Michael Jans: Hello everybody this is Michael Jans founder of Agency Revolution. We make it easy for you to automate your systems, engage your customers, and grow your agency your brokerage. I want to welcome you to this episode of the connected insurance podcast where we explore the trends innovations challenges and the solutions to the biggest problems facing today’s retail agent or broker.
I want to welcome our special guest of today Neal Stanley, Neal has over 30 years experience in the management and direction of insurance companies and insurance agencies. He’s been associated with the United Valley Insurance Services since 2002. He joined their team as executive vice president to manage United Valley’s Retail Agency and to lead the agency acquisition program. Neal has served on the board of directors of various industry organizations and he’s an active member of the State Bar of California. Well, Neal thank you very much for joining us. I really really appreciate it. How are you today?
Neal Stanley: Michael, I’m doing marvellous. Thank you.
Michael: All right, I want to start at a topic that I know is near and dear to you. Something that you’ve observed you keep your finger on the pulse of what’s happening in this industry as well as anybody that I know. You work very closely with agencies and brokerages as well as with companies. Let’s talk about the impact of technology, I’d like to get your assessment of the impact of technology on today’s insurance agency model.
Neal: I think this is a primary area of development over the next 10 years. We have accelerated so much over the last five years to get to where we are right now. Everyone is probably pretty aware that we were still in the dark ages 10 years ago and came in into the middle ages around five years ago. Now technology has really accelerated significantly but in the kinds of things that we do. I know that Michael your company has been at the forefront of really pushing some of the technology, the new technology forward for agencies.
Michael: I’d like to think so.
Neal: I think that more agencies are beginning to grasp the need for it. The thing that is really interesting besides just the technology’s impact on individual agencies currently is the new marketing models that are coming out right now. I am involved with three clients currently who are talking and considering selling their agencies or doing a joint venture with a tech company that will actually market product through phones and other devices.
It’s incredible how quickly it’s moving along. Another client of mine recently lost their chief operating officer to Biz Insure and that organization– She was really overtaken by the opportunity to be able to be at the forefront of really being able to market small commercial business on the internet as opposed to the normal agency model. This is the kinds of things that are happening right now that are being driven by technology.
We’ve got a lot more people coming into the space. Our insurance space that were never in it before because they see it as an industry that really is ripe for picking. The technology those that are really involved in technology really see it as an opportunity for them to change the model significantly. That model, the model that we work off right now has been in existence for many many years. It’s changed slightly over the period of time that I’ve been involved in the business but I see dramatic changes happening over the next three to five years.
Michael: Neal this is obviously it’s an industry with a lot of cash it’s an industry that has not been disrupted, at the same pace as others. Obviously we’ve seen other industries completely turned upside down. Our sense is that venture capital community is looking at this industry and now investing pretty heavily into this industry, attempting to frankly they probably want our customers is what they want. I’m curious because you work with so many agencies what’s your level of confidence about the industry’s ability to keep up, the industry’s ability to innovate. Then I’ll be curious what you think agency managers must do to survive and thrive?
Neal: Well, my level of confidence is really it spreads a wide path. If an agency owner really focuses and says things aren’t going to change. I’m going to stay where I am right now that particular individual is really going to get run over by what’s happening. We can see it already the compensation that we’re receiving is being cut right now and why is it being cut.
This is on personal lines, it’s being cut because the carriers are receiving less compensate– pardon me, they don’t have the interest income that they used to have. They’re having a lot more aggressive intrusion into their base model by companies such as Geico and Progressive but also by Issue and others that are basically subverting the current the common model of agency based relationship.
To compensate them or to get them back to a point of profitability they’re cutting the commissions of the agencies. Agents are just complaining about that as opposed to saying embracing it and saying, “What are we going to do to bring more value back to our companies and automate and get involved in that aspect of our business?”
Michael: Neal let me interrupt with a question because you raised a really important trend. We’re seeing our channel challenged by potentially outside disruption and new technologies. As a channel we tend not to be terribly adaptive we’re not, we don’t change very quickly. Then we see carriers perhaps reducing commissions. This potentially could signal a death spiral. In other words if we’re committed to this channel I think it potentially is dangerous to weaken it. What do you think about that?
Neal: I do. I agree with you.
