Who’s in Charge Here?

“At 20 to 25 people, you’re no longer a family business,” she explains. “Carriers are putting pressure on you to grow, and you may not even know where your problems are.”

GNW Insurance saw itself as a good-sized personal lines agency. But when a controller brought on through a 2004 agency merger with Evergreen Insurance crunched the numbers, a different view emerged. “We were able to break it down by profit centers,” Oxman says, “and when we looked at personal lines, we saw we were losing money.

“Most of us who are producers or producer-principals haven’t had the business training it takes to run an organization of this size,” Oxman continues. “We may be great entrepreneurs, but we’re not so good at looking at financials and metrics.” And managers lacking the skills to properly analyze their businesses rarely know the true state of their affairs.

If your firm has 10 people or more and no formal agency management structure, it’s time to start thinking about building one. As principal, you’ve probably worn many hats over the years. And no doubt you’re used to it, taking a certain pride in your ability to juggle many roles. But if you want your agency to grow, you must define your agency and delineate its organization by creating a management team. If you don’t, chaos is on the horizon.

Think Large, Start Small
Every agency—whether it has one or 100 employees—should formalize three basic roles, according to Tim Cunningham, principal at Optis Partners LLC in Chicago: CEO (leader and visionary); COO (mechanic) and CFO (financial manager, not chief accounting officer or chief bookkeeper).

In a very small agency, CEO tasks may require just four to six hours per month. But the role of CEO should always be quietly present in the brain of the agency owner. Similarly, CFO tasks may require only four to six hours per month, but the person responsible should keep those responsibilities in mind when tackling other work that could influence financial matters. “All of these are full-time roles that require part-time attention,” Cunningham says.

Another approach for small agencies is to outsource select portions of management roles. You might, for example, outsource certain financial analyses, use-of-capital questions and assistance with the capital budget process. Other management functions the agency can outsource include human resources and sales management. “Just because you have these functions doesn’t mean you have to do it all yourself,” Cunningham says. “You can rent out some skill sets, but you must be the implementer.”

Taking the Next Step
When outsourcing becomes problematic, either because the outsourced area requires more work or you’re paying as much for outsourcing as you would for a full-time employee, your agency is probably ready to take the next step. And sadly, a number of agencies never open this gate. They buck at the prospect of spending $50,000 or more for a full-time manager, seeing only the money that will flow out from their coffers instead of the revenue-producing growth their agency will gain over time. “Agency owners should realize that agencies go through periods of economies of scale and diseconomies of scale,” Cunningham says. If you’re unwilling to endure short-term discomfort, you’ll never reach long-term profitability.

White and Company Insurance, Inc., chose to get uncomfortable when its owners shook things up six years ago. At that time, the Santa Monica business was bringing in $3 million in revenues, having grown gradually since 1952. “We had some great values,” says President Andrew Valdivia, “but we wanted to really grow the organization and develop it into something with more economic value.”

To do that, Valdivia and Dennis White, agency chairman, planned to broaden their markets and deepen them at the same time. “As we saw it, there were 10 horses we rode each day, and only one place to bring them,” Valdivia says.

To attract new carriers, he and White began to build a sales team and reorganize the agency. And through what Valdivia believes was an act of Providence, his sister, Ruth, was looking for a career change.

A former manager at Price Waterhouse Coopers, Ruth Valdivia began work as a consultant to the agency and within one month was offered a full-time position as CFO/COO. “We realized that someone trained and educated and experienced in management and operations was a lot better than what we’d learned through the school of hard knocks,” Andrew Valdivia says.

Ruth Valdivia approached her task the same way she would have a client at the accounting firm. She familiarized herself with each agency department and learned about the positions in each. And she found that like many small agencies, this one often viewed an employee as an expense without appreciating or truly understanding what that employee did to contribute to the bottom line. “It was almost to the point that they’d spend more money on outside services [to buy] less service than they’d get if they had an in-house resource,” she says.

