May 2006
When
I look in the back of the Insurance Journal and various other publications, I
notice an ever increasing number of ads for companies that are looking to
purchase agencies, i.e. Brooke Corporation to name one. Additionally, it has
come to my attention that other agencies have simply given into the extremely
soft and increasingly less profitable auto insurance marketplace. Broker fees
are decreasing as a percentage of gross revenue within many agencies and the
dependency on commissions and service fees are necessary to keep some agencies
afloat. Not a particularly healthy trend. Will it change? Probably not any time
soon. The environment has become clouded with the heated competition from direct
writers and it doesn't look like they are going to give up anytime soon. I
noticed some new ads from AIG Direct recently and it is apparent that this
insurer along with others that we represent as independent agents are expanding
their distribution channel to include direct writings. Safeco recently
acknowledged their participation in this segment of business but stated that it
will not be a campaign such as Progressive, GEICO or Allstate. Yes, their are
customers who do not want to deal with us the agents and brokers and yes there
is some business to be written via company to customer business submissions but
it is my hope that they remember that we are the backbone to their existence.
Independent agents are here to stay, in my opinion; however, we need to better
serve our customers and educate them of our importance.
In years past, there were some TV. advertising campaigns that highlighted an
overweight agent sitting at a desk ignoring phone calls as he pounded down some
coffee and cream filled donuts(my favorite). Bad image, isn't it. Well, some
customers think that we write business till 2PM and then go golfing. Some of us
do that........probably those who have huge commission checks coming in but that
isn't the case for most of us. In fact, many small agencies are diligently
trying to keep their clients satisfied with their products and service.
Recently, a large insurer decided to lower its commissions from 15%(new
business)15%(renewals) to 12% and 10%, respectively even though their
profitability and loss ratio experience seems to be just fine. At this point in
my career, commissions are THE most important feature in representing a company
with service being a close second. I want to deal with companies which
demonstrate a history of consistency, not flip-flop tactics based on market
conditions. How would you like to build up a book of business with a carrier
just to see your commissions drop by 33%? It is an eye opener. Here is an
example of what I experienced. When I was attending the National Auto Agents
Alliance annual meetings a few years ago, there was an elderly agency owner who
was the Chapter President for the New York/New Jersey area and he told us that
over a long period of time in the auto insurance business, he had built up an
incredible book of business with Progressive. He received a notice that they
were going to lower his commissions by 1/3. To make matters worse, it happened a
couple more times until he was down to 5% commissions. This devastated his
agency and he was quite bitter. I don't know if he is in the agency business
anymore - I'll have to contact Eddie Emmett at the NAAA and ask about this poor
old man. His story was an eye-opener and this should not happen to you, me or
anybody else that works as hard as we do. Of course, insurers are dealing with a
number of factors themselves, including but not limited to reinsurance treaties,
operating expenses, catastrophic losses, etc.; however, when a company is
posting profitable results and still lowers commissions, you begin to question
your loyalty. My point is this. Look at the companies you represent and how many
of them have used the same insurer for at least 10 years and have not lowered
your commissions? How many of them have been in business for at least 40-50
years.........your list is getting quite small.
I really like the motor club feature that many carriers have been including in
their product mix. I first saw this policy ad-on back in the late 80's and early
90's at Arrowhead General Insurance. It cost an additional $5/month and gave the
customer some added value to their policy. I can remember one of their marketing
representatives, Johnny Johnson was would tell me how profitable the motor club
was to Arrowhead. It was a great idea that is still being used today and
hopefully will continue. I guess my point is that a company should consider
these types of added policy features prior to lowering commissions. When a
carrier has to lower commissions to remain in the market, that is one thing but
when commissions are lowered because "that's what the competition is
doing", I lose faith. Why follow the others? Why not remain the leader and
set an example so that the other carriers are forced to raise their commissions
to buy the broker/agent loyalty? I have also heard the argument that some
insurers are not worried about the commissions they offer their producers
because of the broker fee income. In this environment broker fees are also
decreasing and harder and harder to realize as the general public is more savvy
in their shopping and now know that they can negotiate. I was recently told by a
fellow broker that a customer walked into his office looking for a quote to
compare to his other quote and broker fee that was being charged was $35. It is
getting pretty low and that's why we need the higher commissions.
I disagree with the theory that brokers don't care much about commission levels
unless those that are being asked the question are new to the industry or broker
fee bandits(excessive broker fees). Agencies that have been in the business for
at least 10 years can tell you the importance of a solid company and dependable
commissions. The agencies that are thriving now have realized the future of the
broker fee and are using technology(interactive company websites - technostuds)
and solid general agencies and companies and not the fly-by-nights. Look at the
general agencies that have been here for the last 15-25 years as check out their
website. Can a customer or the agent process a payment or endorsement online?
Can declaration pages and other forms be printed from the website? These tools
save you money and time and make you less dependant on a larger payroll. I have
a part-time assistant(32 hours/month) and myself and that is the entire staff
and yet I can write an average of 55-65 policies per month; however, I am
completely dependant upon quick endorsement processing via the internet website
and I discourage walk-in business(the opposite of what I used to condone). I
encourage customers to call me when they want to process a payment by credit
card or check and I also encourage endorsements by fax(whenever possible). I now
have 1-2 customers/week visit me and this has freed up time to write new
business and prospect. It is all about efficiency. Though this may be an extreme
case and not relative to your agency, my point is that you should use the tools
that the good G.A's and companies offer you. If you can avoid calling the 800
number and waiting for an answer, try to resolve as much as you can on their
website. The faster you can process the customer, the happier you both will be.
Believe me, customers don't find it fun to come to an insurance agency to give
up their money. Make it quick and efficient and always suggest that your
customer should contact you regarding another product, but don't be pushy. Make
suggestions not demands. The soft sell works much better. Much of this
information you already know, yet I continue to see some agencies throwing in
the towel and selling out to Brooke. Most of you who are reading this have been
in the business for quite some time and what I have stated here is nothing new
but you would be surprised at how many agency owners know what they need to do
and for one reason or another, can't or don't implement these basic methods. I
look forward to the coming years in this business as most of the established
agencies do because we know how to maximize our profits and limit unnecessary
expenses.