Grow Your Agency. a complimentary whitepaper for agents and brokers. Financing for insurance professionals

Transcription

1 Grow Your Agency Financing for insurance professionals a complimentary whitepaper for agents and brokers Key characteristics of successful businesses. John Wooden, Vince Lombardi, Bob Knight and Tom Landry are recognized as some of the greatest coaches of all time. Among the thousands of coaches in the world of sports, they soared in player development, accomplishments and wins while others only dreamed of realizing such accolades. What makes the difference between an average and great coach? Is there special acumen that is required for one to be at the top of any field? While each coach led with a unique style and personality, there are common themes found in their coaching philosophies and methodologies that, no doubt, led to their success. When you look closely into their origins of successful companies, their leaders, operations and strategies, you also find shared characteristics. While there is no single magic formula for success and no guarantees that adopting innovative ideas and practices will ensure greatness, there are telling cues insurance agency owners can take from businesses that have experienced tremendous and sustained growth. Identify unmet needs. Successful companies are ones that tend to focus on unmet needs. They create new services or products and create or capture new markets by looking for segments that are under-served or poorlyserved by other organizations. 1 These existing organizations may even be well-known and well-established, but that doesn t stop hungry up-n-comers from pursuing their markets. Once they identify needs or opportunities, they focus resources solely to this segment (human, financial, technical and others). SullivanCurtisMonroe, an Irvine, California agency with 180 employees, did just that. It increased gross revenues by 15 percent in 2011, a year in which many agencies saw little or no growth. 2 The company s president believes the growth was a result of investments to expand the agency s capabilities in property and casualty insurance and benefits administration consulting, health care, risk control and other areas. The investments, which were made over nearly a ten-year period, included hiring additional employees with expertise in the expanded areas and in communications and marketing. Among several needs SullivanCurtisMonroe took advantage of, the successful agency recognized the pains employers experience managing benefits and came to their rescue with helpful products and services. Opportunities abound and similar strategies can be applied. For example, some startling statistics reported by LIMRA in a 2010 report reveal unmet needs in the life insurance arena: 3 Less than 50 percent of U.S. households had individual life insurance in percent of U.S. households had no life insurance protection at all. Most households acknowledge the importance of life insurance to protect against wage losses due to premature death. Nearly eight out of 10 households don t have a personal life insurance agent and most never have.

2 Agencies eager to grow should keep abreast of market trends and statistics and develop plans to address them. While there are hundreds of carriers from which to purchase life insurance, these statistics clearly point to unmet needs. Agencies eager to grow should keep abreast of market trends and statistics and develop plans to address them. Knowing the facts may help them approach their target audience in a unique way that speaks to the needs of consumers. Be proactive. Finding new revenue sources is critical. Equally important to growth is maximizing potential with existing clients, products and services. Agencies must devote resources to leaving no stones unturned when it comes to providing insurance coverage for clients. They must retain as many clients as possible. Successful agencies grow by developing and executing plans to ensure every client is approached about products and services they aren t currently receiving. Before the record number of natural disasters and subsequent claims submitted in 2011, many agencies hadn t talked with some of their clients in several years even as many as ten. When you compare how quickly lives and businesses can change in just one year to patterns of infrequent contact, you see opportunity after wasted opportunity. Agencies that desire growth have to be proactive and thorough in reaching clients instead of waiting for unpredictable circumstances to drive demand for products. Successful agencies maintain contact with clients in a systematic way so no one slip through the cracks. Reconnect with your market. Starbucks and Apple Computers were not the first companies to offer the products and services they provide, but they are arguably among the best. Along with other successful organizations, they took an existing product or concept and improved upon it or presented it in a new way. Coffee has been around forever, but Howard Schultz made drinking coffee at cozy cafés chic and popular after he witnessed a culture of coffee on a trip to Italy. The ipod is the best selling digital music player in the world, but it wasn t the first digital music player invented. The late Steve Jobs elevated the music player to a new level because he knew that people wanted electronics to look and feel great, even if they didn t have the most sophisticated technical functionality and even before they knew what they wanted. Growth focused agencies must also have an in-depth understanding of their target market and craft solutions to speak to their needs and desires, even if the target audience is unaware of a need. For example, a survey conducted by the National Association of Insurance Commissioners in February, 2012, stated that 59 percent of consumers don t have an inventory list of their possessions. 4 Statistics like these reveal needs that agencies can address in a special way. Policyholders risk not having household items, gifts and other purchases covered. Insurance agencies can develop a value-added service to help consumers inventory their possessions with ease. They can go another step and provide a way to keep inventory lists updated, even if it s as simple as sending a friendly reminder once a year. Other possibilities can be researched and solutions can be developed to provide unique experiences

