by Bobby Reagan, July 2003

National Underwriter

There are a lot of best practices that can greatly enhance agency values, but probably none more so than the ability to recruit and retain talented employees.  We all know that in the service business, people are the most valuable asset.  In an insurance agency or brokerage operation, there are a lot of valuable people assets, but clearly the sales staff/producers are the key to maintaining and creating value and are your most valuable asset. 

We have all heard about the lifetime value of a customer.  The value of an individual customer pales in comparison to the lifetime value of a producer capable of generating and maintaining many, if not hundreds, of customer relationships - their value is huge.

Recognizing this fact, the future of the agency/brokerage business belongs to those that are capable of attracting and retaining the most qualified and capable producers.  That being the case, we can predict where future success will be achieved by following the flow of talent and identifying the organizations that are capable of creating and providing an environment where the best and the brightest producers want to be.

Well, if you track the flow of talented producers over the last five to ten years, it has been heavy and it has been largely in one direction.  Several of the national insurance brokers have lost a lot of talent in their production ranks and have seen it flow directly to a fairly limited number of independent regional and semi-national brokerage firms.

There are a number of reasons that this has taken place and probably will continue to take place for many years to come.  Many of the producers who have made moves would suggest that, for the entrepreneurial producer capable of generating business, the quality of life at several of the national brokerage houses has deteriorated.  In an effort to improve profitability and better control business, attempts have been made to institutionalize books of business, producers have been disassociated from their renewal books, and the placement of business has been centralized.  In addition, the consolidation that has taken place at the top has cut the size of producers' prospect list. All of this is creating a less appealing environment for the producers and has negatively impacted their earnings potential.

At the same time, risk managers and insurance decision-makers at larger accounts have become aware of the capabilities of some of the larger independent regionals and are now considering them as not only viable, but attractive options to the national brokers.  They have seen the flow of talent to the regional brokers and have also found that the regional brokers have capabilities and service offerings that not only rival the national brokers, but in some instances, find that the regional brokers can provide these services more efficiently, effectively and less expensively.

On top of all of this, producers have made the change due to the fact that they can produce more business, make more money, and generally get some kind of signing bonus or equity kicker to off-set the expense of making a move and in recognition of the value of what they are bringing, or are capable of bringing.  The producers that are considering changes today also have the benefit of witnessing the success that has been achieved by many of the folks that made a change in years past.

Those that have been most successful at recruiting producers recognize the value of producers, understand and can communicate how they can improve the quality of life for the producers, are willing to make the effort to actively recruit them,and are willing to spend the money to attract the producers and help off-set the cost required to make the change.  They have also been willing and able to create a culture and an environment in which top producers can prosper.

Some have questioned whether this trend will continue, whether we've evolved into a "free agent" market where the top producer will continue to move around, or whether we may actually see these same people move back into the direction of the national brokers.  In my opinion, I would not anticipate that there will ever be an active flow of producers from the regionals to the national brokers unless producers can't sell and they need the institutional muscle and name to support their sales efforts.  Lateral moves among the regional brokers are a possibility, but would be unlikely due to the significant disruption and cost of making a move that provides limited additional benefit.  Based on what we see, all the factors are in place to suggest that the flow of talent will continue.  There is some suggestion that it will slow down due to the fact that the talent pool has been drained, but these are big organizations, and to their credit, they have demonstrated their ability to hire and develop talent and will continue to do so.  With that, there will probably continue to be a flow of producer talent.  If you want to know where the future of the industry is headed, take a look at where that talent is landing.

Bobby Reagan (bobby@reaganconsulting.com) is the Chairman and CEO of Reagan Consulting, an Atlanta based management consulting firm that serves the insurance distribution system. Visit Reagan Consulting at www.reaganconsulting.com.