Insurance Agency Insights
Insurance Agency Insights
Agency Best Practices: Culling Your Book
Peter is joined by Jon Jamieson, CIC - AgileCap's new Senior Agency Advisor. In a quick, 12-minute conversation they cover the ins and outs of doing a periodic culling of your agency's book of business. Learn why this is a best practice for agencies who want to grow strategically.
Welcome to insurance agency Insights, where we're committed to small and medium sized agencies achieving their business goals. I'm Peter Friedman, your host and CEO and President of AgileCap, a specialty lender focused exclusively on the insurance agency industry. At AgileCap, we believe agency owners can only take control the course of their business when they have a thorough understanding of the financial aspects of their agencies. For the past 20 years, through the ups and downs of the US economy, AgileCap has advised agencies on borrowing money, acquiring new businesses, and investing in their future. Every other week, we'll bring you insights on how finance and capital can and will impact your agency. Today we have with us Jon Jamison, a new Senior Agency Advisor for AgileCap. Jon brings over 25 years of experience from the insurance agency to Agile cap and to our listeners. Jon, welcome. Thanks, Peter...super excited to be here. As you said, I've got a couple of decades of agency ownership. During that time I bought a couple of agencies, I sold my agency to a national broker. I also have quite a bit of experience in community banking space where I've served on a bank board for 10 years plus and kind of bring a nice background to AgileCap that supports both the lending side and the advising side. Great, Jon, thank you for being here. And thank you for joining AgileCap. We're going to kick off a new series in 2022 on best practices for small to midsize agency owners. These will be short 10 to 15 minute conversations on how you can improve your business and how we can potentially help you out. Today's topic is about culling - how to manage your book of business, adding the good and getting rid of maybe the undesirable sorts. So Jon, you'll lead us off in our conversation here and talk about what the best way to approach this topic is. It sounds like the key to that, to some extent, is you're Sure, Peter, thanks. So you know, as most of us know, there aren't a whole lot of new ideas in the insurance brokerage world. And this is a recycled idea I just fold credit to Roger Simpkins of The Simpkins group. I learned from Roger about this practice, a decade or so ago. Roger has been in the business for over 35 years, and he's just still comes out with great stuff- little plug for him. The whole concept here is that your book gets out of balance and your strategic plan gets pushed out. And the focus on it is diminished because you get you get torn in a lot of directions. It's just the the life of an insurance broker, insurance agent, you're pulled in a lot of different directions. And it can really sap the energy and the focus away from the agency. So the theory here is that you take a real strong analytic look at the book and you decide what you can do without and what's going to help you move forward toward your ultimate goal. comparing it against your core strategy and how you may say your book started out right in your core strategy, but over time is mitigated. Does that sound right? Yeah. So you know, you can get heavy with non standard products or brokered business, that is a real drain on the agency. You could have a producer that comes on and develops a niche and then that producer either goes off in another direction or leaves the agency and you've got this book of business that nobody's minding, or that's no longer relevant to the agency. Certain accounts just may not be performing well and benefiting the agency. You may have a loss ratio problem with a with an account - a large account - and it's really diminishing the the agency revenue, because it's kicking you out of your contingency payment scenario. So it's just a great idea to take a look at the book...you may have a carrier that has changed their appetite or reduced commissions on a certain type of business and, you know, we ran into situations in our agency where we would roll a book of business from one company to another and then we'd have this remnant or this rump of business that we just couldn't do anything with. So it sounds like it's not about you as the agency owner, it's just about things that happen in the trajectory of your business. Is that right? Yeah, I'd say both. I'd say you know, again, back to your strategic plan, you've got to have one to begin with, you know that it's irrelevant if you don't have a strategic plan and a direction that you're headed in. But it's also, you know, market forces that impact your agency or staff changes. You may be working on your EBITA, you may slim down your staff and you don't want to have this certain type of business pulling you back and burdening the staff. Awesome. So how do you do this? What's the approach that you want to take as an agency owner? And and it sounds like it could be difficult in many ways. But what's something that you have to do? So how does one do this? Well, you know, it starts with the analytics. It starts with having an agency management system that can break things down for you - diving in, drilling down, and just analyzing what is your most profitable piece of your business. And, you know, it goes back to Pareto's 80/20 Principle. The sikkens group did some great work where they analyzed a whole bunch of books of their clients who they were they were consulting to, and they found that the top 5% of your customers can be 50% of your revenue - these these would be your "A customers". The middle of the customers - your"B customers" - is about 30% of your revenue. The bottom 80% of your customers is 20% of your revenue - these are your "C customers". And then they they drill down even deeper and they found out that the bottom 50% of your customers only generate about 5% of your revenue and the bottom 25% of your customers are about 2% of your