April 15, 2020
Hiring Insurance Agents and agency Employees
8 min read
Most new agencies start with just one employee: the owner. But to grow, all founders realize that they will eventually need to hire employees to work alongside them, full time or part time. Adding talented new people to any business makes it more fun and enjoyable. New people create new capabilities too. The question growing agency owners have is always the same: who and when?
Since every situation is different, let's start by thinking about the questions you should ask yourself before hiring any insurance sales agents. Get the answers to these right and you’ll have gone a long way towards properly staffing your growing business.
The First Questions
The first question is: “who is going to be responsible for sales?” and the second is “how do I know I need someone before I actually need them?
How do you know when it's time to hire people? How do you know when it's time to hire insurance agents? My first answer is: you should start hiring people as soon as you are able to move your diet from ramen noodles to beans! In other words, to grow your agency, you need to plow the money you make back into it. Avoid spending it on your lifestyle for as long as you want it to grow rapidly.
With this in mind, let's talk about the sales function in your new business. Almost all agency founders are salespeople. And even if you aren't the number one salesperson in your business, you should strive to be. You are the person with the passion and the purpose to build the revenue of your organization. You are indeed your agency's best advocate. You must always be involved in selling! And so, you will be your agency's first producer. More than likely, selling will be the highest value you bring to the agency for a long time. Experience shows that the best selling licensed life insurance agents - and this also applies to P&C insurance agents, health insurance, and any other field - are the ones working independently.
Of course, you will have other roles in the business, but you should never allow any of those roles to eclipse your role as the number one producer.
When you look at the cost of replacing yourself in any other role that you perform, you will clearly see that the money you make for the time you spend will always be greatest in sales.
Hire in order to free yourself from non-sales functions
As your agency grows, you should seek to eliminate from your daily work as many non-sales functions as you can. What many inexperienced agency principals do instead is the exact opposite.
As the agency begins to grow and the service burden grows along with it, you will find that you have less and less time to devote to selling. This will result in a lower growth rate for income over time. The inexperienced agency principal seeks to solve this problem by hiring producers to continue to grow income while they spend an increasing amount of their time on administrative tasks (including sales management). In my experience—and I have analyzed this with dozens and dozens of agency principals—this is the wrong strategy, especially in the long-term.
If you want to continue to grow income, you must continue to be the primary producer. But as you add clients much of your time will soon be taken up with service work, which is likely not your strong suit and is not the best use of your time financially.
If you look at benchmarking surveys, you’ll see that the average client service agent in a personal line’s agency is servicing about $140,000 of commission. The average client service agent in a small agency, managing a commercial lines book of business, is managing something over $200,000 in commission (you can find exact numbers by agency size, focus, and location in the benchmarking surveys themselves).
When your agency begins to approach 50% of the average amount of commission serviced, and you find yourself spending time managing client relationships, that is the time to hire your first client service agent - not ask an insurance agent to “join our team!”. The CSR/CSA is the first person you should hire, besides yourself, in the typical startup agency.
Customer Service is the First Role to Hire
The traditional role of the client service agent (CSA/CSR) has been to provide for the service functions of the agency exclusively. In other words, they prepare insurance proposals, issue client-requested documents, and so forth but don’t engage in selling activities. That limited role for CSR’s is dying rapidly today, however.
Agencies must be sales operations, and creating new insurance sales is critical to your growth!
Hire a CSA/CSR that isn’t afraid to ask for the order and compensate them accordingly
When you’re in the hiring process for a service function, you should also look for people who aren't afraid to ask for the order. One of the reasons that the average independent insurance agency has only 1.6 policies per client is that they do a poor job of cross-marketing their business. That can be corrected with service representatives who are also salespeople.
Begin by hiring people who aren't afraid to ask for the order, and follow that up by making a significant part of those people's compensation based on either bonus or commission for new business. Use the interview process to filter out potential employees who are turned off by performance pay. If they will not ask for the order and sell, you might as well use the services of a call center.
Make sure that your CSA/CSR gets a producer’s license
A final point about the client service agent: in order to sell insurance, they must also be licensed to do so. Some states have special licensing for client service representatives, which is a limited insurance license. Without the full privileges of a producer license, CSRs cannot legally sell anything, including an additional premium endorsement.
Since all people in your agency should be focused on selling this, a limited CSR license is not an acceptable type of licensure for your client service representatives. You should ensure that they get a producer’s license.
When is it time to hire a producer?
Ok, so when do you know it's time to hire a producer? That's simple. When you have client service agents that are handling 100% of the client service in your agency, you have someone doing 100% of the accounting and administrative tasks in your agency, when virtually 100% of your time is spent as a producer, and when the agency's growth is beginning to slow: that is the time for you to consider hiring a producer.
