Many Hats, One Niche
By: Russ Banham
Whether it’s the recession, the soft market or just plain evolution, independent agencies are wearing more hats these days, offering value-added and consultative services in addition to the more customary insurance roles. More producers are becoming specialists, learning a particular market niche and then putting their energy into developing a specific line of business. Cross-selling is also on the rise at many agencies, as is the provision of non-insurance services, like third-party administration of flexible spending and health reimbursement accounts.
This transformation could easily be attributed to the recession, which has impinged top-line growth for many agencies, or to the soft market’s impact on declining commission revenue. However, agencies of all sizes are moving beyond plain vanilla property-casualty insurance and Main Street business to become something else entirely. In some ways, agencies are becoming closer to traditional brokers; in others they’re akin to insurance consultancies. Above all, they’re broader in scope and depth. “Agencies are looking up and saying ‘Who should we emulate?’” says Chris McShea, a principal serving the insurance sector at Ernst & Young. “And they’re finding that big brokerage houses and consulting firms with value-added services and specialization are effective ways to approach the marketplace and differentiate themselves.”
Multiplying Factors
Many independent agencies are serving more needs for customers. The 2009 Best Practices Study, by the Big “I” and Reagan Consulting, offers some empirical evidence of this evolution. In 2009, more agencies in the $25 million-plus revenue category had what the study calls “validated multi-line producers” than two years ago—an average of 26.8 producers in 2009versus 6.4 in 2007. In the $10 million to $25 million revenue category, validated multi-line producers in 2009 and 2007 were 16.7 and 15.5, respectively. Smaller agencies in the $5 million to $10 million category averaged 5.2 and 4.6 validated multi-line producers in 2009 and 2007, respectively.
Shirley Lukens, senior vice president at Reagan Consulting, interprets the findings as signifying a possible change in the role of the producer, particularly at larger agencies. “We’re seeing increasing emphasis on practice groups, where an agency realizes it has a book of business in a particular industry sector or niche, and then appoints a producer to focus on this niche,” Lukens says. “The producer maybe from this industry and may not even have the technical skills of a commercial lines producer. But, he or she is otherwise a ‘rainmaker’—someone who can open the doors, create interest and then allow others to come in to assess the risks and design the insurance program.”
This “rainmaker producer” becomes the point-of-sale “go to” person for the particular specialty business and the clients within that niche. The producer then relies on other resources within the agency to handle the responsibilities dedicated producers typically handle.“Agencies have been specializing with niches for years so this is consistent with past practice,” Lukens adds. “It’s just that the idea of a practice group is definitely catching on.”
This trend has certainly caught on at The Buckner Company, a Salt Lake City agency that’s into the idea in a “big way,” according to its CEO and owner, Terry Buckner. “We’ve restructured the agency around practice groups,” he explains. “We’re actually doing far better in our niche areas than in our non-targeted classes—our generalist business. It’s our biggest growth area.”
Among the practice groups at the agency is one focused exclusively on trucking business. The agency recruited two producers from other agencies “who had done nothing but trucking,” Buckner notes. “We brought them in and then developed a staff support team of three to four people around them. We’re also on the lookout to acquire other agencies targeting this class of business to grow it further in the 11 Western states we service.”
Buckner adds, “Many agencies are discouraged with the deterioration of their trucking book of business, and we’re in the market to acquire this books or the entire agency itself.”
Why is such specialization better than a more generalist approach? “Buyers tend to like agencies that have a very detailed understanding of their risk needs,” Buckner replies. “When you can go to a trucking company and say that you insure 10 of his competitors across town—that we know this stuff real well and how to make things happen—they’re much more open to doing business.”
Brendan Lynch agrees. “It’s just a powerful marketing tool to go into a prospective client and really claim truthfully that you are an expert in a particular area,” says Lynch, CFO of Plastridge Insurance Agency in Delray Beach, Fla. The agency has built a practice group serving the hospitality industry, which includes restaurants, nightclubs, hotels and taverns. “When a producer can say, ‘This is all I do and my team does,’ prospects listen,” Lynch adds.
Buckner and Lynch say the recession had nothing to do with their niche approach to business. While the economy has impinged agency revenue, especially in commercial lines where premium is based on a client’s revenue and/or payroll, the agents say their practice group philosophy wasn’t a reaction to the times. “This is just something we believe in,” says Lynch. “And have for some time.”
The agency’s other specializations include assisted living facilities, nursing homes and home health care businesses. It also has a separate practice group focused on public entities such as municipalities. “You need to think strategically about these niches so that when one may be affected my macro-economic factors the others may not be,” he adds. “You need to diversify your niches.”
