We are obviously in one of the most intense hard markets of the last several decades. While much has been said and written about how to navigate the challenges the market is creating for agents, I'd like to take a different tack and discuss something that is easy to overlook while struggling to service and retain existing accounts -- the pursuit of organic growth.

It's easy in a rising rate environment, particularly one as aggressive as the one we find ourselves in currently, to become complacent about business growth. While the commission increases driven by the current market are welcome, they can disguise real growth -- growth that comes from acquiring new customers and selling new policies to current clients.

With this in mind I'd suggest agency owners and managers set sales goals for the agency in three buckets: PIF (policies in force) growth, new business growth, and premium and commission growth for existing policies based on insuring to value. Then, take the premium and commission growth created by carrier rate increases as level setting in a different environment.

Yes, agency expenses may be less than rate-increase-generated commission in the next year or so, but that will only serve to partially offset likely reductions in loss sensitive contingency income. Let's consider each of these potential growth buckets.

Focus on Growing Policies in Force

PIF is a concept that is mostly thought about in terms of personal lines but should be a key driver in commercial lines planning as well. Every discussion in agencies about quality growth and relationship building includes discussing the desirability of the agency in writing the entire account. Yet, benchmarking studies produced by the National Alliance (the Certified Insurance Counselor organization) or the IIABA "Best Practices" study demonstrate that the average agency falls short in writing all client coverage. While the often cited 1.3 policies per customer may move around over time, it's clear that, on average, most agencies give up revenue to others due to failure to truly account round.

To combat this, and increase organic growth in your agency, consider adopting these strategies:

  • Set an agency goal for increased average customer PIF on a year-over-year basis. If your average PIF is 1.8, for example, aim to grow it aggressively in the coming year.
  • A 25% increase in average PIF may only mean one additional policy per customer, but the income consequences can be significant.
  • Discourage the writing of monoline business by paying lower commissions on it. Or, consider eliminating monoline clients from your book of business entirely.
  • Pay commissions directly to customer service agents (CSA) for account rounding sales, rather than to the "producer" to motivate both producers and service personnel.
  • Consider offering higher-than-standard commissions or bonuses to producers and CSAs, where their average PIF count exceeds the agency's on an annual basis. This will help change the team's mindset and align their personal goals with agency results.

New Business Growth

This is such an old topic, what else can be said about it? Perhaps nothing, but it's critical to recognize the value of new business long term growth. This is particularly important to stress in an environment where inflating commissions resulting from the current hard market with little to no effort taken by the producer are far too commonplace. Successful agencies cannot back off a consistent and insistent push for new clients. To help keep your team focused on prospecting for and writing new clients, try some of these ideas:

  • Set big goals. You don't often hit what you don't aim at, so be aggressive. If you're growing new business by 5% a year, how about a goal of 15% with serious incentives for 20% and 25%? Remember, agency retirements across the industry are increasing right now and customer frustration related to rising costs is also high. Take advantage of that by increasing your goals.
  • Host sales contests. We decided to sponsor a trip this year for pure organic growth based on new accounts. We set the goals to roughly double our new business rate from prior years, which was an admittedly big ask in a period of heavy remarketing activity. We decided to commit 100% of the income growth created by the winners toward a really nice trip and expected we'd break even year one and make money in future retention. We've been blown away by the results. Of course, producers are still getting paid commission, but the recognition, and the reward, have made a significant difference in motivation and results in a tough period of time.
  • Offer bonuses across the agency for significant improvement in new business rates. Producers always get rewarded. Consider including service team members and back-office staff and watch how they help motivate results.

Insure to Value

In a period of time when customers are navigating the sticker shock of rising insurance costs, it may seem counterintuitive to focus on raising prices even more with thoughtful replacement cost estimates. However, not doing so could invite future errors and omissions claims. Not only that, but the sensitivity of clients to costs invites a comprehensive conversation about risk management that could lead to a better understanding of what they are buying and why. Importantly, I think it can also result in conversations about what they are not buying. This is where the additional organic growth opportunity arises. Consider the following:

  • Review coinsurance. A detailed explanation may result in higher insured property values, a lower coinsurance amount, or both. Either will likely result in higher commission along with better client coverage.
  • Increase insured values where appropriate. The current inflationary environment has sensitized everyone to higher costs of replacing cars and property. Clients don't want to pay more, but they also don't want to be surprised in the event of a loss.
  • Consolidate coverages with one carrier. With loss ratios running hot in the current environment, consolidation gives your insurance companies more premium to manage, which not only benefits them but can also lower agency loss ratios, as well as protect contingency payments. This is something that can't be left to producers and CSAs but must be actively managed by principals. Consolidation, especially with products like workers' compensation, which is highly profitable now, may also result in bonus commissions from carriers.

I expect that 2024 will see rising agency and producer commission income just as a result of renewing business already on the books. Unfortunately, this will also result in lulling many principals and producers into a sense of complacency that could harm prospecting habits. This complacency will last longer than the hard market, harming long-term agency growth goals.

Take steps now to ramp up organic growth to avoid this hard market pitfall and supercharge future growth rates.

Tony Caldwell

Caldwell is an author, speaker and CEO of One Agents Alliance, an alliance of 185 independent insurance agents in Oklahoma, Arkansas, Kansas and California.