Four thousand new independent insurance agencies formed in two years.
Many seasoned independent agency principals are asking themselves: Just who are these people?
The new agencies account for 11% of all U.S. independents today, according to the 2010 Agency Universe Study. But, more than their newness is eyecatching— many new agencies have hit the ground running with carefully considered formal business plans. They have a strategy for success—despite the soft property-casualty insurance market and still our economic climate.
Who are the brave entrepreneurs starting up these new businesses? Not surprisingly they run the gamut, from principals like Ray Celedinas, formerly the head of one of the largest Nationwide agencies in Florida, to Paul Davis, who had worked for another independent agency in Alabama for many years and wanted to strike out on his own. In between are literally thousands of other new agency principals, all of them confident about their prospects in what is arguably a tough time to launch a business.
The six agency principals profiled in this story are not newbies, although their agencies are. All knew the business of selling insurance pretty much inside out. By and large, this is the case with many other principals heading up the 4,000 new agencies across the country. “A lot of these agents got excellent training prior to starting up their agencies, and are coming into the industry as very knowledgeable businesspeople,” says Madelyn Flannagan, Big “I”vice president of agency development, education and research, who headed up the 2010 Agency Universe Study which uncovered these statistics. “They tend to have formal business plans establishing a course—smart ways to build a book of business despite the economy. And they’re very gung ho on doing what it takes to become successful.”
The New “New”
The Agency Universe Study indicates that 64% of the 4,000 new agencies have executed formal business plans, a stark contrast to the 37% of older agencies that have no such plans in place. Of all agencies that have a formal plan, 95% have written goals to attain premium growth, maintain client retention and grow the number of accounts. Eighty-four percent have developed plans for obtaining new accounts, and 48% have set aside budgets for specific new account activities.
Before he opened the doors of the agency he runs, Nathan Barger put together such a plan. “I had determined beforehand how much business I would need on a weekly basis for the agency to succeed,” says Barger, principal of Freedom Insurance, a St. Louis-based agency. “I knew that if I did ‘x’ amount of quotes I would sell ‘x’ amount of policies. The key to success as I saw it was to be constantly on the prowl searching for new business and new customers. Rather than have a farming mentality where you sell some policies and manage the book, I have a hunting mentality to originate new business.”
Reid Rushing also executed a formal business plan before putting the pedal to McGraw Insurance Services in Pensacola, Fla. Although Rushing’s agency isn’t new per se (he bought an existing agency when he struck out on his own), he insists his ownership is taking the firm in a very different direction. “My plan was to grow the agency from predominantly personal lines to a 50-50 commercial lines-personal lines spread,” he explains. “I had signed a two year noncompete agreement with the bank, so I had time to figure out how to write new business. Now that the agreement has run its course, I’ve been successful wooing several former commercial accounts over. They know that I can provide better service and face-to-face dealings. Although the name of the agency hasn’t changed, for all intents and purposes it is a new business.”
Ray Celedinas’ agency also stretches the definition of “new,” since a good portion of his book of business is essentially the same as it was when the sign outside said “Nationwide.” Now it reads “Celedinas Insurance Group.” “My father started up the agency for Nationwide back in 1959 with three employees, of which he was one employee and my mother was another,” Celedinas says. “Over time it grew to the point where it was Nationwide’s biggest agency, with $35 million in premium. Then, they exited the state in 2007, leaving me high and dry.”
Celedinas picked up the phone and called Jeff Grady, president of the Florida Association of Insurance Agents. “Jeff said he would set up a meeting with a bunch of Big ‘I’ companies to solicit their interest in us representing them,” Celedinas recalls.“I had a sizable book of business, which I would need to buy to get going, of course. Needless to say, they were extremely interested."
He then bought the book of business with money that Nationwide owed him and some income from his retirement plan. “Since then we’ve grown 2% a year, on average,” Celedinas says. “We’re now writing $100 million in premium.”
The agency’s bullish performance is a testament to Celedinas’ business plan, which charted his strategy or building his book of high net worth clients. “Over the years we had developed a roster of affluent clients who could have really used the products and services of carriers like Chubb, Chartis and Ace that specialize in this market,” he says. “It’s a different ballgame now that we can offer these carriers’ products. There is no better place in the insurance business to be than an independent agent.”
Power of the Plan
The fact that most new agencies have formal business plans doesn’t surprise Shirley Lukens, senior vice president of Reagan Consulting. “In this tough economic climate, you can’t just hang out a shingle and start selling insurance,” she says. “You need to be more sophisticated when it comes to attracting the carriers and growing the business. You really have to work at this, and it requires strategies and plans and technology. I think the newer agency principals have a firmer understanding of what it will take to succeed.”
Many new agencies didn’t have a reliable source of income in starting their businesses like Celedinas. For them, launching an agency, especially in the current economy and soft market, took extraordinary confidence. Such was the case with Jessica Miller. “I had worked as a CSR for a Farmers agency for about seven years when I thought, ‘Why work for another agency when I can start my own?’” says Miller, president of Dogwood Insurance Agency got it going in March 2008, in the worst of the recession.”
