“An institution is the lengthened shadow of one man.” These words of Ralph Waldo Emerson can be viewed in the context of transitioning an agency from a retiring general agent to a successor.
In the career distribution channel, many general agents spend years aggressively building their business because they know that their efforts to recruit producers, train them and facilitate their success will ultimately pay off.
But as retirement approaches, they face a painful choice. In other industries, business owners have a continuing motivation to build the biggest and best business they can because their efforts will be reflected in the price at which they eventually sell it. An insurance agency, however, is often different. No matter how good a business it is, the range of potential buyers is limited and so is the price they will pay.
An insurance agency has few hard assets; there is no proprietary technology or patented methods, no secret formulas or recipes locked in the safe. There is only the accumulated book of customers and the goodwill the agency has developed. As the owner gets ready to sell, outsiders may find the agency attractive, but they may also conclude they dont need to buy the business; they can just woo away its clients. Those working at the agency may be interested in acquiring it, but they find it is not only a costly investment but in many cases a problematic one.
Because potential selling opportunities are limited, many GAs decide as they get older that the best way to reap the fruits of their labors is by moving from a growth mode to economizing in every way possible. Recruitment is curtailed, training expenses are held down and the administrative infrastructure may become malnourished. Thus, when retirement day arrives, the agency may be a shadow of its former self. The GA may end up selling it for a limited sum. But, he or she already has taken out a substantial amount of cash. Unfortunately, the agents are left without an appropriate infrastructure, and the carrier suffers because the agency does not realize its potential.
For many GAs, this is a decidedly painful process. After years of building a business, they fear they must begin dismantling it. They are, in a sense, “shortening their own shadow.” But they dont know any other way to unlock the value they have built. As a rule of thumb, an acquiring GA spends the first 7 years of his tenure rebuilding the agency after the retired GA has harvested cash from it. The new GA then spends the next 7 years building his or her agency, but the following 7 years are spent drawing cash out of it.
In this environment, the general agent simply doesnt focus on identifying and training a successor. And those leaders within the agency who might aspire to that role are wary of getting in at the end of this harvesting process, because they would be buying a business that had become a shadow of its former self.
The solution to this problem lies in creating a smooth transition plan that gives both retiring general agents and carriers the things they need to ensure the ongoing health of the agencies. Carriers need a plan to identify and train a successor. Retiring GAs need a clear path to a well-funded retirement in a way that also allows them to keep building the business right up to retirement dayto lengthen their shadows, as it were.
In our organization, we have responded to this by creating a succession management program. Under this program, as the GA begins to think about retirement, he or she also begins to think about a successor who can acquire and run the business. Often, the choice is someone inside the agency, although thats not always the case.