Agency Stability and the Hard Market Reality Check

Shane and Tonya discuss venting up, carrier relationships, the danger of falling into lazy selling" habits, and strategies to keep your agency’s growth and profitability on track. 

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Transcript

Announcer: [00:00:00] This is IA Forward. Your Playbook for Success is an independent insurance agent. Here to help you knock it outta the ballpark are your host, Shane Tatum and Tonya Lied.  

Tonya: Welcome to IA Forward and welcome today, 12,692 of this market.  

Shane: Makes it sound so terrible. Is it that terrible?  

Tonya: Well, it depends on if you're actually looking at your balance sheet or if you're reading any of the independent agent discussion groups online. 

They are. Because misery loves company. I  

Shane: guess so. Yeah, I guess because misery loves company. And what else are we going to do? But then everybody needs an outlet. I'm a big believer in venting up. Unfortunately for us in the agency ownership world, if you're an agency owner, there's nowhere to vent up to. 

If you're a part of an agency network, like the Integra partner network, then you can call me and vent up as an agency [00:01:00] owner, because you don't want to vent up to. a carrier. Definitely not right now.  

Tonya: Don't do that because then you really will need an agency network. As a matter  

Shane: of fact, even if you're not a part of an agency network and you need someone to vent up to us, give me a call, give Tanya a call and we will listen. 

We will allow you to vent up and this will save you some carrier appointments. This could save your marriage because you're not going home complaining in a bad mood. There's so many reasons that We need an outlet to vent up to, and unfortunately as business owners, agency owners, that's not always available to us, but this is where we are and we have to continue to adapt and we have to continue to find our way here in terms of navigating these markets because this too shall pass, we are seeing the shift. 

I know it feels like I've been saying this too shall pass for a while.  

Tonya: Cause it's passing like a kidney stone for a lot of people right now. It is,  

Shane: but [00:02:00] there's so much trend in the right direction. There's so many things happening. We see it across the agency network. We see it across different states. 

I'm aware of certain states that are coming out faster than other states. So depending on where you are, you may be feeling a little bit of relief. Ironically. Just some good friends in Louisiana, and they're about six months ahead of Texas, based on my calculation, in terms of that relief, the stability. 

The other thing is, what do you think is going to happen if your expectation is that rates are going to drop, and you're going to see some contraction in the market? That's not possible. What you're going to see as far as the market being less hard, it's not going to soften. It's just going to be less hard and it's going to stabilize in terms of rates are going to stop going up by 50%. 

They're going to eventually go up by 30 percent and they're going to go up by 15 percent and then they're going to stabilize and maybe we're going to get to some single [00:03:00] digit rate increases. Which is really more of just keeping up with loss cost. And so, this is all about understanding that perspective. 

And what you're looking at, and the data that you should be looking at. And this is where we are, and we're on the tail end, downhill slide. But that doesn't mean that tail end is just going to be another month or two. That tail end may be another year. It may be six months, depending on where you're at. 

It's going to happen. If it doesn't happen, That's like saying the stock market on a correction or a crash has never come back or doesn't come back. And that's never happened. It's always come back. And this is the same.  

Tonya: One of my favorite things that we do here at the Integra Partner Network is we have a monthly mastermind group that is open to All of our partner agents. 

It is led by Shane. We're all in there having these discussions, sharing what's going on in our agency. And in October, [00:04:00] we discussed what key performance indicators that our partners are using in their agencies. One of the questions that was asked that I thought was most interesting was should the key performance indicators, the KPIs that we are looking at right now in this difficult market be different than the KPIs that we're looking at in a more normal or softer market? 

Shane: Yeah, I thought it was a fantastic question. It's possible that you could add some different things to look at, you could add some different KPIs. I don't think the KPIs that we've always leaned on for historical purposes, I don't think they should be thrown out. Now they may should be adjusted or looked at through a little bit different lens. 

Just for instance, that one of the age old independent agency KPIs has been revenue per employee, which leads to spread per employee. [00:05:00] And that revenue per employee mark was always an indicator to tell you just how you're doing in terms of efficiency. And the reason that it's revenue per employee is because the largest expense item on every independent agency's P& L statement is labor or payroll and or commissions. 

