I’m going to cut to the quick; as much as I can with a topic as challenging as ‘strategy’.
I want to share a glimpse of the thinking, research, and observations behind my strategic recommendations.
My clients and followers have heard a small handful of exhortations over recent years: Lean upmarket. Market faster. Grow faster. Control the customer and the customer experience. Connect deeply at every stage of the customer relationship. Take innovation seriously – as if your agency depended on it.
In my experience, those who understand the thinking behind these recommendations ‘get it’ – and act decisively.
I understand the itch to skip the analysis. Few things spell B-O-R-I-N-G like ‘analysis’. (“Just tell me what to do! Why are you making me think so hard?”) Fair enough. Skip it.
But, if you would humor me, I could tell you to run fast. Or, show you the tiger chasing you.
I’d rather that you see the tiger.
Let’s spend a few moments and look for that tiger. (And, let’s look for the ‘friendly forces’ too).
You’ll make 10,000 decisions in your business. Maybe more.
But, this one—what is your strategy—is the single most important one you’ll ever make.
You’re either going to point your ship in the very best direction—avoid those rocky shores, storms, and counter-currents—or you’re not.
You will either have the best route. Or you won’t.
That adds an element of gravity to this decision. There’s one ‘fast-best’ route for you. Others will be good, fair… or downright dangerous.
But, there’s only one best way.
Agents should take this decision seriously. I get the resistance. Strategy is hard work.
But, it’s not nearly as hard as bad strategy or no strategy at all.
That’s why I encourage my clients to ‘stress test’ their strategy before they execute. Beat it up. Resist the human tendency to find all the reasons your decision is right.
Find all the reasons why it’s wrong. This IS the life-or-death decision in business.
One Best Strategy
You have ONE best strategy. Every other strategy you might pick is not-best.
And that’s not good enough.
I can show you where those big rocks and storms are. That’s important.
But, ultimately, you must make it fit for you and/or your agency.
You must articulate clearly:
- How do these forces apply to your agency and your markets?
- Which ones inform your direction?
- Which ones will be more powerful?
- Therefore, where will you play?
- What is the best market for our future business?
- What will you do that earns the right for you to win?
- What will you do differently?
- What new capabilities do you need to add?
- How will you lead your team in that direction?
In the absence of facing these questions head-on and answering them, you’ve made the default decision: what you’re doing right now is the best strategy for your agency’s growth.
Michael Porter—author of the single most downloaded report in Harvard Business Report history—advises business leaders to develop their strategy with a clear-eyed analysis of what’s happening in the real world – often identifying forces that are easy to ignore in the trenches of day-to-day operations.
His model segments those real-world forces into five categories, based on the premise that growth and profits tend to follow power, that we should be aware of where that power is, and how it flows. Then—and only then—can we map out a path that navigates us to success.
For an agent, we need to ask where that power flows in these five areas:
- New entrants
The future of suppliers
Our suppliers are our carriers. What trends here impact the agent of today?
First, they are consolidating:
- In 1995, the top 25 carriers wrote about 70% of premium in the US.
- In 2012, that number rose to almost 84%.
- In a recent podcast episode with industry analyst, Chris Burand, he shared that the number was continuing to rise, hitting around 89%.
What does that mean for agents? Generally, consolidation of supply lends more power to the supplier; with fewer choices, agents may be feeling the influence those carriers have.
At least one recent podcast guest—a well-respected thought leader—predicted some near-term decline in commissions. This is typical when suppliers have more power.
It’s also typical when the suppliers are facing some pressure on their own. And, they are.
Another recent podcast guest—the former CEO of a major national carrier—suggested that carriers have plenty on their minds. Until recently, they enjoyed two unique advantages – advantages that kept competitors out of the game:
- Capital was expensive. Now it’s not. That makes them vulnerable to new competitors, including innovative entrants to the industry.
- They were the only ones with access to the massive data needed for insurance. Not anymore. Data is ubiquitous. Another recent podcast guest described the process of ‘passive data collection’: the instant application of publicly available data made available at the moment the insured completes an application. They gave the example of one small business underwriting process that requires ONE question. The rest is immediately retrieved from the big data in the cloud.
Embracing digital technology
Their world is changing. Just as technology is transforming the game for successful agents, it’s making carriers act – and act quickly.
The big research groups and advisory firms sing like a single chorus: carriers must ‘go digital’.
They see digital investments as a major threat and a major opportunity. (As is so often the case in times of turbulence. The same wind that blows one boat over, propels another to victory).
They see emerging technologies attacking friction in the supply chain – with the potential to liberate new profit and accelerate growth for their business.
If they can stay ahead of emerging competitors.
Or, more likely, stay ahead of existing competitors that have the agility and capital to re-engineer legacy processes to the much more modern versions of themselves.
What does this mean for the agent of today?
They may, in fact, get caught between the awkward rock and hard place of a supplier community that, on one hand, wants to lower commissions (and has the power to do so) and, on the other, has pressures of its own.
What to do?
The strategist, like the good Stoic, makes a clear distinction between that over which they have control and that over which they don’t.
Clearly, you don’t have control, for example, over the commissions established by carriers. But you can influence your commissions and appointments by controlling what you can:
- Get bigger. Generally, this is a result of well-conceived strategy. In today’s environment, it becomes a strategic imperative. Agents with more volume carry more weight. (A sizable percentage of my own clients, for example, do not receive the ‘rack rate’ from their carriers. They earn a negotiated rate).
- Grow faster. Again, this is usually the result of strategy. Now, it’s mission-critical. Speed of growth has two big obvious benefits: greater control over income and increased valuation. In this case, it also serves as a counter-balance to pressure from suppliers. Suppliers recognize the value of a loyal partner who grows at above-average rates. In negotiations (whether it’s for increased commissions, appointments, or ‘program dollars’) carriers see fast-growth agencies as unusually sound investments.
