The Producer Dilemma: A Threat to Agency Survival
First of two parts
By Catherine Oak and Bill Schoeffler
The Problem:
As consultants to independent insurance agencies across North America, Australia and
New Zealand, owners tell us that the most common problem is finding good producers. Can this
be true? Are there so few "good" producers out there that most agencies cannot find or retain
one? If this is the case, what does this mean for the future of our industry?
This supposed "lack" of good producers should concern all of us. A retiring agency
owner without a producer to perpetuate her book will have limited options and may not command
top dollar in a sale to a third party.
Insurance companies should be concerned about their market share if that key producer
dies or retires without a backup to retain the accounts. Youth is also the lifeblood of an industry.
No new producers
Is there a dearth of new producers? On the basis of our experience, we see very few
young producers in our seminars or employed by our clients. The young producers we see in the
industry are usually the children of the principals. Young family members getting into the
business are usually motivated by the desire to follow their parents and to perpetuate the family
business.
For those young people with no family ties to the industry, there is little, if any,
motivation to get into insurance. An 18-year-old high school student typically will have no
knowledge of career opportunities in insurance unless a local agent shows up for career day.
As an industry, we need to promote career opportunities to young people. Although
Project INVEST exists in some locations, insurance companies and trade associations need to
dedicate more effort to educating the public about our industry. Agency owners, however, should
take responsibility for the education of their own communities and local schools.
Based on today's climate of high production volume commitments, the days of a young
producer starting from scratch are over. New agencies today are created for the most part by
experienced producers splitting from their current employer-usually with part or all of their book of
business. The incentive to sell insurance through your own firm is reserved only for the "proven"
producer.
New producers must "put in time" as employees until their books are big enough to split
off. This current trend acts as a disincentive for agency owners to develop and train young
producers, since these producers may leave anyway with their book, which can really adversely
affect the operation. Companies could alleviate some of this problem by allowing producers in
new firms to have contracts without high volume commitments initially.
Poor producer development
A local "New Age" magazine had four ads for schools to train and accredit psychics! A
quick look at other service industries will show schools or college degrees for law, accounting,
hotel management, cooking, real estate and physical therapy. There are only a handful of colleges
that offer degrees related to insurance, and few graduate programs.
Most of the schools and training for insurance are geared toward people already in the
industry. We lack an inlet for those entering the job market to explore and train in the industry
from an academic mode. Instead, one must enter the job market to experience the industry and
then receive mainly on-the-job training. Designations in insurance can be earned later, but most of
these courses expect a strong base knowledge of insurance.
A small firm usually doesn't have the resources to sponsor a new producer until the he
or she is self-sufficient. Yet this is the type of firm whose survival is directly linked to the
development of new producers. Sometimes insurance companies will cover some of the costs
associated with producer development, but this has been waning over the years.
Producers are the sales force of the insurance companies. What other industries do not
train and support their own sales force? Companies need to step up to the plate and provide more
training, education and financial support for new producers and agencies.
Lack of good producers
When we turn our focus to the existing pool of producers, clearly some producers are
better than others. The same goes for other occupations in other industries. But what needs to be
explored is whether the ratio of good to poor is out of line with other industries-and if so, what
can be done to improve it.
Caliper (an excellent testing source for the insurance industry) did a study a few years
ago and found that only one out of seven producers hired will develop into a viable producer for
the hiring firm.
What's more, Caliper found, the total cost to the agency of hiring the wrong producer is
at least two to three times the producer's salary! Proper screening and management should help
improve the quality of producers hired and their success rate.
Perhaps one of the reasons for this high failure rate in sales is that some people who
enter the field forget that they are salespeople and take on the role of "servicers." Our industry is
somewhat unique in that the salespeople can make a decent living off renewals and do not have
to constantly solicit new clients. This renewal income stream may attract people into sales who
are much better qualified as account executives servicing a book of business rather then
producers.
If salespeople are too comfortable with their incomes, they can become complacent and
not sell new accounts. A life insurance salesperson who receives low renewal commissions will
not stay in the business for more than a year or two if he cannot sell new clients.
P/C producers usually don't have to cold call new clients. While most producers will say
they get 85 percent of their new business from referrals from existing clients, most producers fail
to ask for those referrals!
The numbers
Let's look at the numbers. The recent IIAA's agency universe study indicated that there
are about 44,000 independent agencies in the United States. Since the U.S. population is about
261 million, this translates to one independent agency for every 5,932 people. Keep in mind this is
omitting the direct writer from the equation.
We have found that in Australia, this lack of "good" producers is not as keen as in the
United States. "Down Under" the population is 18 million with 1,000 brokerage firms, which
translates to one brokerage for every 18,000 people-roughly one-third the U.S. per capita statistic.
Does this mean that the our country is saturated with independent agencies? Perhaps.
However in 1987, there were over 70,000 agencies. What it may mean is that all the good
producers have their own agencies. Either way, there are many producers out there, so finding
good producers is limited to your ability to screen out poor producers and being creative on
where you look for those salespeople, including outside of our industry.
Summary
There is no simple answer to this producer dilemma. Unless a fundamental change takes
place in the independent agency system, the issue of quality producers will continue to threaten
agency survival. These essential changes need to be supported by the insurance companies and
trade associations, as well as the agencies themselves. An full industry effort is needed to bring
new blood to the agencies. Sales is the lifeblood of both agencies and companies alike.