I would lump those together. That is the reality. What is the cost of that labor? It's our largest expense. And I don't love saying it that way because I don't love thinking about people as expenses. But just in the pure financial sense, when you're looking at profit and loss statement, It's just a reality in an independent agency, in any insurance agency, we're a service business. 

So of course, we're going to have a large line item around employees, employee costs, labor, etc. It's always been an indicator that's dictated the health of an agency. And that magic number was always a goal to be at or above 100, 000 per Employee in terms of revenue per employee [00:06:00] now granted, there's a lot of agencies in the upper quartile that are 150, 160, 000 revenue per employee. 

That's great. But 100, 000 per employees always been this longstanding mark.  

Tonya: I have to interrupt you. Did you just use the term the upper quartile? I did very  

Shane: nice. It sounds so much better. It's like half past the hour of seven on an invitation back to revenue and for employee here for just a second, you may see dip a little bit, which is a little strange. 

It may not because your revenue should be up. If you're retaining premium, retaining as many clients as possible, you probably experienced some increased revenue. But you're probably experiencing the addition of some staff or addition of additional employees to help you with all these re markets or all of these things that are going on. 

Maybe it has to be looked at through a little bit different lens, but I still think it's a great indicator. And I still think it's an important indicator for agency owners.  

Tonya: Let's talk about your favorite, the ultimate KPI [00:07:00] policy per client or policy per customer ratio. Does this change in a hard market? 

Shane: It's probably going to change for those agents that were on a lower level of policy per customer ratio. My magic mark is 2. 0 or higher. And so if you're an agency that's at 1. and your goal was to Cross sell and get that number up and get that number closer to that 2. 0. It's probably been very difficult to do that in this market. 

Carriers have slowed home in some states. Not allowed for new homeowners business to be written in some cases. So bundling, traditional bundling with the same carrier. Is where a lot of agents get stuck. If I can't bundle both auto and home with carrier A or carrier B, then I'm stuck. But there's other options to bundle for your agency. 

There's monoline auto riders, there's monoline home riders, and we get stuck around the multi line [00:08:00] carriers. And we're not able to bundle with that carrier because they're experiencing problems. So we just write the auto and we don't get the home or we write that home and we allow them to leave the auto with a direct carrier. 

That's going to put pressure on those agencies that were below the 2. 0 mark when this hard market really started in the capacity started to shrink. Ironically, across our partner network, the strong policy per customer ratio agencies. Have just gotten stronger, and that's been an interesting observation. 

We've seen many agencies that were at 2. 1, 2. 2 continue to grow their ratio to 2. 3, 2. 4 and so on, whereas we've seen 1. 7 ratios stagnate at that level, if not slightly shrink back as their policy count grows. It's an important indicator still. But we may have to tweak how we go about getting to that ratio, or how we go about [00:09:00] actually having success within that ratio. 

Tonya: It almost seems like some of our agents have taken television advertising a little too seriously when it comes to bundling. If they can't bundle A home and auto in the same carrier, they're not worried about trying to do it within their agency.  

Shane: Because within that same carrier comes the discounts. 

We're missing the point. The discounts are good. The discounts are great. That's a carrier driven thing. What's more important from my perspective as an agency owner, and what I would tell other agency owners, Is what I would call full time clients and getting a full perspective of the risk and the risk profile. 

And so from that standpoint, being able to have a policy per customer ratio well above 2. 0 within your agency. Should not have anything to do with what the carrier is doing in terms of bundling and [00:10:00] discounts Here's the thing. It's lazy selling to follow the advertisements to follow the bundling for discounts Concept that's great And if it's there in a softening market or less hard market and the capacity exists Obviously, that's great and the best thing for the customer And the best thing for your agency, because you're not just writing monoline home or auto with a particular carrier that offers both lines. 