- Consider your network. Agents have organized for some decades now. Agents have gathered under the roof of networks and clusters to gain some competitive advantage. Most agents would do well to make this a serious, strategic decision. And, whatever their choice (do nothing or join this one or that one) it’s a consequential decision. One of the most important you’ll ever make.
- Control the customer relationship. You can’t just own it. You already do. You need to control it. Do you know what an agency does when they see the results of sky-high retention, above-average policy/customer count, and steady-stream referrals?
In a recent report, the global consulting firm, EY, urged their carrier clients, “Be ruthless with brokers who are damaging the long-term economics of your business.”
Around the same time, they reported that fully 44% of current customers report no interactions during the previous 18 months. Only 14% reported being highly satisfied with the communications from their insurance provider. And they say this is a relationship business?
In other words, you can anticipate that carriers may be more and more selective on agency appointments. Agencies that demonstrate customer loyalty—and the maximum Customer Lifetime Value that it brings—will be the protected class.
Disruption from new entrants and substitutes
Some of the more disruptive insurtech entrants have been wanting to feast on the agents’ lunch for a while – often with direct-to-consumer technology platforms. (Note that several carriers have made investments in more than one of these).
While their collective bounty hasn’t been much more than a nibble, (remember that trends don’t move in straight lines) they hit inflection points.
So far, the growth of competitive channels—at the expense of the agency force—has largely been in the personal lines sector.
Expect that to change.
Commercial lines (at least, in the ‘small commercial’ end of the spectrum) is being actively targeted by emerging digital competitors.
Of course, they are. Consider this: according to a recent report from Deloitte, 84% of small business owners claim they’d be willing to ‘buy direct’. No broker.
Investors are hungry to be on that bandwagon.
Business owners are the same consumers switching to GEICO for their personal car insurance. They know a trend when they see one. And we know consumers have an appetite.
What this means for agents and brokers
- There are no inherent ‘safe harbors’ anymore (with the possible exception of middle-market commercial lines and above, as well as possibly high net worth personal lines). Therefore, the only true safe harbor left is to create a bond so meaningful to your customers they simply don’t want to replace you. How do you do that?
- Move away from transactional relationship interactions with your customers. Two key differences: First, relationship interactions are ongoing – not just when it’s ‘interesting’ to the agency and two, relationships require investments – just like they do in your personal life. You can’t ‘have relationships’ if your agency is merely responding to inbound requests. Be proactive in your customer relationships. Design the customer experience of their dreams.
- Deliver value. Make deposits in the ‘relationship bank account’. The great advantage of ‘content marketing’ is that you can deliver an ongoing stream of valuable and meaningful information in a non-threatening way. Make a difference.
- Deliver delight. Don’t just deliver ‘content’ – even when it’s a well-crafted stream of meaningful information. Delivering ‘delight’ means connecting human-to-human, which digital media allows you to do in multiples.
- Innovate. A growing demographic doesn’t just care about price, and they’re the most profitable customer you can get.
The godfather of modern business management, Peter Drucker, famously said, “Because the purpose is to create a customer, the business enterprise has two—and only these two—basic functions: marketing and innovation. Marketing and innovation produce results. All the rest are costs.”
Today’s agency principal can’t merely wait for carriers to create ‘innovative’ products that help the agency stand out. They need to design and deliver innovations at the retail level. Good coffee wasn’t the magic wand for the growth of Starbucks. The unique and carefully crafted experience was mission-critical. Same for you. Your best competitors probably have products that are just as good as yours. Innovate at the retail level – and you’ll own a virtual monopoly in the marketplace of your choice.
- Stay vigilant about emerging technologies. After conducting over 100 interviews with industry thought leaders, start-up CEOs, carrier executives, vendors, insurance journalists, and successful agents about their current priorities, a few key themes have emerged. At the top of the list is ‘embrace technology’. As new agent-enabling technologies emerge, test them. More and more insurtech is moving to the ‘agent-friendly’ side of the battle. Keep your eyes open – and be prepared to experiment.
Let’s take a moment and talk about Porter’s concept of ‘substitutes’. This is what happens when the consumer solves their problem by ‘jumping categories’. Instead of renting DVDs from Blockbuster or Hollywood Video, they stream. Instead of owning this car or that car, they ride-share.
The emerging ‘Internet-of-Things’ and related technologies are making the world a safer place. Instead of coming home from work to a flooded house, your phone informs you the moment a pipe breaks. Instead of bumping the car in front of you, your car drives itself. Instead of coming home from work to a burglarized home, the camera on your doorbell tells you the instant the bad guy shows up at your doorstep.
The impact and timing of these technologies are very difficult to pinpoint. In some cases, social and regulatory pushback can delay adoption far beyond expectations. Other technologies can ‘unicorn’ quickly and change the game unexpectedly.
Ultimately, most analysts predict a substantial reduction in premiums in many key sectors.
Mix in one more factor: emerging technologies and providers will attack the easiest direct-to-consumer segments first. Personal lines. Small commercial lines.
This raises the question of your Strategic Horizon—that point at which you’re no longer significantly invested in the industry. The farther out your horizon, the more you need to consider long-term trends and begin to make adjustments now.
The date is unknown, but it will arrive… the day when it becomes too late to pivot.
This article is an excerpt from our new ebook, The Marketing Guidebook for the Modern Insurance Agency: How Savvy Agents are Taking Control, Shifting Direction, and Winning in the Modern Insurance Age. Download here to gain a crystal clear understanding of the strategies that will bring your agency long-term growth, build meaningful relationships at scale, and avoid the common pitfalls agents make every day.