Then, her former clients at the Farmers agency started calling her. Fortunately, Miller had not signed a noncompete so she was free to take on the business. “I had serviced them so well I knew they would go with me,” she says. “I put together a formal business plan, which was required for me to get errors and omissions insurance through the Independent Insurance Agents of Texas. We’re doing commercial lines and personal, but our focus now is auto and homeowners insurance. We also have a plan to capture more of the Hispanic market here. We’re specializing right now in writing ‘matricula’ insurance, basically auto and homeowners policies for people who come here to work in the oil fields.”
Her business took off, generating enough income for Miller to acquire another agency last year. This, in turn, has doubled her business. “We now have our eye on acquiring another agency,” Miller says. “I really feel like an entrepreneur. Rather than working at a captive, I have freedom—I don’t have someone breathing down my neck.”
Joe Coombs also found it difficult to obtain appointments with carriers, despite a novel business plan for an agency specializing in insuring churches. “I had been with Marsh for 20-plus years and had the opportunity to retire, when my church asked me to be on its executive council to review the insurance program,” says Coombs, owner-agent at Church Risk Management of Georgia, based outside Atlanta.
“The more I reviewed it I recognized that it hadn’t received the advice it needed. Then, I started to think that other churches perhaps weren’t getting the advice they needed.”
Coombs eventually attracted three markets and is working on a couple more. “To be honest, I thought I’d be a bit further along than I am,” he says. “But, I still have so much activity here that I’m working as hard now as I did before I retired at Marsh.”
High Hopes from High Tech
Many new agencies are leveraging technology to give their businesses quick traction. “I’m a computer geek so I brought in scanners, large copiers and an AMS management system trying to make the agency as free of paper as possible,” says Rushing. “We don’t file anything, which helps cut down on costs. we’re also marketing on social media—I’m on Facebook, LinkedIn, MerchantCircle, Twitter, Google Local,Yahoo Local—just about everything.”
More or less, so is Davis. “We’re a ‘mom and pop’ business in all ways except that we’re pretty technologically sophisticated,” he says. “We have a website and just kicked off a social media platform marketing through Facebook and Twitter and other sites. [Soon] we’ll be doing everything online. If you want to reach people under the age of 45, you’ve got to use the Internet.”
Coombs says he’s been too busy to engage social media, “but I plan to look into it,” he adds. “Since I work completely out of my home, technology has been the critical factor, insofar as my agency management system. You don’t need bricks and mortar to specialize in churches when you have great technology.”
Stand Out with Service
Flannagan says most new agency principals would agree that a main factor in their decision to start their own businesses was their desire to better service clients. “If you know the people in your area and want to start an agency, what better way is there of providing important products and services that will better the community?” she says. “And once they open their agencies, they soon serve their communities in other ways—sitting on the board of the bank, getting involved in charity works and helping others start their own businesses, too.”
Barger says this was a prime reason for him stepping into the abyss—with an idea, a plan and the skills and confidence to see it through. “I wanted to serve my customers better than they had ever been serviced in the past,” he says. “Being an independent agent gives you this ability— you have flexibility in what you can offer customers. And that is making a difference for me and my business.”
Banham (russ@russbanham.com) is an IA senior contributing writer.
Eye on Entrepreneurship
Paul Davis feels like an entrepreneur these days. He had worked for more than 20 years at another independent agency and decided the timing was right to start his own business. “My wife and I had both decided that we had reached a point in our lives where we either created something of our own or we’d be stuck under someone else till the end of our days,” says Davis, president of PMD Insurance, Inc., in Oneonta, Ala. “It wasn’t like we were going into this blind—I knew the business and we’re both go-getters. So we went for it. It’s do or die now.”
Davis acknowledges that since launching PMD in July 2008 it hasn’t been easy going. The depth of the recessionary economy surprised him, as did the protracted soft market. “We were very fortunate in that we had a good reputation with some carriers like Travelers, but it has been tough attracting other markets,” he says. “We’ve missed some business because we didn’t have a place to put it competitively.
Still, we opened the doors here with zero customers—stepping out cold turkey. But, we’re growing every week, getting small pieces of business here and there. And we’re optimistic."
Madelyn Flannagan, Big “I” vice president of agency development, education and research, says the desire to be an entrepreneur running one’s own business is a potent pull to start up an agency. “I get questioned all the time about this from people looking for ways to beat the recession,” she adds. “They’ve maybe lost their jobs or come to this impasse where they feel it’s ‘now or never’ to take control of their destinies. There has been this surge in entrepreneurial spirit in the country.”
—R.B.
Bank Culture Goes Bust
Reid Rushing also executed a formal business plan before putting the pedal to McGraw Insurance Services in Pensacola, Fla. Rushing had worked at another independent agency the previous 14 years, but after a local bank acquired the agency, he pulled up stakes. “The bank had gotten so big and the service was so poor that I couldn’t take it any longer,” he explains. “So I packed up and bought an existing agency.”
Shirley Lukens, senior vice president of Reagan Consulting, says Rushing’s experience is not uncommon. “There has been a tremendous amount of consolidation in the industry,” she explains. “The principal at the local agency that was sold to the local bank three years ago was quite happy afterwards dealing with the local people he or she knew. Now that local bank has been bought up by some huge national bank [and] it has resulted in a different culture, one that the principal no longer wants to be a part of.”
—R.B.
