It is embarrassing – no one talks about it – but we know that it happens – businesses in crisis being forced to merge, sell or simply dissolve. We, as consultants, are involved in many more of these situations than most agents see in a lifetime. It seems that we are always called in too late to save the situation and all of the warning signs for impending crisis were evident for years. We would like to share some of these warning signs – the red flags – of insurance agency operations with you. If the red flags are recognized and problems resolved crisis can be avoided in almost any small business.
1. Looking backward and forward too much – if today’s problems cause you to reminisce about how good things were or that they have to get better soon, you are fooling yourself. Looking backward or forward instead of at today’s situation may keep you from taking immediate action to resolve your problem.
2 Don’t discount your competition – when the direct writers continue to take your market share – when the stock companies stop writing personal lines or become direct writers themselves – you must develop plans to move yourself in the marketplace in order to survive. Few hand binderies exist in book publication although their product was much superior to the mass produced books that are being sold by the million. Change or disappear.
3.Don’t simply watch the dollars in the bank. Pay attention to the two components of revenues, stable retention rates and consistent new business efforts and results. The silver lining in the soft market is that we can no longer fool ourselves into thinking that our businesses are fine when the only revenue increases we see are from rate increases.
4. Keep your focus on the basics of the business – do what you know best and do it repeatedly.
5. Agents can’t see trouble coming until it is too late – many times we assume that a negative trend is a temporary shift and will self correct. There are still some agents who are hanging on waiting for the “Rainbows End” – the return of the hard market. Then we get used to the growing problems until it is too late to correct them – my cajun friends tell me that is impossible to cook a frog by throwing it into boiling water. It simply jumps out. However, if you put the frog into cold water and turn up the heat gradually, it doesn’t notice until it is cooked. How many of you are finding the water growing uncomfortably warm?
6. Most agency owners consistently strive for changes to increase the efficiency and effectiveness of their agencies. Are you sure they are the correct ones for survival? – We see many agents who concentrating on issues that will improve profit and efficiencies (i.e. collections and enhanced workflows). However, they never ask their customers for what they would like to see the agency do to make it easier for them to do business with you. Talk to some of your customers before changing systems and procedures. You may find it eye opening.
7. Can you change too much? Yes – it confuses your customers if they face a different system, procedure or person each time they call you, measure your innovations carefully through your strategic
plan implement the selected changes and live with them if you have done your homework the change will be beneficial and while it may need some fine tuning, it should be stable for years.
8. Other danger signals:
a. customers in you major specialty area delaying the acceptance of renewals and shopping with other agents.
b. loss of customers trust – customers feel that they have to shop in order to get”fair” rates.
c. a general slow down of payments as measured by days of receivables.
9. The hardest part of pulling out of trouble is going far enough – commitment. Study the problem, define the best solution, become firmly convinced that the proposed solution, carried out properly, will solve the problem – THEN COMMIT FULLY. Going half way is sometimes worse than taking no action at all . If you take no action you may fail slowly if you through money and or people at problems without full commitment, you will fail much quicker.
We were recently called to help an agent who was seriously over-staffed by five or six employees. They laid off one or two people without changing workflows and procedures and without determining if the positions (rather than the people) were expendable. They laid off the people that the owners liked least, not the positions that were least needed. This half hearted attempt backfired, they ended up with serious backlogs, morale problems, irate customers and did not solve their money problems. If they studied the workflow and procedures to determine all positions that could be eliminated and then did the necessary trimming all at once, the expenses would have been dramatically cut without the problems they incurred.
10.Check your agencies pulse on a regular basis. How do you know weather or not you are headed for disaster? Look at the balance sheet liquidity trends (see Pipeline Vol II issue 8 or call us for a copy) and follow trends in sales, retention, aged accounts receivables and workflows (incoming work and backlogs). These are the standard management information systems that we create in agencies, large and small, throughout the United States.
We have found that agents that check their pulse on a regular basis don’t go out of business and don’t disappear. If you would like assistance in creating a management information system for yourself please call us.