Managing Your Insurance Agency Business

The insurance agency business is a service business that provides financial services to its clients. Because of this it must be structured to respond accordingly.

The working base of this country is well into the transition from industrial-based to an information-based society. With that shift, risk retention and risk management programs are growing in complexity and will spread to other regions of the world.

In keeping with these developments, insurance agents are likely to see a greater emphasis on loss control; different uses of captive insurance companies and techniques; more true self-insurance; higher deductibles where consumers are financially capable; risk financing plans such as using bank credits, or borrowing from subsidiaries and from parent corporations; and greater use of risk avoidance techniques such as hold harmless agreements.

We are already seeing a push to release form and rate control from the commercial underwriting arena and will expect to see more in the way of manuscripting coverages, more insurance product differentiation and intensity of competition.

Since a vast number of Americans expect the government to take care of their health needs so as to remove the risk from living, we can expect a continued increase in litigation. It seems that no one wants to accept the responsibility for his or her own actions.

Because risk cannot be totally removed from the world, the insurance industry will continue to exist. Yet the entire insurance business is undergoing a fundamental and dynamic structural change. Insurance agency owners and managers are in the forefront of any change, and as such, must be prepared to run a business that can be responsive to change.

The prepared agency accepts these potential changes as opportunities. Key areas for preparedness include:

• Sales. Plan sales training, territories, approaches and various marketing vehicles.
• Marketing. A good marketing plan creates and maintains business identity. Find every method possible to fully develop your plan so that your identity is exactly what you want it to be.
• Insurers. To build a business requires a consistent product line. This calls for selecting the proper insurer for the right insurance risk.
• Management. Management means getting things done with the help of other people. A successful business is organized effectively. You should plan for its development, lead the people in the right direction, and control the activities of your group.
• Accounting. Knowing if you have been profitable or not is extremely important. Establishing proper records helps control the many income and expense items of your business; it also helps you improve those areas that are less than average.
• Claims and Errors & Omissions Exposures. Professional liability and the claims process are similar concepts, both of which require careful attention.
• Resources. Whether you choose to have an agency that specializes in a certain product or class, or one that handles a variety of products and classes, you will occasionally find it necessary to go outside your contracted insurers for products. There are several alternatives available. But it is best to find a wholesaler who offers a variety of products; then only use that wholesaler.

Resources exist through insurance organizations, trade associations and agent groups that can help agency principals develop comprehensive plans. They also are discussed in The Successful Insurance Agency, a 155-page book aimed at agency owners and managers. The book is written to be used as a basic management tool or manual and should get a lot of use in a small, developing insurance agency.

For more information about the book: F.C. Wootan Consulting, Inc., P.O. Box 29, Miamisburg, OH 45342.