Under Pressure
While the diversification may not be a direct result of the soft market or the economy, agents nonetheless need to think outside the box to replenish lost revenue. “The price of a unit of risk is down because of the soft market, as our commercial clients’ sales and payroll are shrinking,” says Lee Gaudette, president of Gaudette Insurance Agency south of Worcester, Mass. “We’re under pressure here in Massachusetts, with an intense pricing war going on. We need to generate more revenue in the short-term, but there is also growing realization about the lifetime value of the client relationship and the deeper you can drive this. We’ve all found that specialization offers the means to leverage the client relationship.”
Gaudette is becoming what its president says is a “more consultative shop, with a stronger set of backgrounds to bring to the table.” He elaborates, “As a third generation agency and the largest one in town, we are trying to hold onto our traditional accounts, recognizing that there are niche players that from time to time swoop into our marketplace and grab one of our clients. Consequently, we are more focused now on classes of business where we have a core group of clients, and then trying to build those from books of five to books of25.” Among Gaudette’s core accounts are light industrial processing businesses that have “some commonality to them,” he explains.
Another way to boost declining revenue is launching a practice group and then cross-selling a variety of insurance products and services. “The producer specializing in securing businesses from hospitals, for example, will say ‘Now that we’re writing your property and casualty insurance I’m going to send in my group life and health manager to assist your needs in that area,’” says Lukens.
McShea from Ernst & Young agrees that cross-selling is another factor in the “multi-lining” of agencies. “You specialize in a class of business and then come up with additional value propositions to serve clients in that sector,” he says.
That’s what the Aronson Insurance Agency is doing. “We’re developed a practice group serving the biotech industry here,” says Steven Aronson, president of the Needham, Mass.-based agency. “We’re spending more time and energy on serving this sector, and cross-selling other policies to it.”
Banham (Russ@RussBanham.com) is an IA senior contributing writer.
Finding Revenue in Unconventional Places
While many agencies are looking to niche markets to better their business, others are adding revenue from another relatively untraditional insurance stream. Thousand Islands Agency manages a self-insurance consortium of public schools in Buffalo, N.Y., covering 10,000 people on a fee-income basis. “It’s a $48 million plan and we get paid $130,000 a year to manage it,” says Ed Higgins, president of the agency in Clayton, N.Y. “We do the customer service for enrollees, pay all the administrative bills and see that the appropriate reports are filed with the New York State Insurance Department. We also work with the auditors to ensure everything is accurate. It has very little to do with insurance per se, but it taps our skills.”
Capital Bauer Insurance is undertaking similar work, wearing the hat of a third-party administrator for clients who provide their workers flexible spending accounts (FSA). With an FSA, employees make pre-tax deductions for uninsured medical expenses not covered by their employers’ regular healthcare plan. If the employee does not spend the money in the FSA by year-end, the employer retains the balance. “Say the employee goes into a drugstore and the co-pay is $80,”says David Bauer, president of the Albany, N.Y.-based agency. “They swipe a debit card and the money comes out of the FSA account. We administer the whole thing and even provide the debit card, which we’ve branded. More agencies are doing the same. Diversification has become critical for us as we seek additional sources of revenue.”
While the recession has been tough for all businesses, Gateway Insurance Agency in Fort Lauderdale, Fla. has found a way to advantage the tough economy. “We’re helping clients that have downsized,” explains Dave Stanton, Gateway Insurance Agency’s managing director. “They have these 401k plans and profit sharing plans where their employees have been terminated, and now have all this money to roll over.”
Gateway offers the former employees the opportunity to rollover their investments into individual annuity products. “The bad news is the recession is causing companies to lay off people,” Stanton says. “The good news is that it has meant opportunities for us in rollovers.”Chris McShea, a principal serving the insurance sector at Ernst & Young, says the different specialties and multiple lines that agencies are touting nowadays is not a once and done deal. “You cut 20% out of someone’s revenue and their business model has to change,” he explains. “You either transform by adding more services and selling more products or others will push you out of the way.”
—R.B.
Smaller Agencies Specialize
While Smaller agencies like Black Bear Insurance in Longwood, Fla., with about $500,000 in commission revenues a year, also are taking the specialty route. Although the agency traditionally has been a generalist, Main Street-type provider of p-c insurance, it recently developed a niche serving the landscaping industry. “There are thousands of landscapers in Florida,” comments Drew Roberts, Black Bear account executive.
Black Bear pursued an industrious approach to securing this business—the agency mailed postcards to all the landscaping operations it could find in the state, and then encouraged the businesses to log onto a Web site it had developed, www.BearWiseLandscapers.com, devoted exclusively to their risk management needs.“
One quarter of all our new accounts in the last three months has been landscapers,” says Roberts. “It’s really taken off for us, at a time when property, workers comp and general liability rates are going down here. Workers comp alone is down 60% in the last five years. On top of that our traditional clients’ payroll is falling because of the recession. We’ve had to absorb a 30% hit on our renewal revenues.”
—R.B.
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