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4 Lessons From the Best Practices Study to Thrive in 2021

This year’s benchmarking analysis examines four key areas in which independent agencies must go beyond day-to-day chaos to rethink the fundamentals.
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4 lessons from the best practices study to thrive in 2021

On March 1, agencies were growing at the fastest rate in over a decade and agency valuations were setting records. Less than one month later, the global economy began shutting down with the arrival of the coronavirus pandemic.

While the impacts of COVID-19 remain with the independent agency system as we move into 2021, the most successful agencies are the ones that embrace the crisis by adapting and innovating.

The 2020 Best Practices Study, which provides benchmarks and analysis of the group of 264 Best Practices agencies, reveals how these stellar agencies are thriving in a difficult environment—and how all independent agencies can learn from their approach.

Created in 1993 through a joint initiative between Reagan Consulting and the Big "I," the Best Practices Study has helped agencies by delivering critical financial and operational industry benchmarks and strategies to member agencies. For nearly 30 years, this comprehensive annual publication has helped agencies optimize their performance and built its reputation as one of the industry’s most consistently effective, reliable, and valuable information resources. Every three years a new group of Best Practices agencies is recognized, and a comprehensive study released based on their results. Big “I"-affiliated state associations and insurance companies nominate agencies, which then qualify based on operational excellence. The Best Practices program reviews financial and benchmarking information for the participating agencies and provides updates the following two years.

“In observing many Best Practice agencies, few are waiting for the world to get back to normal. Instead, they are taking the opportunity to think strategically about what they're up against," explains Tom Doran, senior vice president, Reagan Consulting. “If Best Practices agencies have demonstrated anything over the past three decades, it's an ability to adapt very quickly to a changing environment," he says.

“The pandemic of 2020 should allow agencies to embrace the opportunity to rethink and retool their overall operations," says Madelyn Flannagan, Big “I" vice president of agent development, education and research. “Even in these uncertain times, history has shown the insurance industry is remarkably resilient and is certain to make a strong comeback in 2021."

This year's benchmarking analysis examines four key areas in which independent agencies must go beyond day-to-day chaos to rethink their fundamental business operations.

1) Financial Foundations 

“At this time in the COVID-19 crisis, with everything that's going on, there's never been a more important time to be guarding the financial foundations for your agency," Doran says.

One area of the Best Practices Study Doran highlights is the necessity of preparing financial strategies for both the best and worst future scenarios.

“Another characteristic we see the leading agents in the marketplace exhibiting right now is the development of multiple financial forecasts," Doran says. “We would encourage [agencies] to develop a best-case, worst-case and most-likely case scenario."

As the independent agency system continues to deal with the economic fall-out of COVID-19, it is difficult but crucial to dramatically adapt in a short time period. An agency with multiple forecasts “will be able to move very quickly in light of a changing economic landscape," Doran says. “If you are not prepared to change your direction almost immediately, we think you are at risk in a way that's probably not healthy."

Each forecast should be built with as much available information to inform revenue, including ground-level feedback and projections from producer-client interactions, knowledge of industry concentrations and potential impacts, and updates from peers, government officials, medical personnel, clients, and insurance company partners. Once created, these dynamic forecasts and related action plans will allow you to adapt and pivot in real-time without making decisions under fire.

Another opportunity to rethink financial foundations lies in profitability—in particular, occupancy.

Occupancy expenses typically consume 4% of an agency's net revenue and represent the second-largest expense category after compensation, according to Best Practices data. The pandemic has demonstrated that agency employees can, and often prefer to, work remotely, so there may be an opportunity for agencies to rethink occupancy requirements accordingly.

Do you need as much space as you have? Does a brick-and-mortar approach still make sense for your agency? Does the pandemic create an opportunity to reinvest rent savings in hiring new talent?

2) Personnel

Despite evidence that remote employees are often happier and more productive than their peers in the office, 2020 began with only a small portion of the U.S. workforce working remotely—3.2%, according to

COVID-19 created a tipping point. By June, nearly 50% of the U.S. workforce had transitioned to remote work due to COVID-19, according to The Wall Street Journal. Current technologies, though not perfect, are generally sufficient to effectively support remote work, suggesting the slow pre-COVID-19 adoption of remote work was due more to inertia and reluctance to change than structural or technical limitations.

Is remote work here to stay? Almost certainly—and this new world brings opportunities and some caution tape for independent agencies:

Protect culture and camaraderie. Acknowledge that cultural development will require more purposefulness as employees become dispersed and personal interactions become less organic. Intentionality around culture development boils down to communication.

Proactively find ways to reinforce your shared values and goals, keep employees informed on corporate-level goals and initiatives, celebrate wins, and use technology-based tools, such as Slack and Microsoft Teams, with real-time chat functionalities, to replace lost “water cooler time."

