‘Free agents’ and other 2007 management trends

What are the trends agency management owners should pay attention to? Here is a list of the key issues that many firms are struggling with today and a few suggestions on how to handle these trends.

1.”Free agent” producers
Just as in baseball, many producers often do not stay with a firm more than three to four years. They need to see something in it for them, i.e., their ability to build something for their future. In order to keep them on board many want to buy-into ownership (stock) in the firm or earn a vested interest or deferred compensation in their book of business to later exchange for stock. The latter is becoming more common and is the best way to start. Vesting and deferred compensation can cement the relationship with that producer and provide consideration for the covenant not-to-compete in the agreement they should have signed.

2. Account executives
Because of the trend toward “free agent” producers as well as the perpetual lack of good producers, agencies need to be structured in a manner that accepts this condition. There are many “producers” that can’t sell and many CSRs that are over qualified for their role. The idea is to create an account executive position that is basically the in-house producer on accounts. The role of the sales person is then refined to be just new sales. Once an account is sold, the account executive takes it from there. This structure takes advantage of the available talent in the same proportion that it exists — a small number of true sales people feed the larger number of technically talented account executives who are supported by regular customer service staff. Often AEs are used to support the agency owners that often have the largest books or to handle the books of retired producers.

3. Workload management
Management does not always plan when to hire new people to assist with the workloads. Rather they react to problems since most owners or managers do not truly manage the workloads (i.e., amount of commissions and customers per desk). Hard working employees get even more work given to them, versus management giving it to the complainers. The good employees need to almost threaten to leave in order to get more help. If one regularly monitors workloads and fires under performing employees, managers will then know when it is time to hire new employees and thus plan ahead.

4. Quality
control We live in an information age. Accuracy in the information we keep is critical in understanding the history of client files and work performed. This is especially true for risk management of agency errors and omissions. Too many agencies accept differences in how CSRs and producers maintain their customer files, enter data on the agency management software, record notes, utilize suspense systems, and record activities. The first step is to have an agreement about what information will be collected and how it will be stored. Next, it is very important to audit the customer files for accuracy and consistency. Training or other corrective action should follow each database audit.

5. Performance reviews
Employees perform better when management lets them know that they care about and know what they do. Therefore, it is really important that performance reviews are done at anniversary time at least every other year. It works best when the employee first rates themselves against previous goals that they set. Then the employee’s manager or supervisor should review their form and make additional comments on whether they agree with the self-assessment. Performance changes and training should then be planned. Poor performance should be documented and monitored.

6. Employee incentives
People today perform better and stay loyal to a business if they are recognized for their effort. Monetary awards are good for some people, but non-monetary recognition for performance is even better for most. These can be individual and/or group rewards/incentives. However, if only the group approach is taken, it can backfire if the good employees become resentful that the poor performers are getting the same treatment. Incentives should be given to CSRs for account rounding or referring business to other departments, even if producers need to be involved. Shower the top performers with additional bonuses or perks, praise and rewards, such as time off, or a day at the spa.

7. Owner compensation and roles
Many agencies do not do an effective job of compensating owners for their contributions to the agency. Too often, owner compensation is created on a subjective basis and bonuses are based on the ownership percentage. This is the way it was always done in the old days, and many firms continue this pattern. Resentment will happen when older owners retire in place (in their chair) or take a lot of time off, and do not adjust their compensation. Younger owners will see that their efforts are building value for the senior owners and will end up having to pay for their own efforts when that owner begins to retire and sell their stock. The key is to pay the owners based on their contribution to the firm. Compensation should be based on production and management. Profits should then be distributed based on sales, book of business, management contribution and equity.

8. Business succession
Owners will plan how to get into a business but they rarely plan how to get out, until they are ready. Every agency should have at least a basic plan on what they want to do with the business. It can be an internal sale, an external sale, or plan to die with your boots on. The first step is to determine what is important. Agency name? Money? Family? Then, select the business succession option that is most in-line with what is valued. These things can change over time. However, the key is to run the business so that the transition to the business succession plan will be smooth.

Pay attention to these trends. If you follow the advice provided, there will be positive results for the agency over the years to come.

Bill Schoeffler and Catherine Oak are partners at Glen Ellen, Calif.-based Oak & Associates. The firm specializes in financial and management consulting for independent insurance agents and brokers. They can be reached at 707-935-6565, by e-mail at bill@oakandassociates.com, or visit www.oakandassociates.com.