What are your top 3 tips for agency success in tough times? 

Shlien: Tough times call for solid business practices, starting with an annual business planning session which will detail what steps will increase revenue and overall productivity. Every agency needs a sales manager who will work with sales people to help them improve their skills and use their time effectively. And finally, agency automation has provided endless possibilities for increasing productivity, mining the agency data base for sales opportunities, and using social media to attract new clients.

Trem: 1. Sell new business
2. Sell more new business
3. Make the tough decisions. Tough times give organizations the opportunity to make difficult decisions that are necessary for survival. These likely include employee terminations, producer compensation reductions and expense tightening. Firms that execute on difficult decisions typically rebound from tough times much quicker.

Cunningham: 1. First and foremost, focus on the customer.
2. Execute the operating plan, budget and sales plan.
3. Have A+ staff that understands and embraces  Nos 1 and 2.

How can agencies best hold down expenses while still providing quality service?

Cunningham: Agencies can keep expenses down by focusing on execution and embracing and using new technology. Focus on constant improvement on systems and processes. Have no paradigms or “sacred cows.” There may be a better way to perform tasks. Something that worked in the past doesn't guarantee that it's relevant today. On a granular level, use insurance company service centers to the fullest extent possible.

Trem: Quality service is based upon people first and tools second. In this relationship-based business, quality client service starts with the person on the other end of the phone. If producer compensation is in line with industry best practices (roughly 40 percent on new business and 25 percent on renewal business), agencies will have sufficient funds to hire and retain sophisticated service staff that will always be your first and best “tool” for quality service.

Where should agencies invest? Are agencies prepared for perpetuation? Find out on the next page.

With limited capital, in what areas should agencies invest most heavily?

Trem: New production staff takes both money and time to develop but the return can be extremely lucrative. Organizations should consistently have approximately 3 percent of their net revenues tied up in unvalidated producer compensation.

Shlien: Invest in the people you have. Evaluate your compensation plan to offer motivating rewards for achieving goals. Create an agency environment which is positive, where there is good communication, and where training is ongoing. Evaluate your A, B and C employees. When the Cs leave or retire, replace them with A players. Help the B players to become As.

Cunningham: People, people and people. Agency capital should be invested in the people who will carry out the company's mission.

Are most agencies prepared for perpetuation?

Cunningham: No. This is a significant and serious issue facing the industry. There are various studies, none of which could predict exactly what might happen, that indicate a third of agency principles are 55 and older. There just isn't sufficient talent coming up behind them. The 55-year-olds should be focused on bringing in the 35-year-olds that are going to begin to buy them out in 5 to 10 years. There isn't a strong enough focus on hiring young talent.

Trem: This is a tricky question. If you ask most agency owners, they would probably tell you yes. More likely than not, the real answer is no. Most agencies believe they want to perpetuate but will not because they have not adequately reinvested in staff over time. Many times ownership will not be willing to shift control of their firms and take risk on receiving payment over time. They instead will ultimately sell externally or just let the business run off and eventually close the doors.

It does not have to be this way. Agency owners need to take a look in the mirror, make a decision on their “exit plan” and start working toward it before it is too late.

Shlien: Unfortunately, most agencies are not prepared for perpetuation. They have neither identified or hired successors nor planned for the financing that will allow the junior owners to buy them out. As a result, when they reach retirement age, their only perpetuation option is to sell the business to an outside buyer.

How does the M&A landscape look to you?

Trem: The landscape has never been more robust. With a flurry of activity in October and early November, the 2012 deal count could be the highest the industry has ever seen. Many large transactions have taken place this year. Additionally, many major private equity recapitalizations also occurred. Quality buyers are able to drive incredible guaranteed valuations and negotiate extremely favorable deal terms in what is truly a seller's market.

Shlien: There are still thousands of independent agencies who are potential sellers. Many of them, however, are in poor financial condition and not attractive to buyers. Smaller agencies looking to buy find it difficult to compete with larger brokers who have the financial resources to make better deals. However, because the larger brokers are usually looking for agencies of a certain size, there are smaller books of business for sale.

Cunningham: As this interview is occurring, the year is not yet over and it's a little uncertain as to how this year will look compared to prior years. Last year was very robust after 2 to 3 meager years. Some have suggested that due to the impending increase in capital gains and other taxes that it will be a very active year for M&A. It will be a good year, but in my opinion it isn't going to be the overwhelmingly robust year that some have predicted for a variety of reasons but mostly due to the fact many potential sellers are simply not motivated to sell perhaps believing the next 2 to 3 years will drive significant growth in their agencies. The buy-side environment is still very strong. Buyers are paying fair market prices; they aren't bargain shopping.

Read on for the panel's advice regarding social media and recruitment.

What should agencies be doing with the Web and social media?

Cunningham: You don't want to be on the bloody or cutting edge—you have to show some evidence so you're not perceived as a Luddite, but I think the jury is still out in terms of what it means to use the Web and social media to communicate with clients and for new business development. The unknown is generational. Millennials significantly embrace the Web and social media on a level that older generations can't truly appreciate.

Shlien: The agency's interactive Web site and email marketing should be used to promote the agency's capabilities, attract new prospects, foster communication, provide education, allow client access to policy information and contact leads. Social media allows agencies to remain visible among their clients and prospects and attract younger clients, particularly for personal lines accounts.

Trem: Social media can be an extremely powerful tool for producers. It can absolutely be helpful in keeping in touch with clients and prospects. The key to social media is that having a Web page Twitter account or LinkedIn account is not enough. You have to be actively using it and updating it to ensure it does not detract from other selling efforts.

What's your advice on recruitment and retention?

Shlien: It is so difficult to hire experienced people in today's marketplace that most agencies are using search firms to find candidates and assist with interviewing and evaluating capabilities. Retention is higher in agencies which offer motivating compensation, good benefits, and a positive, professional environment. Although agency staff tends to be independent workers, recent college graduates usually take more of management's time and expect training.

Trem: MarshBerry strongly believes that recruiting production staff from outside of the insurance industry gives agencies the best chance for success. Finding individuals who are true “hunters” and wake up every day looking for the next sale opportunity is the key. If a recruit has a track record of sales success in another industry, with the proper guidance and mentorship they can be a huge asset to an agency's sales culture and profitability. It is much easier to teach someone about the insurance industry than it is to teach someone how to sell effectively.

Cunningham: Agency principals should treat recruitment as a full time endeavor—but that doesn't mean they need to spend full time at the task. During day-to-day activities, shopping, dining, and so forth, they should think about the people they come in contact with and if those people could be good producers, CSRs or account managers within their firms. One agency I know found one of their best younger producers tending bar at their country club. He was a recent college graduate, could not find a job in his business major, but he needed an income. He was very energetic, personable and able to deal with a variety of different personalities. Moral of the story: If you're always looking for talent, then you will find the hidden gems. The best person to hire might be the one who isn't necessarily applying.

A good hire may be someone who didn't see the industry as being very glamorous, but now sees it as a strong career possibility. Two years ago, young talent would want to work at Google or Groupon and not in the insurance industry. But now, insurance is seen as a relatively stable industry whereas some in the tech sector like Groupon have lost a lot of steam. Recent college graduates remain a good potential hire pool; they are talented, but haven't been able to find a good position because of the economy.