Most, if not all, independent insurance agencies say they want to grow. After all, we’re in the business to continually grow our revenues, profits and overall value of our firms. However, the actual organic growth rate for most agencies does not reflect this.
According to a recent report, even the national brokers had an organic growth rate of only about 3% last year. While their 3% translates to a much greater dollar amount than the average agency, it’s still only 3%. Considering these are the agencies that are supposed to have the best producers, the best markets and the best everything, to me that’s a truly lackluster figure.
One of the things that our industry’s mergers and acquisitions consultants will tell you is that consistent, organic growth can increase an agency’s value even more than profit. Someone who actively buys agencies can make them profitable very quickly, usually by making the tough decisions that will eliminate agency waste, drive productivity and boost profitability — decisions that the previous ownership didn’t make, either because they didn’t want to or didn’t have to. However, indecision often correlates with agency bloat, which inhibits growth and curbs profitability.
Any agency that’s growing just enough to stay ahead of the ever-increasing cost of doing business is barely maintaining profitability. Accordingly, there’s little or nothing left to invest in obtaining the best people, automation and out side services. So the need for organic growth is self-evident — or is it?
Key Reasons for Agency Slow-Down
As I began to ponder why more agencies aren’t growing at a greater rate, it occurred to me that the better question might be, “What makes so many independent insurance agencies slow down?”Based on my years of experience and observation, I’ve come up with the primary factors that cause agency growth to slow to a crawl.
Back in the “old days,” it was pretty easy to make a great living in the insurance business. All you needed was a nice office in a good location, attractive signage, a big ad in the Yellow Pages and an active presence in community groups and organizations. Upon request, you’d provide quotes on insurance and your agency would grow. But in the wake of increased competition and multi-media marketing, that traditional approach has fallen by the wayside.
These days, potential clients are bombarded with advertisements from companies like GEICO, Progressive, and State Farm and so many others. So even if you’re well known and very active in your community, and have a state-of-the-art website, prospective customers can easily get another quote from a growing number of competitors out there.
Commoditization of the Business
There’s never been a more convenient time for consumers to shop around than now. Theoretically, a person could spend an hour on the phone or online and get four competing quotes. In fact, in many cases they can get a quote almost instantaneously without ever having to speak to a human being! With so many time-squeezed, price-focused prospects willing to sacrifice personalized service for low-cost insurance, writing new business is a growing challenge.