Rethink your geographic footprint. In liberating agencies from the office model, COVID-19 also creates access to a broader, deeper talent pool. Access to qualified candidates is greater than ever before. As you prepare to compete for talent in this expanded pool, remember: Firms that offer remote employees more of what they want—tools, tech and flexibility—will have an increasing competitive advantage in the battle for talent.

“It does raise a really interesting opportunity if you're looking for a geographic expansion that you may have passed on in a previous world because of the distance," Doran says, which is especially true for “agencies that find themselves in geographic pockets of the country where there might not be a robust personnel pool to select from. This allows you to reach outside your geographic boundaries to hire and grow your agency." 

Embrace diversity initiatives. In addition to being a sound business strategy, embracing diversity will also drive long-term growth and profitability. “A diverse group of employees will create stronger and more authentic connections with a broader range of insureds, allowing you to outpace your competitors in the future," Flannagan says.

Additionally, a diverse team that more accurately reflects the reality of the U.S. economy will bring a variety of perspectives on how to respond to a rapidly changing business and social environment. 

Maintain employee accountability. Agencies must develop a way to monitor employee results while also avoiding micro-management. Fostering good prospecting habits and tracking production pipelines are critical in a remote-work environment. If effort and activity are not demonstrated, don't be afraid to quickly terminate and reinvest those dollars elsewhere.

3) Customers

Pause and assess your client base and growth drivers to understand how you can best maximize your current strengths and avoid any potential pitfalls. Is your agency too concentrated in certain industries? What parts of your book are thriving and struggling during the pandemic?

“Consider this an opportunity to expand beyond the customary buckets and lanes that we've operated in," Doran says. “A diversified portfolio is a great investment strategy—it's also a great way to run an insurance agency in many ways and to expand beyond the traditional industries and the lines of business."

Perform a full audit of your customer base over a specified account threshold that will cover at least 80% of your total book. Take proactive measures to reconsider growth investments in industries in which you are overweighted or that may no longer make sense.

Is your book of business ideally balanced in terms of lines of business? Will an extended COVID-19 recovery impact your agency's largest lines of business? Consider how potential large-scale market forces might affect your agency's performance and start thinking about how you can create plans today to mitigate the potential negative effects.

On a smaller but more meaningful scale, create more frequent client touchpoints to develop relationships even during social distancing measures. How often do you connect with your customers? How has client contact suffered during COVID-19? Schedule periodic conversations and check-ins with your clients to touch base.

4) The Future

While nobody knows whether the dangers of the virus will be short-lived or will linger for years, changes have already been triggered or accelerated by COVID-19:

  • Scale matters more than ever. Economists observed that COVID-19's impact has been much tougher on small businesses than large ones, in part due to many small businesses lacking the resources and access to capital enjoyed by their larger competitors. As the brokerage landscape evolves and the number of brokers with $1 billion or more in annual revenue increases, local agencies will continue to feel the squeeze. 
  • Use of data, technology and artificial intelligence will accelerate. As COVID-19 intensifies economic pressures, agents and brokers will aggressively deploy technology to improve client offerings while also enhancing efficiency and driving down costs.
  •  The need for visionary leadership will intensify. In the COVID-19 era, agency leaders are facing a plethora of urgent decisions across all fronts. Issues such as technology disruption, clients' evolving needs and diversity in the workplace are all clamoring for a greater share of agency leaders' attention. While some love the challenge, others are wondering if this is what they signed up for. 
Trying to predict five or 10 years into the future is harder than ever given the extraordinarily rapid pace of change. However, certain elements of the independent agency system likely won't change over the coming decade:

  • Relationships will drive business. When the Best Practices Study was launched in 1993, the top agencies were those that developed strong personal relationships with clients while delivering the resources necessary to help clients succeed.
  • Decades later, these same elements are true but have evolved. Although the back-slapping producer has been replaced by a knowledgeable, resourced “consultant," clients still want a real human they trust and relate to.
  • Growth will determine value. As the competitive dynamics of our industry intensify, growth will be more challenging, requiring thoughtful vision and strategy, consistent investment, and business discipline. The good news is that the rewards for growth will increase while differentiation between slow-growth and high-growth firms will increase.
  •  Perpetuation remains key. “To remain successful going forward, agencies need to develop perpetuation plans to address the aging of their top producers," Flannagan says. “In almost every revenue bracket, the sales force with the highest sales velocity were over the age of 50."

Compiled by AnneMarie McPherson, IA news editor, based on the 2020 Best Practices Study.

This is the 27th edition of the annual Best Practices benchmarking analysis and the second year of the current three-year study cycle. Visit the Best Practices Products page for more information and to purchase the report.

Wednesday, February 17, 2021
Agency Operations & Best Practices