Advice for independent agents in the COVID-19 crisis
A 30-year industry veteran shares insights on how agents can overcome the challenges of the pandemic.
Independent insurance agencies are facing unique challenges due to the COVID-19 pandemic. Agency owners are asking questions such as, “How will I get my business back up and running/? Will my revenues decrease? and will I lose clients?”
John Tiene, an executive consultant for Strategic Agency Partners, has more than 30 years of experience in the insurance industry. In this Q&A, he shares his insights and advice to the agents and brokers who are navigating the hurdles of a new economy and way of working.
PC360: What is the impact on insurance agents from the pandemic quarantine conditions?
Tiene: The challenge with operating in the current condition of a lockdown is that it forces everybody to operate in a manner that they’re completely uncomfortable with doing. Insurance agents are used to being able to interact with clients in person. Now it has to be done either over the phone or by video.
It is unsettling, especially given the reality that agency revenues from auto premiums are going to drop as a result of people not driving. Carriers are giving back credits to insured drivers because fewer people are on the road, so there are fewer claims. Personal lines premiums will be lower as a result of that over the next 18 months or so, and that will affect agents’ revenue.
On the commercial side, many businesses are closed, hours are cut back, or employees are laid off. The result is that workers’ compensation premiums are going to drop, which will also impact agency revenue. Other lines are also effective as premiums are based on revenues.
PC360: What further impact will the pandemic have on agency revenue?
Tiene: Most clients are not focused on talking about insurance or changing agents at this time. They’re really focused on keeping their businesses alive. How am I going to get back up and running? And, some of those small businesses are just not going to make it, which means a loss of business for the agencies insuring them well into 2022.
One way for agencies to manage this environment is to join an agency network — joining forces with other agents. The advantage is that you bring together all the premium, so the group has more influence with carriers to negotiate and offer solutions to their clients.
With premium growth being negative, the larger the group, the better off the agent is going to be as far as getting some type of negotiated adjustment to their annual contingency agreements versus as an individual agency. The network negotiates with carriers to get the best possible outcome given that revenue from contingency agreements are going to weaken due to limited growth in 2020.
Another important benefit of a network during this time is that an agent becomes part of a group of colleagues going through the same thing, and they can talk about how they are handling the situation. It’s always easier to go through a difficult time when you can turn to people who understand your business as well as you do. You can consult with them, talk with them, and together they help you solve problems.
Plus, you’ve got the consultative support from networks like Strategic Agency Partners that give you advice on how best to navigate what is going to be one of the most difficult times for independent insurance agents.
This situation is worse than the 2008-2009 recession. It is worse than the last hard market, which was many years ago. This is going to be a slow recovery that is going to take time to turn around. Most agencies are going to see a loss of revenue, and some will close.
PC360: How can agencies adjust to managing this environment?
Tiene: With clients either closing or scaling down in size, their premiums will be smaller. Based on that, agents need to forecast their cash flow and determine what they need to do to adjust.
In addition, agencies are going to have employees not wanting to come into the office. Many employees will want to continue working from home. They’re not going to be comfortable being in an office with other people. Agents will need to accommodate employees — especially those who are experienced and have strong client relationships.
Agency owners need to rely on their employees to take care of the clients as the owner focuses on running the business or developing new business. That’s why it is critical for agency owners to take care of their employees to preserve the foundation of the agency and have a strong starting point when the recovery begins.
An agency network can negotiate with vendors to get better pricing for agency management systems, premium financing, and more. The scale of a network allows agents to take advantage of better pricing and terms, while agency revenues are down. It helps agents manage their costs. In addition, a network gives agents access to stronger markets and larger carriers that are less adversely affected than smaller companies. That means you can get stronger products and better pricing for your clients.
Agents in agency networks also have access to a staff of consultants who know agency management, agency operations, carrier relations, and can help improve their overall revenue at a difficult time.
PC360: Is now a time to stop selling?