revenue. And, you know, frankly, those of us that have been in the business know that those tend to be the customers that take some of the most attention in servicing. And so that's a customer who might have a small account with you, but calls you every day. And this is obviously an exaggeration, but someone who takes too much of your mindspace relative to value and might be a better fit somewhere else. Is that how you think of that "C customer"? I do it also can be a large customer that you've got with a brokered company, and you're making 8% or 7% commission on that customer, and you're generating seven certificates a day for them and all that type of thing. And, you know, yeah, it's a big account, it looks great on top line, but really, they're eating you alive. Interesting, interesting. Okay, so how do you go about the difficult decisions? And what do you do? Well, it can be tough, you know, again, you know, most of us are concerned with the volume that your agency has. You know, how big is my agency? The insurance companies are interested in larger agencies. You're maybe focusing on a growth strategy that would get you to a certain volume by a certain year. You may be trying to set the agency up for sale. So it can be difficult. You also may be in a community where you don't want to say goodbye to people - it may be a tough relationship decision to let somebody go. So basically, it takes some discipline, and it takes focus and knowing that by parsing these folks out, and these accounts out, that you're going to be a more profitable agency in the end. You're probably going to have better employee retention, because you're hopefully going to focus on some of these accounts that are driving your staff crazy and burning them out. And you're going to concentrate more attention on that top 20% of your clients that are the most profitable. That are driving the bottom line the most. So it's interesting - I'd flip this around, in some sense - if you're culling part of your book, I imagine there are others who could be doing the same thing. And what may be a loss for someone else may be right in your core strategy. So is this a time to think about culling a book, but at the same time looking for opportunities to acquire the remnants or the non-core, non-strategic piece of your competitor's book or something like that? So it's almost musical chairs - everyone kind of moves around the table to find the best seat for them is that is that an opportunity for you, as well as the opportunity to call the book? It is, you know, again, if you have a niche. If you are, you know, focusing on auto repair shops, or movie theaters, or bed and breakfasts, and somebody else doesn't want that book anymore, or they've lost a carrier, they've lost a market, you can gain on the backside of this. But really the focus should be on your strategic goals and where you want to go and what's going to make your agency that that lean, mean fighting machine that is really going to benefit you at the end, you know, in the end. Interesting. So what I hear you saying is: A, you've got to have a core strategy. And you got to- I hope everyone has written it down and comes back to it whether it's once a year or wherever it's kind of says,"Hey, what are we trying to do as business?" and then you kind of want to compare your business to where your stated core strategy is. And then modify the business to stay on target. Is that a good way to think about it? Absolutely, yeah. You know, we're where we come in is if you've never done this before, we probably will point you in the right direction on this analysis thing. We can give you some some pointers there. But when it comes down to it, you sometimes don't want to sell to your friends or your competitors in the business. And you know, we we will help you identify buyers. The good news is that It's never been more profitable or easier to execute the strategy because everybody is super hungry right now. So you can sell this part of your business that's pulling you back or holding you down. And we can help you identify a buyer who's not going to be competing with you, that's not going to kind of be a detriment to to the strategy overall to your business. And we can do it confidentially. The scary parts about this proposition is the word getting out that you're selling your agency and that your customers might hear about that, or, you know, we can help you frame it, we can help you keep it confidential, and we can maximize the sale price for you. Awesome, that's great. So as Jon alluded to, and I think might be new to some of our listeners, this is a new service that AgileCap has brought on Jon and others to help with, as we not only help you finance your businesses and address some of your capital needs, but also look at kind of the operational things and how you can improve your business, whether that includes selling part of your business or potentially selling or acquiring, that's a skill set we at AgileCap have developed over time, and are right now bringing out to the market. And Jon is our lead contact for these sorts of endeavors. And the best way to reach you, Jon would be...
Unknown:jon@agilecap.com, you can go to the AgileCap website, which tells you a little bit more about me and the rest of our team, and can set up an appointment through our Calendly app.
Jon:Awesome. So Jon's available to talk to you on a wide variety of issues on operations on how to grow your business, how to cull, what is the best next steps for you, and where to bring your business to that next step. So well, as we said, this would be a short conversation, and we hope to we definitely will follow on with more topics with Jon and his team and others who can help you with your business. Once again, this is AgileCap, and best way to follow us is www.AgileCap.com or on Facebook or Twitter, LinkedIn, there's lots of social media where we're putting up new information all the time on how you can continue to grow your business, whether that's through acquisitions or operations now and his team, we appreciate you taking the time here. And hope you have a great day. Thank you. Thank you