The Producer Dilemma Revisited: There are Solutions

Four years ago, we wrote an article for Insurance Journal that outlined what we called the “Producer Dilemma.” This article follows up on what has been a chronic problem of finding good producers for the industry and addresses some new solutions.

First of all, the shortage of “good producers” is still a valid concern and has only grown worse over time. But 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 all of us. Retiring agency owners without producers to perpetuate their 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 also the lifeblood of an industry.

No new producers
We still see very few young property/casualty producers in our seminars, employed by our clients, or at conventions. However, there does seem to be an increase of young producers that sell nonstandard auto and employee benefits. Unfortunately, there is very little crossover of producers between these different lines of business.

The young property/casualty producers we see are usually the children of the principals who are motivated by the desire to follow their parents and to perpetuate the family business. For the young people with no family ties to the industry, 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 production volume commitments, the days of a young new producer starting from scratch are over. New property/casualty agencies created today are for the most part from experienced producers splitting from their current employer usually with part or their entire book. The incentive to sell insurance through your own firm is reserved only for the “proven” producer.

New producers must establish themselves as an employee until their book is big enough to split off. The exceptions, however, are the agencies that sell nonstandard auto and employee benefits, which do not typically have the volume commitments to the carriers.

Secondly, 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.

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—under 20 employees—and these firms usually do not have the resources to sponsor a new producer until he or she is self-sufficient (i.e., can 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. Which 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 agencies.

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 real 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.

Specific producer sources can then be targeted, which will streamline the process and increase the chances for 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.

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 sales person 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 skill insurance producer closes the deal. Of course, the new producer will need to take the time to learn insurance, get licensed and hone the insurance sales skills—and this is no easy task.

Look for new opportunities. We all recently have heard of the recent 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 sales people 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 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 to new producers from other sales positions.

There are still other sources for new producers. Retired people or schoolteachers on summer leave should be tapped. Both of these sources might have a stable income stream and could be flexible on their sales compensation—namely a commission basis rather than a salary. Look for competitive people such as athletes and coaches. 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. You can teach insurance, but you can’t teach a sales attitude.

Keep in mind the young people who are selling nonstandard 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 burnout otherwise good sales people. Just like with sales people from other industries, the more steady 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 will most likely 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 percent each year. Also, once a benefits producer is established, the client base tends to be more stable than many commercial lines accounts.

Besides, 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).

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, and 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 is more likely to result in success for the producer.

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 (hopefully) soft market has squeezed agency owners, and only productive agencies survived. New players such as banks and other financial institutions will make further adjustments necessary. 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 sales person, 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 businesses. 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, claims, etc.). This leaves the owners and producers free to seek out new clients and not burdened with 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 importantly, 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, who has the attributes important to good salespersons. Being proactive will have direct benefits for the agency as well as potentially improving the industry as a whole.

Topics Agencies Market Training Development Property Casualty