In a realistic marketplace, like we have today, where capacity has shrunk in property, carriers are asking for auto. There's a lot of monoline home carriers that are still in the marketplace in a lot of states, and we may have to shift. We may have to shift our concept here to say, we're going to write the auto over here in the home over here. 

Now, one of the things that I would caution you against is doing that with a carrier who doesn't want that to be done to them. And be careful about that carrier who's [00:11:00] saying we can't have monoline at home right now. We just can't. Like we can't, we don't want it, we can't take it. We don't have the capacity for it. 

Well, honor that. Do help them. Be a good partner. But you have other options in the monoline home standpoint that may have to do a little more. You may have to explain to your client that you're still valuable to them and you are. I believe that you are still valuable even if you have to split it with different carriers. 

It's the foundation of the independent agency system. You're not a captive agent. You don't have to write. Everything with one carrier, I expect you to be efficient. I don't expect you to write business across 50 carriers. I'm just saying there's a balance in here. I hear this a lot. I can't bundle, so I'm not able to write any business. 

That's a captive agent mindset. That is not an independent agent mindset, and we need to make that transition. So maybe I'm specifically talking to some of the [00:12:00] former captive agents who have left that system and joined the independent agency system and they're trying to figure out How to find their way through this market, but they're still stuck in some old, maybe even lazy selling practices of offering bundle to get a discount. 

You need to think about this from offering bundle to see the whole picture of your client to have a better revenue. per client. Revenue per client's another one of those indicators that follows the policy per customer ratio. The KPI is not revenue per client per carrier. It's revenue per client. That's an important thing to think about as an agency owner and don't allow your producers to get trapped into this lazy selling bundle for discounts thing. 

Tonya: How can we incentivize our producers to do this without it getting complicated?  

Shane: As independent agents, we obviously can contract with [00:13:00] whatever carriers will give us a contract. Intelligently, we should think about whether we can feed that carrier consistently. We don't always do that. Sometimes we just take the contract because it's available. 

That's a bad step, I believe, personally. But sometimes we get too spread out. And so when I say portfolio, who are you truly going to market with every day? Who are your people really understanding the coverage options with what they do, how their systems work? And so when I talk about a portfolio, about a right sized, Number of carriers that fit my needs. 

I'm not talking about excess and surplus. I'm talking about just the standard preferred auto home toys umbrella. You need a few specialty markets and I'll just name this portfolio a little bit to help. So your auto home standard preferred portfolio might consist of progressive safeco [00:14:00] travelers, Hartford. 

Maybe Geico now, if it had, since they've entered the market, maybe a Mercury. So that's just a multi line kind of picture there. Then you need the foremost, the progressive for specialty. Then you need just a few little outliers. Like maybe you need a monoline umbrella access place like personal umbrella. 

com or something like that. Portfolio. The reality is most of those carriers download into the management system. Most of those carriers are efficient portals. Most of them are engaged with a multi carrier rating, a real time rater, and so you get this efficiency circle where everything's flowing and flowing back to you and then need some coastal carriers, depending on where you are, like a sage shore or something along those lines. 

And. So, I basically just described our portfolio in our retail operation. If you're wondering, it's not 50 carriers, it's 10 to 12. You as an owner have to [00:15:00] manage that capacity with what you're seeing and what's happening and who's closed and who's open, who has restrictions and who's back in the marketplace. 

And you have to help your producers understand why. You have this portfolio. Why you're not chasing every single carrier under the sun. Number one, you can't keep up with the coverages. You can't do this with your client and help your client with the primary need, which is risk transfer. and appropriate coverage when you have so many carriers, your people don't know where to go, how to get to the system, how the system works, they spend too much time on quotes, on issuing policies, and we haven't even gotten to the servicing aspect of things. 

Now, the endorsement comes six months later. We don't know how to do this endorsement. It starts there and then it expands as needed or contracts as needed from a portfolio standpoint. Your people [00:16:00] will be a little bit like, Oh my gosh, I need that carrier that the guy down the street has. And I'm telling you, that's not always the case. 

