How to Create & Reward Exceptional Agency Leaders

It’s always difficult to admit not being good at something — especially when you are the agency owner and leader of an insurance agency. But knowing a person’s weaknesses is extremely important. Leaders who understand their own weaknesses can find employees to fill that talent void.

Humans are best when they specialize. Look no further than to Henry Ford, who increased factory output dramatically by having workers who were trained to be exceptionally great in one facet of his company. Ford was never seen installing parts on his cars. This isn’t because he wasn’t capable, but because it was not the best use of his time. Besides, he had valuable employees to do tasks he couldn’t or didn’t want to do. Knowing what is going on within a company is part of being a CEO, but you don’t actually have to be good or even capable of doing that task.

Play To and Identify Strengths

Leaders of small companies often get too deep in more mundane parts of their business when a problem arises. While this can be acceptable for larger issues, small ones can easily distract the owner/leader from more important work. When agency owners have issues with this, we tell them to write themselves a personal job description, considering areas of both their strengths and weaknesses. Putting pen to paper and evaluating personal weaknesses can be uncomfortable to look at — weaknesses such as analytical savvy, computer skills, training salespeople, etc. It is an important exercise because those weak traits can usually be found in new hires or in existing employees.

Those working to positively improve workflows and provide new ideas should be given rewards and credit for these improvements.

The best-run company is one where the head owner could disappear for an extended period of time and come back to an agency that is still well-functioning. The first step in this is to hire and train the best employees one can find. New hires need to be viewed as future leadership replacements, not just task completers.

Many owners will balk at the costs of hiring top talent, and instead settle for new, inexperienced or even marginal workers. This becomes a self-fulfilling cycle because then owners will lack trust in those employees.

With lackluster staff, the agency owner will delegate tasks instead of independence, the latter being critical for growth. In businesses where owners continually micromanage with top-down control, efficiency is capped and stagnation can result. Growth only comes from the proper delegation of authority to the firm’s talent.

Steps to Improve Leadership

To foster leadership within, start by getting those recent excellent hires inspired with an optimistic and forward-looking vision. This can be based off of what is unique to the company, such as excellent customer service, special programs or things like valued services.

Then using this vision as a template, and identify potential leaders that exemplify said traits. Be sure to occasionally test them through challenging tasks. Give them independence on these overwhelming tasks and see how they respond to it and problems that steam from those decisions.

Independence is huge when trying to create leaders. How can your work truly be your own if you are constantly being corrected or guided? Let employees have the power to take their own creative route, and be responsible for the results.

If leaders have confidence in staff, this helps them take on new challenges. New employees must be reminded that it’s OK to improve long-standing company processes and procedures. Too often during mergers or acquisitions, Oak & Associates will see two different competing processes that both owners see as the best. A balance of these processes is needed with the best ideas winning.

This same concept can also be applied to hires from other agencies who have been exposed to other ways of doing things. Their experience can be a possible gold mine of insider knowledge that can make a company much more refined and innovative, if new employees are tapped for better ways to do things.

Provide a Variety of Rewards

Sometimes leaders are blind to their own mistakes. What’s important is creating a work culture where new hires believe it’s OK to critique and improve the status quo. Those working to positively improve workflows and provide new ideas should be given rewards and credit for these improvements.

There are lots of ways to reward employees. In addition to monetary rewards, many employees today are also focused on time off, providing increased authority, and offering health club memberships, childcare, working from home to save commuting time, four-day work weeks, insurance company trips, dinners out, etc.

Asking employees what rewards most important to them, such as during performance reviews, can help management provide rewards that individual employees feel are the most valuable or best for them. This can also improve morale.


Using Agency Employees to Improve Leadership

By: Catherine Oak

In today’s business climate innovations in technology and systems have upended communication, payroll and record keeping. Even with these drastic changes one aspect of a business has yet to change, the CEO.

Every company big and small has a CEO and their decision-making ability is key to successful growth. A truly great leader should have strong values and a rock solid mission statement, which all employees understand and look to for leadership. These values, mission statement and written goals rarely change as a company grows.

Leaders must continually question their decisions. Not in a way of self-doubt, but questioning to ensure they are in line with the future vision of the company. Doing so raises the business’ standards to a new level.

