5 Top Mistakes Every Independent Agent Should Avoid

One of my favorite sayings is “failure is tuition for something else.” I adopted this phrase during a conversation with another senior leader one day on the consequences of some mistakes we’d made organizationally. I think that failure is a great teacher.

From time to time, airplane pilots intentionally take off and manipulate their controls to allow the plane to start falling. By understanding how to correct the plane, they learn something new and become better pilots. While I’m not recommending anyone intentionally go into free-fall mode, learnings can be found in corrective action, as well as in mistakes.

Like pilots, agency owners who harvest learnings from their mistakes, or even better yet, learn from the mistakes of others, will benefit. They will grow more quickly, more profitably, and with greater predictability while enjoying less stress.

Like all of us, I’ve made mistakes ó sometimes more than once. Below is a list of mistakes I’ve not only made myself, but that I see other agents falling victim to routinely. Fortunately, they can be easily corrected with the right approach.

1. Not Investing Enough

In the early days of a business’ existence, it seems that all the owner does is invest. Soon enough, the long-looked-for day of profitability arrives. The temptation is to harvest all those dollars to make up for years of sacrifice as a reward for risk and hard work. While that is completely understandable, taken too far it can be a growth killer, and sometimes even a business killer. Nothing can thrive without being fed.

I talk to owners of agencies of all sizes who often have big goals for growth. They usually come with plans to hire more people. Often a new building, second location or other investment is a key part of the vision. When we look at the balance sheet, however, I usually have to ask, “where is the capital you need to do these things?”

As a banker, I need to see at least 20% of the capital needed for a project in the borrower’s account, over and above at least six months’ working capital, to feel secure in making a loan. As an insurance agency owner, I think it’s imprudent to hire a new producer on borrowed money because they often fail. Yet, I see many agencies whose funding plan, if we can call it that, is either to borrow or finance out of cash flow – an approach that could quickly prove problematic with dramatic market fluctuation.

As my former agency partner said, the correct course of action is to “pay the agency first.” Set a minimum profitability level and one for retained cash (not “retained earnings” which can include non-cash items) – 10% is a good starting figure to consider. If you develop the habit of retaining some cash on your balance sheet, you’ll never run out of working capital, be able to take advantage of hiring opportunities at will, and always be able to borrow money at reasonable rates and terms.

2. Not Firing Fast Enough

We live in a time when talent is scarce. This exacerbates the tendency of many small business owners to tolerate poor performance or even worse, poor attitudes. But employees who don’t fit are not as productive as they should be. They are also culture destroyers.

Jim Clifton in his book, “The Coming Jobs War,” points out that engaged employees are often three or four times as productive as unengaged ones. And what he calls “actively disengaged” workers destroy businesses, or at least try to. When you have a problem person who can’t be corrected, youíre better off letting them go immediately. Your team will support you and youíll always be better off. Rip off the BAND-AID.

3. Not Saying Thank You Properly

It drives me crazy when I give something, like theater tickets, to someone who doesn’t say thank you. It also causes me to make a mental note not to do that again. Your customers and clients feel the same way.

Yes, we often say “thank you for your business” when someone places their coverage with us. But that can be as meaningless, and as impactful on the recipient, as “hello” is at the beginning of a phone call. It is simply not heard. And if not heard, it certainly can’t be effective.

The point of saying thank you is to express gratitude. If you want to be sure that message gets across there are two methods, I find stand out and work 100% of the time:
ï Put it in writing ó preferably in your own hand. This is a forgotten art, which just serves to magnify its impact and effectiveness.
ï Explain why you are thankful. What difference does the client make to you personally or to your business? When you express their value and your gratitude, they not only feel appreciated, they feel closer to you. It creates an emotional bond that can prove to be far stronger than a lower price.

I’ve followed this strategy for over 20 years and my personal retention is over 95%. Try it!

4. Not Asking for All the Business

The average independent insurance agency writes less than two policies for each customer. This is despite the fact that every consumer buys an average of at least two or three policies, and business customers often buy many more. We all know the truism and I’ve lived it: Customer stickiness grows with policy count.

So, why is the industry average so pitiful? I think it’s often because we simply don’t ask.

Fixing this is straightforward and simple. Set an expectation that every client will be offered a quote, every year, for every policy they buy. Measure your staffís performance against that standard. Create a bonus system to reward it. Finally, set a standard that you fire every customer after a reasonable period of time (say two years) who is monoline or doesnít buy at least most of their policies from you.
Thatís a stick to incentivize your staff to go with the carrot. Implement this and see how your retention, referral rate, revenue and profitability climb while frustration diminishes for everyone.

5. Not Setting Minimum Standards

As a restaurant server in college, I learned that either I was in charge of my customers’ experiences, or they were. When I took charge of their experiences, I made more money. Along the same lines, agency owners need to take charge and set minimum standards with their employees and clients.

For your clients: Will you write an auto and home account without an umbrella? Will you sell minimum or statutory limits? I wouldnít.

For your team: Will you accept performance that meets only a minimum threshold? I wouldnít.

During the years that Jack Welch was CEO of General Electric he demanded 20%-plus top line growth every year of every business unit in the company. Thatís hard to do in a big organization ó but impossible if you donít set the standard. He also pushed managers to cut their underperforming staff.

Your minimum standards should be communicated and implemented. Otherwise, your customers and employees are running the business, not you. You’ll have more aggravation and make less money while providing scattered, harried and substandard service.

Business owners often think new hires, a new building or a new marketing or sales plan is the answer to renewed or perpetual growth. While they are all important, managing the business, and avoiding these common pitfalls can be even more valuable.