That's again, a little bit of lazy selling. That's rate chasing. That's who's hot at the moment. That's rate chasing. That is not a long standing, long running, long term outlook in building a book of business in growing your agency, because we're not just about top line growth. We need to think about profitability. 

We need to think about that revenue per employee ratio. We need to think about that policy per customer ratio. Those are the things that all make up the perfect mixture of the right margins on our P and L. And when you get there. You're increasing your agency book value for the longterm. And so that's part of where I would start is what does your portfolio actually look like? 

Which sounds a little crazy in a hard market. Oh my gosh. You're telling me to have less carriers instead of more carriers? That [00:17:00] sounds ridiculous.  

Tonya: What would you say to the agent who is listening, who is in his mind saying, yes, you can say that because of where you are in your business life cycle. But I can't say that. 

I've got to write business now.  

Shane: It's an agree to disagree situation, potentially. I'm watching multiple agencies in a very difficult state right now, the state of Texas. Some coastal, some inland, some DFW have extreme success. With five or six carriers, I'm watching their efficiency meter just go through the roof. 

I'm listening and watching them say things like, I've never written this much business on a monthly basis as a captive agent. I really believe it's a fear thing and look, I get it. I understand, but generally at the core of those two scenarios, that agent that thinks that they got to chase every carrier option available under the sun, and it's [00:18:00] really like the shiny new object syndrome with technology and tools, is that they're never going to stabilize. 

It's a rat race concept. Their people are gonna run in circles. It's a rate price play. It's a nothing but price play. You win on price, you lose on price. There's got to be other ways in order for things to stabilize. I'm not saying you don't have to be competitive. I'm not saying that you should Except selling 100 percent rate increases. 

That's not what I'm saying. What I'm saying is that the agents that I see making that argument are also the ones chasing their tail all the time. They're never finding efficiency. They're never finding stability because once they run aground, so to speak, with that buy and market share carrier that came in. 

Once that carrier starts going up on their price, because that's what carriers do, they buy some market share, they go through rate increases, [00:19:00] and then they gamble or they bet that they're not going to lose more than 20 percent of that business, 30 percent of that business. It's a game that's been played for decades and it, and it works. 

When the agent chases that same game, then they're constantly chasing their tail. They're constantly running in circles. Their service load is really high because their customers used to price. You've trained the customer. To shop for the best price constantly. You've trained your people. They must find the lowest price at every renewal. 

You've created a culture that's not healthy for your profit and loss statement. And you're not making the money that you should make. And your agency is not as valuable as it should be. And all of these are. Pieces to this puzzle and that's just my evidence of what I see and why it's no You don't have to write every single thing. 

No, you don't have to chase [00:20:00] the best rate for The cycle because guess what somebody else is going to have the best rate six months from now  

Tonya: question for the financial guru How many agents? Do you have that are venting or complaining to you? And when you ask them About their PNLs or ask them about their balance sheet don't have one. 

Shane: You're exactly right. Those agents that are in that cycle, they don't know what their balance sheet is. Other than check the bank account this morning, how much money do I have? They don't necessarily know the healthiness of their agency. It's all a vicious cycle. Everything's connected to this. And an agent that's looking at KPIs, that's looking at the same KPIs consistently for a period of time, they understand trends. 

They understand that, okay, this agent talking about needing a different market constantly, and they understand [00:21:00] why they may not be able to feed that market right now. Rather than accept that appointment and then leave that carrier with a bad taste in their mouth, they tell that carrier, I don't think I can feed you right now. 

I don't think I can commit. I'm aware of agents that have done that. They've turned down an appointment, which sounds to some people like almost sacrilegious against the independent agency system. The respect level for that agency from the carrier side goes through the roof. When an agency owner says, I, I just don't know if I can commit to you right now because of these things that What it says is I know my business. 

I know the health of my business. My numbers are telling me that I can't add another carrier right now. I'm aware of multiple agents who did that and because they understood where they were a year later, went to that carrier and said, okay, I can do this. Are y'all still interested? That carrier said, [00:22:00] absolutely. 