A business that grows long term is one that is innovative. When Oak & Associates is asked to assist agency owners with management and growth, we first talk to the owner of the agency, and then go to the employees and ask them what they would change if they were CEO. Their insight and ideas are usually much different and often more simple to implement, from the insight of the agency’s leadership. An Employee Survey is completed by each employee anonymously before going to the firm, so the consultant and owner knows what the employees believe are the problems.

For example, if the agency owner is looking to improve process and profit one must look no further than to those who are in the trenches daily, on the phones and face-to-face with the company’s clients, day in and day out. They have a great sense of knowing what needs to be done.

An owner who isn’t looking to improve those two key aspects is not a leader and instead one just keeping the status quo. The process that a leader puts into place is as important as the growth or goal itself.

The biggest mistake that agency owners make is that they forget about how important their employees are in accomplishing future growth. Including employees when making decisions gives the leader insight as to whether or not the goals set by the leader are possible.

Employees need to be asked and not made afraid to discuss changes needed to improve the operation.

One of the most dangerous things for CEOs is if they surround themselves with employees that have nothing to say or choose not to say anything. When that happens, the owner is at fault because they never encouraged or asked their employees to contribute. The good employees end up leaving. Most of the time this isn’t because the employees are unaware of any answers or ideas. Instead it is because they feel that their opinions are not valued. Also, when new employees from other agencies join, they should be encouraged to tell management what things were done differently and better in the agency they came from so they can be implemented to improve the operation. Often this input is discouraged or put down as “that’s not the way we do it here.”

To be a great leader of any organization, including insurance agencies, the leader needs to surround themselves with employees who ask great questions and continually challenge him or her as to how things are done. Those employees can brainstorm their ideas with each other and deliver their thoughts to management to improve the organization. The manager of that department or agency owner can be

The biggest mistake that agency owners make is that they forget about how important their employees are in accomplishing future growth.

present at this meeting, but only if they get out of the way and listen and encourage, not intimidate or put down those new thoughts and ideas.

Leaders must realize that creating an environment where employees feel encouraged to give feedback on programs, processes and how to improve profit is crucial to sustaining and creating more long term growth.

Leaders/owners need to make everyone in the organization feel a part of the agency’s success and reward those efforts that do contribute. How to reward those efforts will be the content of another article in the future, as well as how to create leaders in the organization.


Producer Compensation – What’s New Today?

By: Catherine Oak

Designing a good and motivating producer compensation does not need to be a mystery. The bottom line is – pay what can you afford to pay, for what you are providing the producers and be in line with the important competition.

Total compensation for any agency is always the largest expense category. For the typical agency, total compensation (producer and employee compensation—plus benefits and taxes) ranges from 50-75% of total revenue. If the compensation is too high, the agency will lose money. If the compensation is too low, then the agency could lose the producers and employees, and service may suffer.

How to Calculate

The way to calculate what you can afford to pay is to take total gross agency commission and fee revenue. Then subtract all necessary on-going expenses except producer compensation and any owner compensation or bonuses. It is not recommended to include contingents, since these should be considered bonus income.

The next step is to take out an expected fair rate of return on the business for the owners. This typically ranges between 10-20% of revenue. This “expense” is the cushion for affordability of producers. If the agency really needs a producer, then the owners might need to dip into their profits to make it happen—at least until they validate.   

Today, an average firm that properly manages expenses can typically afford to pay commercial lines producers 25-35% commission for renewal business. This assumes that the owners want to realize a 10% to 20% pre-tax profit. Keep in mind that if the owner is a producer, their producer compensation is the same 25% to 35% commission and is in addition to the profits of the firm.  Owners should also receive management compensation, if they are performing that role.

The range of 25-35% varies based on whether (and how much) the employer pays for certain expenses, resulting from the producer’s employment and activities. These expenses include employee benefits such as health and related insurances, payroll taxes and retirement plans.

Producer Expense Caps

The producer expenses often include business development expenses such as travel and entertainment, auto and club dues, and cell phones. The best way to properly manage and reward producer business development expenses is to give them about 3-4% of their book of business for these expenses (which are actually perquisites for the producer). This percentage actually becomes an expense cap for the year, with monthly expense reports still being submitted.

Pay More for New to Grow

New business can be paid at a higher rate, since the calculations assume expenses are mostly paid out of renewal income. Of course, there are expenses associated with writing new business related to marketing and staff time putting the new account together.  

Particularly in agencies that want to grow, a higher percentage is often paid to encourage producers to write new business such as 40% to 50%.  This would  assume that the owners are giving up some of their profit the first year!