3 Define and repeat processes. According to Dan Sullivan, the founder of The Strategic Coach, a company that helps producers grow, successful agencies create a great process and base their whole company on it. 5 In an interview with Insurance News Networking Magazine, he stated, The products they re selling are simply ways of implementing a certain kind of process that answers the deepest needs of the clients. Successful agency owners follow processes that allow them to understand and meet client needs. These processes are defined, repeated and transformed into unique game plans which serve to promote growth. Sullivan s philosophy is supported by the results of a January, 2012, survey of independent insurance agents conducted by the WorkComp Advisory Group. 6 The organization concluded that the largest challenge for independent agents is identifying strategies and process that help grow revenues. Agencies have tools and technologies but often lack processes to implement and measure strategies. Obsess over growth. The importance of remaining focused on goals is old news. But Dan Sullivan also observed that the best of agents are killers they kill off all alternatives to their desired outcomes. What s more, Sullivan says that rather than imitate others, successful agency owners find what works for them and grow based on their unique approach. Successful owners are driven by growth, willing to make sacrifices and ready to take risks to achieve. Although they are in the business of insurance, they view themselves as entrepreneurs first and foremost. As a result of their focus on growth, successful agencies work hard, vigorously pursuing a robust pipeline. In the WorkComp Advisory Group survey, the following eye opening statistics were reported: Nearly 65 percent of respondents had 10 or fewer prospects that would potentially make a buying decision within the following 90 days. 44 percent of respondents had up to 25 suspects in the sales pipeline to research and start developing. The WorkComp Advisory Group concluded that these numbers are indicative of many missed opportunities and great potential for growth. Successful agencies realistically determine what the threshold of a healthy pipeline looks like in order to meet sales goals. Then they hold their producers accountable and heavily weight their compensation based on attaining the established goals. Plan, review and adjust. The notion that when you fail to plan, you plan to fail has been quoted so often it s become cliché. But its message rings true. Growth starts with a vision which is translated into a strategy. A strategy is a plan with required responsibilities, deadlines, tasks and resources outlined. The great agencies go through the effort of developing an annual plan and regularly monitor results to ensure progress towards growth

4 Successful agency owners follow processes that allow them to understand and meet client needs. Even though it s critical to develop a business plan each year, there still are many agencies that fail to do so. For example, although 61 percent of independent agents surveyed said they have a written business development and marketing plan, written often translates to weekly meetings between agency principal and producers among other forms. In addition, 31 percent of producers within the independent agencies aren t required to have an annual business plan to formalize the agency s business plan and only 49 percent were required to create one. 7 Again, successful agencies are focused on growth. So naturally, they carve out time to draft a plan that includes goals and directions for all areas of their business, including sales, marketing, finance and operations. Even though they may not have the budget to pursue every goal immediately, they keep their eyes on it by documenting it. Waiting until the dollars are available, they realize, may position them behind the competition when conditions are ideal to move. Successful agencies also review plans frequently and regularly to gauge progress and make adjustments as needed. Tighten up your finances. Although there are several shoestring tactics agency owners can employ to help grow their business, the reality is that most growth initiatives require capital. And successful companies make the necessary investments to realize growth. According to Mike Mensch, a Certified Business Intermediary who is a recognized industry expert on insurance agency and broker valuations as well as a top intermediary for insurance agency sales in Florida, growing businesses reinvest capital for things like new employees and technology while shrinking businesses struggle to manage costs while revenues decline. Mensch, who has completed over 100 valuations, suggests that successful agencies that are financially healthy typically have two critical characteristics: 8 1. They have at least three months of working capital on hand to invest in growth or acquisitions, or to deal with unexpected circumstances and market cycles. 2. They only spend what belongs to the agency versus using agency funds for personal use, or vice versa. Given that funds are needed, agencies should have adequate cash flow or have access to cash. Because financing from a commercial lender is often necessary to secure funding, agencies should work towards developing strong financials and good business credit. Without cash, opportunities are likely to slip away. Successful companies are also disciplined at maintaining good records. They keep critical documents organized and current. These include financial, bank and commission statements, book of business details, contracts with carriers and other third parties, and employee records.financial, bank and commission statements, book of business details, contracts with carriers and other third parties, and employee records