I had a friend many years ago who was running a two-million-dollar agency. He had nineteen other employees in the agency but was the only producer. This is the ideal situation. It's difficult to replicate, but it's an ideal you can strive for.
In the independent agency system, the failure rate for producing insurance agents runs about 90%, and it usually takes about three years for new producers to pay for themselves.
This is additional evidence that you should delay hiring producers for as long as possible.
Own Your "Book of Business"
Several years ago, I met an agency owner who was interested in doing business with my organization. He told me that he would check with his producers and let me know whether they wanted to proceed or not. I asked him, “Why do you need to check with your employees?” He replied, “Because they own their own books of business.” I looked at him and with great sadness asked, “Do you realize that all you own is a bunch of used furniture of little or no value?” Stunned, he told me he had never thought about it that way. The last time I heard anything about him, he was working as an agency manager in someone else’s agency.
You see, the value in an insurance agency is the book of business. And many inexperienced agency principals, to avoid paying a salary to a producer, or in an effort to recruit a producer to a relatively new agency, are quick to bring on producers as independent contractors, giving away ownership of the book of business to the producer. When you do that, you make that producer a partner and potentially a partner who will own more of the business than you do. Don't make that mistake! The agency must own the book of business.
To make certain that this is clear between you and your new employee (as well as to anyone else who may become involved in a dispute, like a court), your producers must sign a non-piracy and confidentiality agreement on their first day of employment. That agreement should include a non-solicitation provision wherein your employee agrees not to solicit your clients should they leave your employment.
Some people still refer to these kinds of agreements as non-compete agreements. But non-compete agreements are generally considered to be against public policy and are therefore unenforceable in every jurisdiction that I'm aware of. You cannot prevent a former employee from engaging in the insurance business and competing with you (as the owner of their own business or as an employee of someone else), but you can prevent them from soliciting or stealing clients from your agency. The only way you can prevent that is to have them sign a non-piracy agreement at the very beginning.
As a final point about hiring people, let’s consider one more thing about staffing in general: you never want to have too many people. Salary and benefits are the biggest expense in an agency, running north of 50% of revenue in almost all cases. Unnecessary people just rob the business of profit.
While it might seem that having excess people allows for growth, the reality is often the reverse. Often, agencies with too many people develop a laissez-faire, or laid back, approach to business rather than the aggressive mindset growth-oriented agencies strive to maintain.
Yes, it’s true you do need enough capacity to always grow – but don’t have too much.
Pay attention to your agency’s spread
How do you know what is the right amount of people? It’s simple really: you focus on something called “spread”.
Spread is the difference between your average “compensation per person” in the agency and “average revenue per person”. Then compare your spread to other growth-oriented agencies of your size and geographical location (using an insurance industry benchmarking survey). If your spread is smaller than average, you have a problem. Either you are paying too much compensation, or much more likely you have too many employees.
Spread also makes it easier to know when you should hire the next person, and that is when it gets too large. There are other variables to consider in telling you when to hire, but spread and its related components are simple and reliable.
One final tip: hire applicants who are tech-savvy and completely comfortable on the internet. As business moves into the virtual world, you will want your team to effortlessly navigate social media, set job alerts and reminders, and sell insurance via video conference all over the country.
A good way to ensure this is to advertise for your open positions online, so the best candidates can easily apply from anywhere in the country. Make it clear you are open to remote work and that you are a responsive employer - these are sought after characteristics that will make you attractive to the top talent out there.
Tony Caldwell is a modern “renaissance man,” who is not only immensely successful in the field of insurance, but is also a writer, children’s advocate, mentor and even a licensed pilot.
Always keen on helping others make their dreams come true, Tony and his team have helped independent agents grow into more than 250 independent agencies. This has made OAA the number one ranked Strategic Master Agency of SIAA for the last 5 years, and one of Oklahoma's 25 Best Companies to Work for.
Tony loves to share his knowledge, insight and wisdom through his bestselling books as well as in free mediums including podcasts and blogs.
Tony and his family are members of Crossings Community Church, and he is very active in community initiatives: he’s chairman of It’s My Community Initiative, Inc., a nonprofit working with disadvantaged people in Oklahoma City; and chairman of the Oklahoma Board of Juvenile Affairs., and he has served through many other organizations including the Salvation Army, Last Frontier Council of the Boy Scouts of America, and the Rotary Club.
In his spare time, Tony enjoys time with his family. He’s also an active outdoorsman and instrument-rated commercial pilot.