After examining the cost and work performed by an outside information technology expert, for example, Ruth proposed hiring a full-time, entry-level IT professional straight from college. “We were paying anywhere from $30,000 to $40,000 a year to have a person in once or twice a week for consulting,” she recalls. “I was able to justify bringing in a full-time resource who was willing to grow with us.”

Today, technology, operations and client services at White & Company bears little resemblance to the situation five years ago, Ruth says. Building on that success, the agency has found ways to make transitions and save money at the same time.

At one point, for example, file clerks and a full-time receptionist were among the agency’s employees. Today, administrative employees take turns handling reception duties, and these same workers advance along a career path that moves them into roles as account managers and eventually outside producers. “Before this, we were spending as much as $50,000 a year for head hunters,” Ruth says.

Now White & Company Insurance employs 47 people in five departments and is nudging $7 million in revenue. The agency management team includes CEO White, both Valdivias, a sales manager and an IT professional.

Size Matters
To develop your agency’s management team, it’s key to fill your management roles—even if you can’t afford full-time positions. As you do this, Cheryl Koch, president of Agency Management Resource Group in Lincoln, Calif., suggests keeping one thing in mind: “Having a management team is not a substitute for an ultimate decision-maker,” she says. Management should be built into well-balanced teams, Koch believes, with finance, IT, sales, operations and ownership all represented. “Margaret Thatcher once said that, ‘Consensus is the absence of leadership,’” Koch says. “You can have a management team, but you still need agency leadership. They are not the same.”

A natural tier often occurs as agencies add to their head counts, according to Emily Huling, president of Selling Strategies, Inc., in Terrell, N.C. She notes four categories of agency size, measured by the number of personnel:

• At five employees, an agency’s management is informal. “There is a leader, but everyone is wearing lots of hats,” Huling says.
  
• At about 12 employees, workers are either assigned or voluntarily take on “go-to” positions. In other words, Sarah may agree that she is the person who is most knowledgeable about technology, while Jim may be assigned to handle operations responsibilities.
  
• At 18 employees, however, an agency needs a formal management structure. “Now you have departments in the agency and more people in the mix,” she explains. The agency’s cultural mores may or may not get passed along to new employees, “and at 18 people, you absolutely need assignment of supervisors and managers,” she says.
  
• At 18 to 30 employees, Huling says agencies struggle with organizational hierarchy, processes and accountability. At this point, the agency should be redefined, and all job positions updated to reflect new responsibilities and changed processes. It may also be time to review employee distribution and make changes to accommodate growing departments and overburdened supervisors.

Another consideration at this growth level is the condition and effectiveness of your business silos. As head count increases, silos formed by the creation of each new department may need to be bridged or somewhat broken down. Otherwise, infighting and destructive internal competition can result. “The larger you become, the more important it is to create cross-department, cross-interest teams,” Huling says. “The fundamentals of building cohesive management and a cohesive agency team are do-able at any level. But the dynamics need to change and be redefined as you grow.”

At each level of growth, an agency must achieve a foundation of respect, common processes and delineated roles and responsibilities, even if at first those roles are filled only part time. And at each level, you need to reevaluate your goals and priorities, and rewrite your processes to accomplish these changes. “If you do this every step of the way,” Huling says, “you’ll be in good shape.”

Making It Work
How difficult is it to address growing management needs and add structure? If you’re willing to commit to the process, a management structure can be key to agency growth.

GNW-Evergreen Insurance got the ball rolling by visiting friendly competitors and concluding that its own agency was inefficient by comparison. Rather than add employees, GNW-Evergreen launched a major in-house training program and did not replace departing employees. The agency also reconfigured work distribution by taking some of the smallest accounts and moving them to service centers. “But we did a great deal of research before we did that,” Oxman stresses.

Today GNW-Evergreen Insurance Services earns $19 million in revenues and employs 70 people, including a chief operations officer, a commercial lines manager, a personal lines manager and a benefits manager. “These strategic additions have allowed us to spend more time doing what we do best, (which is) working with our clients and potential clients,” Oxman says.

