IIAG Annual Convention – What You Missed Too

My last post described what Harrison Brooks of Reagan Consulting had to say to those who attended IIAG’s annual convention earlier this month about major trends affecting the insurance industry.  He also had some advice on how an agency can determine if it is doing what needs to be done to be successful in the long term.  That advice focused on three measurements that will allow an agency to compare itself to the most successful agencies.  These three measurements involved sales, hiring of new producers, and their validation.

Organic growth is the key to the long term success of any agency.  Such growth is the result of increases in the commissions and fees received from an agency’s existing customers due to the sale of additional products and services to them and from new customers.  The best way to measure this growth is comparing the amount of net new business revenue in a year to the prior year’s total net revenue.  That fraction tells an agency its sales velocity.  If the sales velocity is 15% or more, your agency is doing what the most successful agencies are doing.  For an even more secure future, at least 7.5% of the sales velocity should be coming from producers who are under 45 years of age. (For a more information on the concept of sales velocity, click here to register for a free webinar on that subject on June 28, 2017.)

In order to sustain organic growth, it is necessary to hire new producers.  Mr. Brooks showed an amusing video of man on the street type reactions of millennials to the question of what they thought about working in the insurance industry.  The comments made revealed a profound lack of knowledge of what is involved in that industry.  Mr. Brooks’ recommendations for how to interest millennials in becoming a producer was to emphasize four things: (1) it provides an opportunity to build relationships with customers, (2) it involves consulting with customers about solving their problems, (3) it provides the opportunity to build a book of business, and (4) it involves providing quality products they can believe in.  It is not about hard selling people to buy things they don’t need or want.

The way to determine whether an agency is hiring enough producers each year is to compare the number of new producers hired to the number of producers working for the agency during the prior year.  That fraction tells the agency its hiring velocity.  Anything 20% or above is an indicator of a healthy agency.

Once hired, a new producer has to quickly be able to pay for themselves.  Mr. Brooks recommended giving a new producer only six months to show they had the ability to do that.  If they did not show such ability, he advised firing them and hiring someone else. A successful new producer hire will fully validate themselves in three to five years.  Mr. Brooks standard for full validation was bringing in $40,000 to $60,000 a year in new business and building a book of business that at the end of the above time period would be worth (at 1.5 times commissions) what it cost the agency to train and pay them during that time period.

Mr. Brooks advised not to let the failure of a producer to validate himself or herself in three to five years discourage new hires.  The most successful agencies only have new producers meet that standard a little over 50% of the time.  So a roughly 50% failure rate is to be expected.  To give new producers the best chance to validate themselves, Mr. Brooks recommended having a well thought out plan for training and mentoring them and sticking with that plan.

 

IIAG Annual Convention – What You Missed

The 120th annual meeting of the Independent Insurance Agents of Georgia was held earlier this month.  It began earlier than usual with a two hour legislative panel on Thursday afternoon followed by morning meetings on Friday and Saturday, which ended an hour earlier than usual.  However, the information and networking opportunities provided were as valuable as always.

The legislative panel acknowledged that the 2017 session of the General Assembly was not as productive as it could have been, mainly due to political reasons.  2018 is an election year and several members of the House and Senate were positioning themselves for runs for higher office, in particular the governor’s office. This led to the failure to pass some laws what were considered to be non-partisan and broadly supported, including a bill to reform Georgia’s adoption code and to permit the Insurance Commissioner’s Office to enforce the payment to agents by health insurance companies of the commission rates that are specified in their filings with that Office.    Unfortunately, it does not look like things will get any better in 2018.

On Friday morning, Harrison Brooks of Reagan Consulting spoke about trends affecting the insurance industry.  Mergers and other acquisition transactions hit an all time high in 2016, and 2017 is off to an even better start.  This activity is primarily due to the record amount of money being spent by private equity firms to buy insurance agencies.  Such firms purchased over half of all agencies sold in 2016.  The prices being paid for best practices agencies averaged eight times earnings before interest, taxes, depreciation, and amortization (EBITDA), with the potential to earn three times more over an earn out period after the sale closes.  However, almost as many new agencies have been formed in the past five years as have been purchased, so the industry remains in balance.

For those agencies looking to grow by acquisition, Mr. Brooks recommended looking locally, within a 30 minute radius of your current location.  He advised looking for other agencies that have good leadership, younger producers and/or other staff, serve a different geographic area, and have developed a specialization that gives them a competitive advantage.  If can’t afford to buy another agency, Mr. Brooks suggested looking for good producers at other agencies, the younger the better.

Another big trend affecting the insurance industry is the rise of what is referred to as “InsureTech.”  In recent years, over $6 billion has been invested in technology companies like Lemonade that purport to offer a new or more efficient way to buy insurance.  This investment has been made in four main areas:  health insurance, auto insurance (pay by the mile), on demand insurance (individual items insured for specified periods of time), and peer to peer insurance (Lemonade).

In Mr. Brooks’ opinion, InsureTech was the greatest threat to independent insurance agencies that rely heavily on personal lines business, but small commercial lines competition would soon be coming.  His advice for agencies was to upgrade their ability to conduct business electronically, especially on mobile devices.  There are many resources available for agencies who want to do so; IIABA’s Agents Council For Technology, Insurance Digital Revolution, and CB Insights being some.

Mr. Brooks also had some things to say about how independent insurance agencies can determine if they are on the right track in terms of growth and the hiring of new producers.  His comments on those topics will be the subject of my next post.

What You Don’t Know About a New Employee Can Hurt You

As employers, agency owners need to be aware of the ways they can get in trouble due to the actions of their employees.  Many owners are probably aware that they can be held liable for acts of their agency’s employees committed while performing their duties on behalf of the agency.  This legal concept is known as vicarious liability, or respondeat superior.  It is the reason why all employers should adopt policies regarding the use of cell phones by their employees while driving a motor vehicle on agency business. (click here to find out what happened to a Georgia employer whose employee was looking for their cell phone when they ran into the back of another motor vehicle)

However, vicarious liability is not the only way that an agency can be held liable for the acts of its employees.  Such liability is possible even when the acts constitute a crime, as Avis Rent a Car recently found out.  In early May, a judge in Gwinnett County found that Avis was liable for $38.5 million of a total of $54 million in damages awarded by two juries to two persons who were injured when an Avis employee stole a rental car and then ran into them.  Even though the employee was engaged in criminal conduct when the accident occurred, Avis was held liable for the consequences of that conduct because it failed to properly check the background of the employee before he was hired.

If Avis had done so, it would have found the employee had been convicted of stealing cars and eluding the police.  As the employee himself told one jury, “Just like you won’t have a sex offender watch kids”, you don’t hire a person who has been convicted of stealing cars to take care of cars.  The legal concept underlying Avis’ liability is known as negligent hiring, and an employer can also be held liable for negligent supervision or retention of an employee.

If you ask a potential new employee for references, all the references provided should be checked.  A criminal background check should be run, if the employee will have access to agency or customer funds or other property.   Appropriate corrective action should be taken, if the employee does something or fails to do something that could have resulted in injury to a customer or other third party or their property.  If it happens again, it may be time to consider ending the employment relationship.

The law in this area focuses on what a reasonable person in the position of the employer would have done under the same circumstances.  That should be the guiding principle for agency owners in hiring and supervising their employees when injury to customers or other third parties is possible due to an employee’s act or failure to act.