Michael: Okay, I know that carrier– if you’re sitting in the boardroom of a carrier, you’re the CEO and you’ve got to deliver shareholder value. You’ve got to make some decisions and obviously you need to focus on profitability but it strikes me. I know carriers are not listening to me for advice on commissions because I’m an advocate for the agent broker channel but it does concern me that if commissions are being reduced the revenue that we have to make it strong to build on our strengths are potentially that could be threatened. What do you think agents and brokers need to do about that?
Neal: Well, first of all what they need to recognize is the fact that the model that they’re using is based upon a commission level that is going to change. The commission level is going to change what are you going to do to make yourself more attractive to services that you’re going to offer, more attractive to the insurance companies at the reduced level of commission? There are a number of proposals out there that I’ve been part of but critically, critical inside of this is you have to look at an agent, you have to look at what you do right now. Are you going to invest, it’s an investment?
Michael: Right, yes.
Neal: Are you going to invest in the technology that will allow you to gain more customers reduce your overall expense, take less commissions but increase your overall bottom line profits and that means change. Michael you’ve worked with a lot of agents, you know this, they are resistant to change but the point is there’s no alternative because there’s either you change and adapt or you die.
Michael: All right, Neal I think we’re coming to a similar consensus our position of course is that in order to scale you need technology. In order for agencies to adapt to the new world they need technologies that allow them to multiply their efforts.
Michael: Okay, let me move on to a related question, I know that you are a bit of a stickler — Neal I’ve been in board meetings with you, unrelated to this, but I’ve been in meetings with you where you were challenging the CEO for legitimate data about their customer base. I know that’s important to you. Tell us a little bit about why you think that’s so important for insurance agencies and brokerages?
Neal: Well, first and foremost — one of my set pieces for an insurance agency owner, is not understanding the base customer data for his agency, his or her agency. They really don’t understand– they don’t use their management systems to develop that information, and then take that data and drive the conversation with the insurance companies. We know as an insurance agency, we know what we should know.
Who are our customers, how much volume we get from them in what lines of business, what direction we’re taking, and we need to take that information to the insurance carrier and say look we know that you can get more from us if you give us a program or you give us some underrating guidelines with this particular segment. We can also expand it because we have the opportunities and the contacts to be able to do that. I think that the position we’ve always taken as well with carriers is going to give us the information that they need, here’s what they’re interested in, and then we’ll kind of wonder out and produce a business for them.
We have to be much more pro-active in driving that conversation. We can’t allow the insurance carrier to drive that conversation, we have to drive it.
Neal: We have to come to the table with more data than they have and use that data effectively in being able to leverage more revenue for ourselves, and we’ve proven that. I mean we have taken obviously United Value with a membership organization. We have 85 members that are insurance agencies, and we develop an information warehouse that basically takes all the data at a policy level from all of our members.
Then we use that data to be able to enhance programs for our members and be able to gain more commission. We are actually coming to the table with insurance carrier conversation with more data about our book of business than they’ll ever be able to develop themselves. We’re able to guide and develop better programs, more compensation and be able to develop programs that allow our agencies to grow because they’re going to be very specific in the kind of things that those carriers want. It’s worked out very well for the carrier and it’s worked out extremely well for our member agency and United Valley.
Michael: It works out for the agency.
Neal: If you don’t understand your data you’re waiting for a slow death.
Michael: Neal you’re talking about an issue that’s dear to our heart because our technology integrates with the data that’s in the agency and broker management systems, and there are a couple of things we discover. One, is that often for years it’s been a garbage in situation and so there’s a lot of cleanup that needs to happen, but two, once an agency has an understanding of who they’re customers are, what they have, what they don’t have, what the opportunities are. The opportunity for growth is almost unlimited for them.
They’re sitting on a goldmine that they’ve been ignoring for 10 or 20 years. For agents who are looking for some optimism, there’s some optimism there. Most agencies are sitting on a goldmine with their existing customer base that they’re just not exploiting. I appreciate the fact that you brought that up.
Neal when we look at the agency universe right now we see agents who are young, there are millennials running agencies. There is that little middle generation and of course, there are boomers. I think they all have a different level of optimism or anxiety about the future. Of course, one issue that everybody faces is how are we going to perpetuate this operation? What are you seeing, what are the trends in the area of perpetuation?