Personal lines customers are grouped into three categories: Select, Premier and VIP. And in each of those areas, service is further broken down, based on customer needs. “Our Select unit is trained to be very efficient,” Oxman says. The Premier division focuses on developing and maintaining business relationships. In the VIP arena, efforts center on customizing coverage and managing risk to address the needs of individual clients. The agency also segments commercial lines customers by customer size and need, but the divisions are not as clearly defined.

According to Oxman, agencies considering adopting a more formal management structure will find their days more productive. “As your agency grows, even the little things, like each account manager inputting information into the computer the same way, will reap huge benefits,” she says.

At CAL Insurance & Associates in San Francisco, the catalyst for implementing a formal management structure was President Scott Hauge becoming a small business advocate in 1984. Meetings and other obligations forced him out of the office, he says, making it important to have staff members who could step in and handle tasks that normally fell to Hauge. To fill the void, he appointed an operations manager. And, interestingly, the agency employed about 10 people at the time. “Getting out of the office was the best decision I ever made,” Hauge says in retrospect. “It was hard to break free of the multiple-hats habit, but it was the right thing to do.

The CAL Insurance & Associates of 2007 boasts 32 employees, including a full-time operations manager, a sales manager and Hauge as president. An agency goal is to add two producers each year, and Hauge is already thinking about the next member he’ll add to his management team: a human resources professional when the agency reaches 50 employees.

Susan Hodges (hodgeswrites@aol.com) is an IA senior writer.

Do You Need an Advisory Board?
Whether your agency already has a management team or you’re not even sure where to start, an advisory board can probably help.

Advisory boards are composed of business professionals from a range of industries who’ve achieved success in their fields. Advisors join the board because they’re interested in your business and want you to succeed. By providing these professionals with detailed information about your current agency and the direction you’d like to proceed, you can tap their expertise to improve your agency.

At first, you may want to hold meetings monthly or even more frequently until you have a workable plan. You’ll also want to keep your advisory board members informed of agency activities and developments between meetings. At the same time, though, don’t expect advisors to be at your beck and call. For more information on forming an advisory board, see the March 2007 “On Branding” column.

An Exception to the Rule?
Prime Meridian Insurance Group, Ltd. in West Chicago, Ill., does a lot of things differently than the average independent agency. Ed Boltz and Phil Marbach are partners in this 11-person business, where everyone except the full-time risk manager wears more than one hat. “We’re not very bureaucratic here,” Boltz says.

Maybe not, but somehow Prime Meridian—at 11 people and three named managers—earns about $10,000 in commission revenue on each of its accounts. This seems impressive, given that the average p-c commission revenue hovers somewhere around $1,500 per account per year.

A closer look at this small agency reveals several things, however. Business is defined into three areas: employee benefits, business insurance and bonds. Producers target accounts “that will generate enough revenue that we can devote a lot of time to that account,” Boltz says, and it matters not a bit whether that account is benefits, p-c or bonds. One thing the agency doesn’t write, Boltz emphasizes, is personal lines. “We pretty much handle all the business insurance needs for all of our clients, but we don’t do P and L,” he says. “We can’t be all things to all people.”

Yet, Risk Manager Kory Dahlberg is just about that, organizing and sitting in on client safety-committee meetings, performing research for clients and providing on-site expertise. Dahlberg was hired about five years ago when Boltz and Marbach realized they wanted not only to consult on insurance but to help clients implement risk-control programs. “I call our risk manager my clients’ new employee,” Boltz says.

Dahlberg stays busy, but so do the agency’s account managers, who handle every aspect of accounts except outside sales. As Boltz explains, everyone at Prime Meridian is “fully engaged,” and yet the organization is extremely flat. Growing at an annual rate of between 15% and 20% a year, Prime Meridian forecasts $1.4 million in revenues by the end of 2007.