The Continual Producer Dilemma
The shortage of good insurance producers is still a valid concern for the industry and the problem has only grown worse over time. Oak & Associates must get an average of one call a week with clients and new potential clients, calling to see if we have any good producers with books, looking for a new home.
Does this situation still threaten the survival of the independent agency system? The short-term answer is yes, but the long-term answer is not clear due to developing changes explained later in this article.
In the short term, this lack of good producers should concern us all. A retiring agency owner without a producer to perpetuate his or her book will have limited options and may not command top dollar in a sale to a third party. Insurance companies should be concerned about their market share if that key producer dies or retires without a backup to retain the accounts.
Youth is the lifeblood of an industry. However, we see very few young property/casualty producers in our seminars/conventions, employed by our clients, or calling in for consulting assistance. There does seem to be an increase in young producers that sell non-standard auto and employee benefits. Unfortunately, there is very little crossover of producers between these different lines of business.
The young P/C producers we see are usually the children of the principals who are motivated by the desire to follow in their parents’ footsteps and to perpetuate the family business. For young people with no family ties to insurance, there is little, if any, motivation to get into the industry.
Q: How many children (from non-insurance families) say they want to sell insurance when they get older? A: None.
The Core Problems
Based on today’s climate of high carrier production volume commitments, the days of a young new producer starting from scratch are over. Today, new P/C agencies are for the most part created by experienced producers splitting from their current employer usually with part or their entire book. The incentive to sell insurance in their own firm is reserved only for the “proven” producer. There are clusters or networks these proven producers can join and pay a fee to access markets, as well.
New producers must establish themselves as employees until their book is big enough to split off. The exception, however, is the agent that sells non-standard auto and employee benefits, which do not typically have the volume commitments owed to the carriers.
New Insurance Recruit Avenues
There is no institutional educational conduit for young people to enter into the insurance industry. An 18-year-old high school student typically will have no knowledge of career opportunities in insurance unless a local agent shows up for career day. In some locations, Project Invest introduces high school students to insurance but this is very limited. As an industry, we need to promote career opportunities to young people.
There are now some universities with specialty Risk Management and Insurance majors, however, there are still not a lot of these. If you google Risk Management degrees, you’re likely to find only 10 to 15 schools nationwide that have this specialty.
Finally, most agency owners cannot or will not make the necessary investments to train and develop young producers. The majority of agencies are relatively small — fewer than 20 to 30 employees — and these firms usually do not have the resources to sponsor a new producer until he or she is self sufficient (i.e., pay a reasonable salary while the producer validates his or her compensation). Yet this is the type of firm whose survival is directly linked to the development of new producers.
Sometimes insurance companies will cover some of the costs associated with producer development, but this has been waning over the years.
Producers are the sales force of the insurance companies. What other industries do not train and support their own sales force? Companies need to step up to the plate and provide more training, education and financial support for new producers for their key agencies, at a minimum.
Producer Development
Agency owners cannot individually change the first two core problems — difficulty starting new agencies from scratch and the need for institutional training for new producers. Many agencies (and the industry) cannot afford to wait for that ideal experienced producer with a book of business to show up. Owners can and must bite the bullet and make the financial investment in new unproven sales personnel.
But what is the best source for this “virgin material” in today’s low unemployment environment. It is really important to look for new producers in a strategic manner because the cost of failure is expensive in both dollars and lost time. A random shotgun approach often produces poor or no results at a high cost. Agency owners need to understand their current agency “personality” and resources and then map out the goals for future sales.
Producers from Other Industries
Specific producer sources can then be targeted, which will streamline the process and increase the chances of success.
Agencies need to seek out new producers that can be exploited for their “centers of influence.” For example, an agency that has an existing niche or wants to develop that niche should seek out people from that industry, especially salespeople.
A successful salesperson is familiar with the prospect’s industry and knows the intricacies involved, understands the special needs of the client and why they may be different from another industry. This salesperson will be more confident and display a higher level of interest in the client and thereby win respect from the client. Also, that new producer might have been a successful salesperson for their prior industry and already have contacts that will prove invaluable to their new employer.
In general, it is often easier to teach an outsider insurance than to teach an insurance expert the technical aspects and unique requirements of a specific trade. These new producers can be paired up with seasoned insurance producers and operate as a team. The new, well-connected producer opens the doors and the skilled insurance producer closes the deal. Of course, the new producer will need to take the time to learn insurance, get licensed and hone insurance sales skills — and this is no easy task.
