yesteryear are gone.
But what is true for the average agency does not have to be true for the highest performers. We are still seeing premiere agencies receiving premium valuations. More importantly, those high-performing agencies that choose independence are seeing their shareholder value increase.
So what is the difference between those high performers increasing in value versus the many whose value is decreasing? There is no one overriding answer to that question, but the common characteristic of the agencies seeing the biggest decline in value is deteriorating or nonexistent organic growth. This trend leads to flat or declining revenue and profitability.
Just like farmers who talk about sustainability but have practices that couldn’t pass an organic certification test, many agencies talk about generating a sales culture that builds growth but don’t work to develop that culture. For those agencies, consistent growth under any market conditions is not possible.
To be truly outstanding in its field, an agency must have a true sales culture. At no time in recent history has living the mantra of organic growth been more important. Most leaders realize this. But even if you understand why organic growth is important, that doesn’t mean you have mastered the ability to consistently use organic growth to maximize profitability and shareholder value. Why aren’t more agencies internalizing this concept? My belief is that, as an industry, we have become so narrowly focused on what we do and how we do it that we have lost the ability to stretch our minds to think differently.
That’s why I want to introduce you to the concepts of my good friend Scott Addis. By now, most people in the industry have heard of Addis. He is the founder, president and CEO of The Addis Group and Addis Intellectual Capital (AIC), based in King of Prussia, Pa. The story of The Addis Group is extraordinary. The agency opened in 1990 and had no clients, revenue, carriers or staff, just a $50,000 line of credit and Addis’s vision to provide elite risk management services to the middle-market business segment. Today, fewer than 20 years later, take a look at this company’s key metrics:
- Revenue in excess of $15 million
- Hit ratio: 95%
- Retention ratio: 99%
- Revenue per employee: $270,000
- Carrier loss ratio: 27%.
In addition, The Addis Group has been recognized as one of the Best Places to Work in Pennsylvania, Greater Philadelphia Chamber of Commerce’s “Business of the Year,” Inc. Magazine’s “Entrepreneur of the Year,” and National Underwriter’s “Agency of the Year.” It’s an impressive story, but the aspect of Addis’s work that is most useful to an agency’s organic growth is his other passion: Addis Intellectual Capital.
With AIC, Addis took the successes of The Addis Group into the consulting realm, specializing in agency transformation and emphasizing organic growth. Over the years AIC has performed extensive research, including conducting the “Organic Growth Agency Survey” that studies responses from more than 2,600 agents and brokers.
Using that research and his successful experience at The Addis Group, he identified 20 characteristics of high-performing organic-growth agencies that translated into performance indicators. These vary from agency to agency but include the following:
- New business hit ratio: 80% or greater
- Retention ratio: 98% or greater
- Referral-based new business opportunities: 80% or greater
- Revenue per employee: $200,000 or greater
- Loss ratio: under 40%.
How does a high-performing agency meet such amazing numbers? Addis and AIC identified six best practices that form the foundation for above-average organic growth.
BEST PRACTICES FOR ORGANIC GROWTH
These best practices touch on all aspects of the business, from relationship management to sales techniques to technology. Here is a snapshot of those six best practices:
Stakeholder intimacy and relationship. An agency’s stakeholders consist of clients, carriers, staff, centers of influence and prospects. High-performing agencies understand the importance of getting and staying close to each stakeholder. Stakeholder intimacy and relationship management enhance strong organic growth as a result of employee enthusiasm, prospect research, referrals, retention, reduced competition on key accounts, cross-selling results and new-business hit ratios.
Consultative, diagnostic sales and management systems. This strategy looks beyond the development of value-added services and is built upon the use of “value creation processes” that will uncover previously unidentified risk issues and deliver solutions to improve client risk profiles. By developing strategies that result in consultative, diagnostic sales and management systems, high-growth agencies win the battle over commoditization—a battle that is lost by many agencies when their sole differentiator is price. The AIC survey results not only have helped agencies avoid the commodity trap but also have helped high-performing agencies improve new-business hit ratios and loss ratios, which are key performance metrics to drive organic growth, revenue, profitability and shareholder value.
Cross-selling strategies. Most insurance agents and brokers understand the importance of cross-selling products and services, but typically they use a random approach to expand business relationships. Agencies with high organic growth use disciplined, strategic and results-oriented cross-selling strategies that focus on maximizing their client connections. Building upon stakeholder intimacy and client relationships, the cross-selling initiatives often begin with the identification of enthusiastic and engaged clients who look to the agent to expand upon existing relationships.
Prospect research and qualification. Typical agents and brokers all use the same approach to prospect research and qualification. Whether it is using telemarketers or cold-calling 90 days prior to the renewal date, the results are predictably similar, and nothing more should be expected from a process that lacks creativity, differentiation and impact. This also results in the agent or broker falling deeper into the commodity trap and hit ratios well below 40%. High-performing agencies that are using best practices and focused on organic growth are disciplined and strategic when it comes to prospect research and qualification.
Customer intimacy, appreciation and loyalty benchmarking. AIC’s survey results have found that very few agencies benchmark customer intimacy, appreciation or loyalty. Even many of the top performers did not have a strategic quality assurance process (e.g., customer service report card) to measure and benchmark their services. However, the best of the best high-growth agencies have developed and implemented surveys and other benchmarking methods to accurately measure customer intimacy, appreciation and loyalty. In addition, the survey showed that such benchmarking also improved the other key best practices metrics in the areas of stakeholder intimacy, cross-selling, sales, sales management, brand, and brand management.
Brand and brand management. All of us can probably call to mind some of the great brands of American business. Whether it is GE, Microsoft, Apple or P&G (to name a few at the top of my mind), brand is all about an agency’s reputation. Yet the AIC survey indicated that very few firms really have built a brand that differentiates the agency significantly from its competitors. High-performing agencies have built a brand that is known not only by its clients but also by carriers, employees and the community.
FOCUS ON SOUND SOLUTIONS
Like the farmer who has to put up with city slickers leaning over his fence and spouting off about the best way to grow perfect corn, agents and brokers are regularly beset by consultants who will tell you in no uncertain terms what is wrong with your business and what you should do. AIC approaches this a bit differently. AIC teaches you the “how to” by applying its research and practical solutions to transform agencies, implement those six best practices and drive organic growth. The solutions are taught to agency owners, agents and brokers through a mechanism they call the “Beyond Insurance Process.” Addis has developed a website, www.beyondinsurance.com, to showcase these methods.
The process consists of innovative strategies, systems, tools and scripts designed to enhance organic growth, profitability and shareholder value. Another goal of the process is to elevate the perception of the agent and broker to the level of consultative, diagnostic, trusted advisors, much like CPAs or attorneys. Consulting is one part of the business model, but the firm also holds educational workshops and helps clients turn on their business’s “organic growth engine.”
Now that you have considered the best practices of high-performing agencies and the opportunities that exist even in our dire economic straits, take a step back and survey the fields that you’re plowing. Are they being maximized for the best possible growth and most lucrative harvest? Or are you just driving down that same old rut and churning up the same predictable results?
We all know the consequences of being just the average agency, and the current environment doesn’t offer much room for error. If you don’t pay attention to detail and pull out all the stops to make your agency succeed, you very well may be looking to get out of the business rather than sitting on top of it. However, the approach of an innovator like Scott Addis can turn an ambitious agency into a high performer.
You can become the organic farmer of the agency world, a member of an elite group of the highest-performing agencies using best practices to improve organic growth. The result will be consistently high yields in revenue, profits and shareholder value—a harvest of which any farmer would be proud.
Robert Lieblein is a contributing writer and managing partner of Hales & Co. |