Neal: It’s interesting that you asked that question, Micheal. I mean one of the things that I do right now, one of the primary things that I do right now is advise agency owners on perpetuation. I’m also involved in mergers and acquisitions, I’m working on a couple of acquisitions right now. In the perpetuation, pieces range anywhere from well someone calls me up and says, “You know Neal am really — I’m 65 years old, I really need to think about what I’m going to do to sell my agency how can you help me?”
The thought that immediately runs through my mind, “Why did you wait till you’re 65 years old to call me up and ask me to help you?” Of course, I do but it makes it a lot more difficult at that particular point in time because some of the alternatives are off the table by that time. It’s — Agency perpetuation is something you really need to start to talk about and think about almost from the point in time when you take over and you’re responsible for running that agency.
Michael: All right.
Neal: You have to plan for what is going to happen because you never know, you may pass away early, you may decide that you’re going to go in a different direction. You’ve got to think about how am I going to perpetuate my company that I’ve spent this much time developing, and how is it going to be done. Not just for yourself and the economic advantages that you’re going to get with a proper perpetuation plan, but also how are you going to protect the customers that you have. How are you going to take care of the employees that are basically part of your organization?
If you don’t think about those things on a constant basis and have a plan to implement that, even though that plan may change over time through a variety of different reasons, you’re going to get yourself in to the situation that you’re going to be in your 60s and say okay well now I’m going to start to think about it and you’ve taken the alternatives off the table or many of the alternatives off the table.
I think agencies are– there’s so much in the press about this right now and I think that more and more agency owners are starting to think about it. As I said I work with probably 15 to 20 agencies right now on perpetuation, and it’s so — it’s very gratifying for me personally because I know I’m helping them in getting them through a problem, but I’m really would like to encourage all agents regardless of your age, whether you’re a millennial or a boomer, think about perpetuation, think about the things that you need to do, plan for it, you will be — you’ll have a much more effective agency over the term that you’re running that agency if you plan effectively for that.
Michael: Very good. I’m going to repeat this. You’re saying everybody, every agent regardless of age should be involved in a conversation with somebody in the M&A field somebody like you. They should do that now, there’s no excuse for that not to be on their agenda right now?
Neal: It should be whether they contact me or someone that does my kind of work, or they just sit down read on it and start developing a plan for those types of things. You absolutely need to do that. It’s critical because what’s going to end up — what you really are doing is you’re starting to develop the people inside of your organization. That one of the key things the person that’s the — in their ’60s that I talked about before, they haven’t gotten anybody inside the agency that can take over the agency for them because they’ve never thought about it, they’ve never developed anybody, they’ve never put the effort into it or the capital into it to bring somebody on that’s going to be able to do that.
You’ve taken that particular alternative off the table, and at that particular point in time, the only thing that you really can do is– well you can do two things, you can sell the agency or just-
Michael: Right it out.
Neal: -run it down and close it at some point in time, but you’ll never get out doing it under those circumstances. It’s really critically important regardless of your age.
Michael: Neal I want to ask a related question. Another way that people are sort of dealing with the challenges of today’s environment, in some cases it’s a solution to the perpetuation problem in some cases it’s a solution to other problems. Neal, you are as active and aware of some of the creative ways that the industry has organized itself, as much as anybody that I know, clusters, aggregates, association models and so on and so forth, they take all shapes and sizes. I’d like to get your perspective on that, do you see that as a growing trend and where do you see that going in the industry?
Neal: Yes, I do see it as a growing trend. I think it’s absolutely–you have got– let’s take a small agent. When I came into the business, many many years ago, if you produced $50,000 in premium for an insurance company, you were well regarded and if you produced $100,000 in premium for that company, you were a star agent for them–
Michael: [chuckles] Right.
Neal: In today’s environment, if you’re not able to produce anywhere from 500 and it’s really now more like a million dollars in premium on an annual basis for an insurance company, and you’re not growing that book of business by 10% or more, you’re on the borderline. You probably won’t get an appointment and you may lose your appointment if you are appointed by that company.
That, for a smaller agency, that is an enormous huddle to get over. The only way that a really successful, to be successful as an insurance agent is to either associate yourself with a larger agency, which of course then you lose your identity as an independent agent, or you join an aggregation, cluster, association model and use the value of that particular group can provide you, so that it will insulate you to a certain degree from the loss of market that you have.