Tiene: Right now is an excellent time to be talking to prospects but not about buying or selling. You should simply demonstrate to those prospects why they should be with your agency. It is because you care about your clients. You should call prospects, empathize and talk about what they are going through. Ask, how can I help? It is not a sales call. It is a relationship-building call.
It is also a good time for agents to retool their marketing efforts. Are your prospect lists up to date? Are you building up your brand? Are you taking advantage of social media? Now is the time to use LinkedIn and Facebook to communicate with your clients, the community, and prospects. Position your agency as a resource for information. Build your brand so people know who you are and what you stand for as an agency.
But agents should be out there every day talking to their existing clients. This is an opportunity for agents to really shine by providing superior customer service — and protecting the foundation of their revenue.
They should be making sure their clients are okay, seeing what they need, informing them of what’s going on with carriers, and helping them deal with this situation.
PC360: How are carriers going to manage this downturn?
Tiene: It varies depending on whether it’s a smaller carrier or one of the major carriers. Most of the sophisticated carriers are already looking towards 2021 and 2022. They recognize, based on forecasts, that right now, everyone is focused on staying safe and healthy. Unfortunately, there is disruption in the economy, and that will impact the bottom-line of all businesses, including insurance companies.
They understand that most clients going forward will have smaller operations than in the past. That means less premium in the commercial market. So, they are looking at it long term. Larger carriers are well-capitalized, so they can manage the financial issues. Smaller carriers may find it more difficult.
New business growth and the retention of existing clients are going to be a challenge. While agency networks can help their affiliated agencies with growth strategies and retaining existing clients, talking with insurers about how to work through the impact of reduced new business and eroding retention is going to be a key priority for networks.
PC360: Are struggling agencies going to be more willing or interested in selling?
Tiene: The acquisition boom that occurred in the last decade tended to be mostly larger agencies. But, there are solid, smaller agencies that are also good acquisition targets. At Strategic Agency Partners, we support agencies that want to grow by acquiring other agencies’ books of business. We’ve got resources to help them value the books of an agency they might want to buy, provide consultative services, and access to financing.
For those agency owners who want to sell their book of business, it does not have to mean you stop working. If your agency is acquired, you can still maintain an active role without the headaches of payroll, taxes, and managing employees. You can create a path towards retirement while helping the buyer make the transition.
This is a good time for agency owners to think about where they want to be in five years. Considerations are: “Do I sell my book now and manage that book and possibly get a percentage of the profits?” This helps the buyer transition the clients to the new agency over an agreed-upon amount of time. That is good for the agency buyer and the clients added to his business. And, it can be profitable for both the buyer and seller.
There are ways to sell a book of business or an agency. I expect that the large acquisitions that were being made by the equity players will slow down quite a bit. They are all based on earnings before interest, taxes, depreciation, amortization and revenue — and that is all going to take a hit. Unless the sellers just don’t care and are willing to take less money. I expect to see more local agencies buying out other local agencies.
PC360: If you are a producer, what should you be doing right now?
Tiene: In terms of net growth, it’s more about planting seeds than about making sales. First, focus on your existing client base. Stay in contact with them and make yourself available as a resource. Second, check in with your prospects. Focus on how they are doing — “How is your family, your business?” It’s relationship building. Third, look at your prospect list. Is it up to date or do you need to add new prospects to the list? Fourth, focus on building your brand by being active on LinkedIn and Facebook.
What you are doing is planting seeds for growth. In the latter part of the year, when things start to open up, people will start to refocus. A producer can prove to a prospect, “I care about you, and that’s why you should be with my agency and me.” Many agents aren’t doing that job, and prospects respond to that.
Right now, in this environment, producers have the time to do these four things, and they should take advantage of it. It will pay significant dividends in the latter part of the year, and particularly next year when there’s going to be tremendous pressure for growth as the economy is resurging. Building relationships now will create opportunities when things move towards normal again.
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