Making The Transition To Brokerage

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One of the biggest challenges that tied producers face when they make the transition to operating as an independent broker is one they may not have expected: learning how to run their business.

Many career agents will tell you that when they started in the insurance business they were told “you are a businessman, and you are in business for yourself,” recalls Ron Verzone, president of United Underwriters, Exeter, N.H.

“But they never taught you how to be a business person–they never taught you how to be profitable,” he adds.

Michael Brooks agrees. “Most salespeople are never taught to be businessmen and women,” says Brooks, CEO of Founders Financial, LLC, an independent producer group in Baltimore, Md.

Brooks explains that when a producer decides to transition to an independent brokerage business structure, there are a number of practice management issues that must be addressed. If not done efficiently, building multiple vendor relationships and managing those relationships from a business perspective can divert a brokers attention from his or her primary objective–building relationships with clients.

Working with a number of different carriers multiplies the number of administrative tasks required of an agents organization. Various applications for several different products, working with numerous illustration systems and formats, and understanding different in-force systems and client management tools all become the independents responsibility.

“For those producers who truly go direct, the question is how many of those relationships can you have and manage?” asks Steven Craig, brokerage manager for Flynn Associates, Encino, Calif.

Often, a broker is unable to manage enough carrier relationships to run an effective practice, he says, and “just keeping the software up to date is a full-time job.”

“Youve got technology, information systems, client services, all kinds of things that you are now in charge of as an independent,” Brooks says.

He doesnt recommend that brokers try to do this on their own. The best way to build an infrastructure to handle these issues is “to reach out to others in the industry who can bring you business and practice management knowledge,” he says.

The search for this business knowledge has led independents to a number of different sources. Forming shared relationships with other professionals and organizations has become an important part of building a successful brokerage practice, he says.

“You want to be independent, but you want to have shared resources, shared relationships and shared values,” Brooks explains. “The shared relationship is critical to the independent producer so he knows hes not alone.”

Craig agrees. “Even the most independent producers crave some kind of affiliation. They need a place where they can learn from others and to share ideas periodically.”

Jack Dewald, president of Agency Services Inc., Memphis, Tenn., feels that those independent agents who gravitate toward each other will do better than the producers who are doing it all by themselves. Independent brokers are finding affiliation opportunities in a number of different places, says Dewald, that range from formal partnerships with aggregated production to forming a study group with their peers.

Many Brokerage General Agencies (BGAs) have responded to independent brokers desire for an affiliation by adding new services and support models to their value offering. “Weve become much broader resources than we ever were in the past,” notes Verzone.

Where formerly, BGAs had more of a transactional relationship with their brokers, now these organizations are offering training and support which they never offered before, explains Brooks.

“You see them offering advanced underwriting support–they never did that before. You see them offering educational forums. Theyre trying to create more of a sense of community and are really going away from the traditional foundations of brokerage, meaning compensation-based,” says Brooks.

“Relationships are becoming more important,” adds Tim McKenna, president of The Marketing Alliance, Pittsburgh, Pa.

“Brokerage agencies are looking for ways to differentiate themselves from one another with service and training,” he explains. “Training is an important need because nobody is doing it anymore.”

In addition to providing training support for their brokers, BGAs are adding other services to try to differentiate themselves from each other. Some of these services may include helping a broker design and sell a case, and working with them to upgrade their practice, says Craig.

“You win a lot of loyalty that way,” he adds.

Many BGAs and producer groups offer the service of managing the multiple carrier relationships for the independent broker. “They can delegate and outsource the backroom to an organization to manage the multiple company relationships, instead of hiring a staff to do it themselves,” says Craig.

Providing this kind of support enables the independent broker to do what he does best, adds Dewald, “which is sell and prospect.”

“Its a complement to our practice,” says William Gettings, a partner with Gettings Reed Financial Services, Lafayette, Ind., who recently became an independent broker. “They provide the backroom to our office that we dont have,” he says.

Some BGAs will even go so far as to help with the recruitment and development of a new producer, says Craig.

“Im working with a broker right now that is looking for a young associate–well provide a lot of training support for this individual,” he says.

Another issue facing independent brokers is the investment in technology. Some agents havent wanted to recognize the need to invest in technology due to the cost of upgrading old equipment, says Jim Aaron, brokerage general agent of the Aaron Advantage Agency, Richmond, Va.

“If agents arent willing or able to invest in the technology today, then theyre getting left behind very quickly,” says Aaron.

Brooks adds that from a sales point of view, brokers understand the importance of technology for purposes of creating investment portfolios, insurance solutions and estate solutions. The problem salespeople have is translating that technology into the operational aspects of their business, he says.

The advancement of e-mail and electronic forms has become an important part of Aarons operation. “Well do an illustration, e-mail it to an agent, discuss it and e-mail the package to get contracted. Just think about whats happened with technology in the last few years,” he says.

Independent brokers need to use technology to help with the overall management of their business, Brooks adds. “A management system not only manages the day-to-day transactions of the business but also manages the relationships of each client through multiple touches during the year, through letter generation, newsletter generation, birthday card generation, all kinds of things,” he says.

Brooks explains that often independent agents will not have any kind of database management system to manage their clients. “Database management is one area we find every independent advisor lacking in,” he says.

One major barrier agents face when integrating a database management system into their practice, is the pain that goes with the initial setup and data entry for every client they have. “But when you emerge, you can now run reports to create marketing initiatives, client touches and client reviews,” he says.

Helping agents create and implement this type of system is another value-added service independent brokers may have access to when working with a producer group, a BGA or other marketing organization.


Reproduced from National Underwriter Edition, April 14, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.