The battle to attract the best and the brightest from competitors, other areas of insurance, universities and other industries is not expected to get any easier for independent agencies during this economic downturn, whether for those looking to take on top-grade rainmakers as part of a perpetuation plan, or simply to attract new blood into the industry, leading agents warn.
Agents who have dealt with the challenge of perpetuation say principals can no longer rely on simply passing down their agency from one generation to the next. The demand for growth by carriers is too intense and customers’ desires for services too vast for a small group to continue to run an agency forever, these agents add.
Thus, perpetuation plans today must not only set the stage for a future transfer of ownership, but also must address how to bring new talent, expertise and capabilities into an agency to deal with the expanding role of independent agents as full-service financial and insurance centers.
“Im not sure agencies are doing enough to plan for perpetuation,” says Jeff Newman, vice president at Gelfand Newman Wasserman Insurance in Los Angeles.
In his additional roles as president of the Independent Insurance Agents Association in Los Angeles and member of the Western Regional National Young Agents Committee representing 11 states, Newman meets with a lot of agents. He says he is often surprised by the lack of planning by agency heads when it comes to the future of their businesses. “They are avoiding the inevitable,” observes Newman, explaining that many agents fail to realize how much work and planning it takes to bring in someone to take over.
In the end, the process of perpetuation should not wait until the principal becomes ill or close to retirement, agent officials warn.
In North Carolina, the conversation has been forced for many agencies because of the intense competition from banks getting into the insurance business, says Duncan Jones, an account executive with Senn Dunn Marsh and Roland, an insurance agency in Greensboro, N.C. The answer at Senn Dunn has been to create a limited liability corporation where members of the agency each obtain a share in the company and no one or two individuals are responsible for the whole book of business.
The biggest problem with perpetuation is with small agencies of fewer than 10 employees, observes Jones. Such agencies, he says, are prone to doing things “the traditional way” and sometimes find they cannot keep up with the times. In most cases, he said, they end up selling their book to banks because there are no other perpetuation options.
The pressure is also on for agents to perpetuate their firms by increasing their volume of business and variety of services, according to Newman. Clients expect more than just insurance from an independent agency these days, including financial services, and carriers are demanding far higher volume, he says.
“Agencies have to grow to keep their business and survive,” says Newman.
If there is one piece of advice to give agents in planning their perpetuation strategy, Newman says it would be “go through the process now.”