“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.

Once they have identified their successor, our organization spends as much as two years getting to know the potential new GA, evaluating his or her achievements and attributes, and making sure theres a good fit with the companys culture. If the designated successor already has been in the organization for an extended period as a successful producer, the scrutiny goes much faster.

Once the designated successor passes inspection, three things happen:

The first is that the general agent sets a timetable for the transition process. The process should last at least one year. Two years is even better.

Second, the designated successor begins to learn the job of the general agent. The designees are invited to conferences for general agents, they join a GA mentoring program and they begin to receive the same communications as the general agent. Meanwhile, the incumbent GA gradually steps out of the business and turns more and more responsibility over to the successor.

The third step is taken when the GAs retirement date arrives; our organization helps facilitate the purchase of the agency by the designated successor. The retiring GA knows he or she will be paid a price that reflects the true value of the business as a going concern and wont face the heartache of dismantling a business he or she spent years developing.

Now, the new general agent acquires a thriving business, not a malnourished one, and he or she takes over after an extended apprenticeship that provides the skills to handle the new position.

The primary carrier knows a major production unit has moved into new hands without a prolonged period of disinvestments in the agency, and without an interregnum period during which production falters as an untrained and untested newcomer struggles to take control.

Instead, by the time the new GA takes over, he or she is already a familiar figure in the agency and at the carriers home office as well. After the selling general agent departs, everyone is pleased that his or her lengthened shadow can retain its magnitude.

Thomas W. Slack is vice president and chief distribution officer, individual markets with Guardian Life Insurance Company, New York. He can be reached at Thomas_Slack@glic.com.

Quincy Crawford, CLU, is president, First Financial Group, a Guardian general agency based in Towson, Md. He can be reached at QCrawford@firstfinancialgroup.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, February 20, 2004. Copyright 2004 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.