Here you go. Even though that carrier was technically closed for new appointments because the respect level was so high now It doesn't always work out that way Which is what creates the fear get them appointment when you can get the appointment and then fight to keep it That's the independent agency way  

Tonya: Especially in a market like we're in now when carrier appointments are so difficult to come by  

Shane: that's right And I can tell you carriers. 

They don't love that. There's a lot of situations where You Agents accepted an appointment, couldn't feed it, couldn't do business, lost the appointment. This is all over the last year, two years. And honestly, until that management, until those reps change, retire, they're probably not getting access to that carrier. 

Anytime soon again, because the carrier is going to say, what's changed? Why can you now produce business when you said you could hear and you didn't, what's changed? [00:23:00] Explain yourself. That's why it's really important that agents understand this dynamic. It's not a subscription to Hulu. It's not a do the free trial and then cancel and then come back and do the free trial again. 

That's not the way this works. I get aggravated at my agency network peers because they promote 100, 200 carriers as if it's just free trials, and that's not where the carriers are going to be long term. That means access to those carriers are different. That means they're not appointing you. That means that you don't have access to underwriters. 

That means so many things when an agency network is promoting 100 carriers or 200 carriers. It's not greener. The grass is not greener. Carrier relationships. And carrier appointments have to be nurtured and have to be taken seriously. This is part of keeping your staff happy, keeping your producers happy, helping [00:24:00] them buy into this culture of full time clients. 

You being the full time agent, all these KPIs work together. Like they just fit together and work together. You can't really take one out in and talk about it without. Including others because then you've taken it out of context  

Tonya: should an agency owner share kpis With their team members  

Shane: don't confuse kpi with profit Should you show your pnl? 

Not necessarily. I I don't think so. Should you show your balance sheet? Not necessarily They may not understand unless you're willing to explain it all to them. That's fine. You're the one that took the risk It's not normal for it Private companies to share their profit and loss in their balance sheet. 

Um, unless you're a bank, unless you're trying to get a loan, sharing KPIs is mandatory because you need to give them a path and an understanding for why you're trying to get to a certain place. It [00:25:00] needs to be part of your story. It needs to be something that your producers buy into. Like, why is it good for them? 

To have a balanced portfolio of carriers instead of 50 carriers. Why is 8, 10, 12 carriers better than 50 if I'm a producer? There needs to be part of your training and part of your story in sharing your KPIs to say, look, I believe that we should be attempting to be as far above 2. 0 in policies per customer as possible. 

I believe our revenue per employee should be 125, 000 per employee in terms of revenue per employee. I believe our revenue per client should be X. These are not things that, like, there's some crazy reason not to share that. That should be shared. Within every agency, but you as an agency owner, you got to figure out what you want. 

Understand that you may not know what you want and I'm throwing some numbers out at you to start with. But [00:26:00] when you're small and you're new and you're in your first five years things like that revenue per employee That thing's going to be a gyration. You're going to need some seasoned book of business under your belt for that to stabilize So I don't get too caught up on that one Revenue per client, policy per customer, those are related. 

I get caught up on that day one. That's an indicator that really is showing you what your producers are doing, or what you're doing if you're the producer. It's going to show you down the road when you need to hire your Account manager. It's going to show you when you need to hire your second account manager. 

These are just important tools to know. I do recognize that there's fluctuations in these KPIs as you're trying to grow.  

Tonya: I'm going to leave us today with this quote from Muhammad Ali. Champions are made from something they have deep inside them. A desire, a dream, and a vision.  

Shane: Attitude to choice. Make a great one. 

Announcer: Bye, y'all. At the Integra [00:27:00] Partner Network, we understand that carrier access is the key to your agency's success. That's why Integra offers direct access to top rated personal and commercial carriers, ensuring your agency thrives in today's challenging markets. And with our comprehensive resources, profit sharing, and bonus opportunities, technology, and peer support, all while you retain 100 percent of your book with no penalties to anyone. 

Integra is ready to empower you and your agency to find sustained growth. Find your way to Integra. Visit IntegraPartnerNetwork. com today. That's IntegraPartnerNetwork. com