5 What s next? Where are the agencies you might be considering to acquire? Do they possess the key characteristics for success? Are they on a course for continued growth? Many agencies and brokerages scaled back over the last few years, waiting for the economy and insurance market to improve. With signs of improvement in both, now is the perfect time to consider acquiring an agency. Funding your strategy. If you re ready to grow and need additional funds, take a realistic look at your company s assets and available cash. Figure out how much capital is needed to reach your goals. A bank is usually the first funding source to be considered, but most banks lend on balance sheet financials and aren t willing to lend against the future cash flow embedded in your inforce book of business. Along with their preference for hard assets like real estate or inventory as collateral, many financial institutions have raised their credit standards to levels that shut out prospective borrowers without a high FICO score. Other financing options have their own drawback including loss of ownership with venture capitalists and possible reduction in personal credit score with credit cards. Consider a lender that focuses exclusively on the insurance industry. With a loan from Oak Street Funding, you don t have to risk losing control of the business you built, your client relationships, or your personal credit. You can borrow against the future commission stream from your in-force book of business. It s a solution hundreds of agency owners have used to finance everything from office technology to acquisition of another firm. Oak Street can customize a loan for your needs and situation, up to $10 million, with a term of one to 12 years. The goal is to help you finance growth with minimal out-of-pocket cost by leveraging the power of your agency s cash flow. Learn more or request a free quote at or OAK-FUND. The potential for growth within the insurance agency marketplace is limitless. Oak Street Funding has money to lend and is ready to help you grow

6 With a loan from Oak Street Funding, you don t have to risk losing control of the business you built, your client relationships, or your personal credit. About Oak Street Funding Since 2003, financial services professionals have benefited from hundreds of millions of dollars in loans from Oak Street Funding, a direct, non-sba lender that understands their business model and appreciates their most valuable assets even though they are intangible. Our strong financing expertise, innovative technology, proprietary actuarial models and experienced niche-lending team align to develop new products to meet the growing demand for CPA financing. To learn more, call or visit oakstreetfunding.com/cpa_valuation. The materials in this paper are for informational purposes only. They are not offered as and do not constitute an offer for a loan, professional or legal advice or legal opinion and should not be used as a substitute for obtaining professional or legal advice. The use of this paper, including sending an , voice mail or any other communication to Oak Street, does not create a relationship of any kind between you and Oak Street. Loans and lines of credit subject to approval. Rate may vary at any time. Potential borrowers are responsible for their own due diligence on acquisitions. CA residents: Loans made pursuant to a Department of Corporations California Finance Lenders License (# ). 1 The Innovator s Manifesto. 2 Irvine Insurance Broker SullivanCurtisMonroe Sees 15% Growth in New Business. 12/29/2011. Business Wire or 3 Facts About Life LIMRA 4 Most Americans Haven t Protected Their Possessions From Severe Weather Threats. March 13, PR Newswire. 5 10X Growth Formula: Dan Sullivan Shows How to Create a Booming Business. Insurance News Networking Magazine. March 1, Assessing Strategies for Pipeline Development and Management. The WorkComp Advisory Group. March Assessing Strategies for Pipeline Development and Management. The WorkComp Advisory Group. March Webinar: Building Value in Your Insurance Agency. February 16, Available at oakstreetfunding.com/aboutus/events/eventarchives.aspx