Look for new opportunities. Recently there have been hits to the high-tech industry. If a firm wants to create or expand a high-tech niche, it is important to seize the moment and take advantage of the current turmoil. High tech may be down, but it is not out. Some high tech salespeople might find the insurance industry a calm, stable environment from their previous employment!
A good selling point to attract salespeople from outside industries is that insurance producers can build up a sizable, renewable book of business in just a few years. The insurance industry is somewhat unique in that the salespeople can make a decent living off renewals and do not have to constantly sell new clients. This might prove to be a pleasant surprise for new producers from other sales positions.
There are still other sources for new producers. Schoolteachers during the summer or even retired people should be tapped into. These sources might have a stable income stream and could be flexible on their sales compensation — namely, on a commission basis rather than a salary.
Look for competitive people such as athletes and coaches. They are also often well connected in the community and don’t usually have ways to greatly increase their income. They tend to appreciate and handle the work required for the sales process that culminates in small victories.
A “sales personality” and inner drive are the most important aspects to seek out. Insurance can be taught, but teaching a sales attitude is not easy.
Keep in mind that usually young, new producers are selling non-standard auto or life insurance. Their initial attraction to their current job most likely centers on the ability to control their own destiny. The more they sell the more they earn. The need for constant, large volumes of sales, however, tends to burn out otherwise good salespeople. Just like with salespeople from other industries, the steadier aspect of commercial lines and the ability to build a renewal stream in their book of business will make the transition more attractive to them.
Successful young benefits producers most likely will not be interested in changing over to selling commercial lines. This is because their current position is as good as or probably better than what a property/casualty agency could offer. Employee benefits is a growing sector of insurance and the rates keep going up, perhaps 5% to 10% each year. Also, once a benefits producer is established, the client base tends to be more stable than many commercial lines accounts.
If you can’t beat them, it is better to join them. The formula for many successful agencies is to have a significant portion of their overall revenues from employee benefits. An agency should direct some new producer talent to sell (or better yet cross sell) employee benefits. For some people selling employee benefits seems to be easier to learn. Perhaps because the key knowledge is focused primarily on the products rather than both the products and the uniqueness of the client’s business (as in commercial lines). Often insurance companies will assist benefits producers with the sale.
New Producer Success
Studies have shown that the success rate of new producers is not high. Proper screening and training should help improve the quality of producers hired and their success rate. Use testing services such as Caliper and Omni to evaluate the prospect before hiring them. Never let a new recruit learn only by trial and error.
Management must provide mentors and sales goals to guide the new producer to success. Also, having a producer focus on niches and programs will more likely result in more success for the producer. Buying leads in the niches and centers of influence the producer is connected to will also help.
Other Solutions
It is not a radical statement to say that the insurance distribution system in 10 or 15 years will look very different than today’s system. The previous market has squeezed agency owners and only productive agencies survived. Customer and carrier expectations are constantly increasing. Insurance is entering a new era (kicking and screaming a little along the way).
In the long term, the internet will change the way sales are done. Clearly, the internet will not completely replace an actual salesperson, especially for commercial lines. It will (and is) revising the way information flows from the client to the agency and then to the insurance company. Productivity should increase and thus producers should be able to handle more clients and larger books of business. Therefore, in the future the need for producers might diminish since each producer is taking on a bigger piece of the pie.
For many agencies their current internal systems can be (or should be) restructured to leverage the existing sales force before new producers are employed. It makes economic sense for the “super producers” to be selling and not servicing accounts. These agencies need to establish in-house procedures to make sure that the CSRs and account executives handle most or all of the servicing of accounts (i.e., mail, phone calls, endorsements, claims, etc.).
Therefore, the owners and producers are then free to seek out new clients and are not burdened with the day-to-day servicing, especially of the small accounts.
Summary
There is no silver bullet to the issue of the producer dilemma, which is having a noticeable impact on the industry. Each solution has its own risk and will take time and money. The ideal solution will vary for each agency. Agencies need to learn how to leverage the existing sales force. This will mitigate short-term problems and create long-term benefits for the agency.
Most important, agency owners need to take matters into their own hands and develop the future sales force. The key is to hire a self-motivated person, one who has the attributes important to good salespersons. Being proactive will have direct benefits for the agency — and may improve the industry as a whole.