Obviously, I work with– I’ve worked for United Valley a long time. We are an association of about 85 members here in California and Arizona, but I also work with aggregators across the United States. These are all larger group we recently formed an association of these membership organizations, and together, this group represents about seven billion dollars in annual premium.
That’s significant but what we– we’re all of significant size because they’re not very many obviously there’s about only seven of us involved in that organization. We’re all big, but even at the size that we are, we still need to be able to see the problems that are common between the things and the whole emphasis of this organization is to help our individual members improve their operations, to make them stronger and better and to generate more premium for the insurance companies, but generating that premium on a collective basis as opposed to an individual basis.
They’re clearly, for the insurance companies– when clusters really started about 30 years ago, there were a lot of insurance companies that didn’t want anything to do with them. Well that has changed over time and clearly, they recognize, most carriers recognize that this particular kind of association is critically important to their growth pattern, and it is critically important to how they manage their business and do it effectively.
Michael: Neal, what do you see as the benefit to the carriers to have cluster relationships?
Neal: Well, first of all if done correctly, it cuts down their expense. Let’s get back to– let’s go back to the data that I talked about earlier if you as an association or cluster, had data and say to an insurance company, “All right you want to write cement mixers “or–
Michael: Right. Okay.
Neal: or whatever your line of business is, we can tell you exactly the agents out there that have this business. We can tell you what kinds of policies they have. We can design programs that will help you generate more business, and it will cut down your expense for going out from agent by agent trying to find the policies that you’re looking for to fulfil your desires or your needs. We can help you in that regard because we have the data to be able to do that.
It also cut’s down– we pre-underrate and most associations like us pre-underrate the agents that we’re bring in, so our loss ratio are significantly low. Our average loss ratio– we sit down with our companies and tell them, “Our average loss ratio over an extended period of time taking all lines of insurance is under 40%.”
Neal: “Oh my gosh.” That’s hugely profitable to an insurance carrier.
Michael: Of course that profitability is an advantage to your members as well, isn’t it?
Neal: Absolutely. It gives them better contingent commissions and better opportunities to write new business.
Michael: Neal, this is interesting. After 30 or so years of clusters, some of the larger ones– I think largely through probably your efforts and your leadership have formed a national association. That’s an indication of maturity in that part of the industry, isn’t it? They’re not going anywhere, right? They’re–
Neal: Yes, it is. We don’t compete with one another. We’re all regional so that we’re not trying to take each other’s members from each other, so that helps. Each one of our organizations has a slightly different model, but the underlying thing that makes us the same across the board is the fact that we are dedicated to helping our members and we really deal with professional agents.
We deal with agents that want to grow, we deal with agents that are professionally qualified to do their business and with agents that have produced profitable results for the company so they do business through our organizations. It’s clearly there and it’s clearly something that’s going to continue.
Michael: I suspect they get better by being part of the organization so everybody benefits. Neal, congratulations. I always love talking to you, I always learn so much and get such a clear insight on what’s happening in the industry when I talk to you. If any of our listeners want to reach out to you or make contact with you about anything that we spoke here, if they wanted to engage your services, how could they do that?
Neal: They can do that through my email, which is firstname.lastname@example.org. They can call me, they can call or text me. My telephone number is 510 541 3809 and I will be happy to respond to them.
Michael: All right, very good.
Neal: I also like– I am very very very pleased to be able to do this, but especially do it with Agency Revolution.
Michael: Thank you.
Neal: I think that you’re bringing, and this is by the way, for all the listeners this is unsolicited, you really bring a fresh and very poignant opportunity for the insurance agencies. It’s critically important that agencies that want to grow, want to develop form a relationship with an organization such as Agency Revolution which is really dedicated to help them grow and become a more effective and profitable company. Thank you for the work you do.
Michael: Neal, that’s very kind and that was unsolicited, so when we get you here to Bend, dinner’s on me, how does that sound?
Neal: [laughs] You got it.
Michael: All right. Okay, well, Neal thanks so much and for everybody who joined us, thanks for joining us and we look forward to talking to everybody in out next podcast and have a terrific day.