Some real aggressive agencies are paying an additional incentive to those producers that exceed their new business growth goals. Some firms today will expect experienced producers to write between $50,000 to $100,000 in new commission per year. This depends on the size of their current book, where the agency is located, etc. If the producer exceeds whatever his or her goal is, the agency may provide an additional bonus of maybe 5% commission. This becomes retroactive on all of the new business written for the year!

Who is Doing the Work?

Another key compensation concept is to, “Pay based on who is doing the job!”  Agencies do differ on whose job things should be. For example, who should do policy checking?  In some agencies, who does this role would be that of the producer, in others the role is that of the CSR and in others the marketing department, if one exists.

Today many firms are delegating their “small” accounts to CSRs to sell and service. Thus, many firms pay producers less commission or even zero for “small” commercial accounts. Small is usually defined as those accounts that are Business Owner Package policies or small monoline accounts.

However, the definition of “small” also depends on the firm’s book of business and are usually defined as those accounts generating $500 to $2,500 in commission or less.  Where the agency is located and what is available to write in the area, can often determine what is the dollar amount cut-off.

What about Personal Lines?

The trend today is to not pay commercial lines producers who also refer personal lines accounts to the PL department, because the CSRs are typically doing all the work.  A first year commission for CL producers for at VIP personal lines package policies may be warranted to encourage them to generate the leads on these much larger PL accounts.

Payment Methods

The method of paying producers should not make a difference in determining what is a fair amount for compensation. Salaries or draws against commission should be considered only as a convenience for producers, since the timing of renewals can produce some lean months.  They should be set based on the firm’s renewal commission and use a book that is somewhat smaller, because of possible attrition. Once the draw or salary is met, new commissions should be paid to the producer at least quarterly, to keep them motivated to write new business.

Grandfathering the existing compensation plan for a period of time (or indefinitely) for accounts already on the books, is one way to introduce a new compensation plan and to avoid an immediate impact on producer incomes.


Compensation for owners and producers is never an easy issue to address. There is no single solution. Each agency needs to blend the right ingredients for an effective compensation plan to attract and retain good producers.  Being creative and trying new things (which may include some of the ideas in this article) may be the healthy change the agency needs to be competitive and become more profitable.


Strategic Planning Basics

A strategic business plan is very important to make sure that the business is successful.  So why is it that only 15% of small businesses actually have a plan!  It may seem like a daunting task to write out the firm’s strategic business plan but after reading this blog it will be understood why the firm has to have one.

Strategic Business Plans are essential to proper agency management and are now often necessary to receive “preferred” status with carriers.  In today’s changing climate, to be a successful high-performing firm, an agency must have a Strategic Business Plan.

An agency’s strategic direction is the big picture or the vision needed to guide the firm along the way.  The best way to start the process is to create a mission statement.  The agency’s mission statement is a clear and specific summary that describes the firm’s purpose.  This exercise is a crucial first step to map out the direction of the firm’s future and assist in the planning process.

The next step is to determine the current status of the agency.  Owners and key employee need to look within the firm — a self-assessment of the agency and its resources including an inventory of strengths and weaknesses.  This allows the planning team members to create meaningful and reachable goals using appropriate tactics.

Well-written Strategic Business Plans capitalize on the strengths of the organization and strive to minimize or eliminate the weaknesses.  The major weaknesses identified can be turned into opportunities for improvement.  These opportunities then become the agency’s goals of the coming year.

So why is it important to go through all the steps to have a strategic business plan?  Well, there are many reasons but we are only going to touch on the ones that seem to be most important for an agency.

The first reason to have a Strategic Business Plan is that it helps managers set specific goals and objectives for the business.  When the firm knows what the plan is and what the firm wants to accomplish over the next year or so it makes it easier for management to make sure these tasks are completed.  Good management needs to set goals and objectives and they need to have a detailed plan to follow up on them.

Another reason why an agency needs to have a Strategic Business Plan is to see how much the agency is worth.  This is also called the valuation of the business.  Once all the steps Strategic Business Plan are done so will the valuation of the business.  This means that there will be a detailed plan of where the business is now and how much its worth.  Goals can then be set for the firm as to how much growth is wanted over the next year or so and how much the firm could potentially be worth once the goals are met.

This leads to being able to merge or sell a business, and in order to do either of these the agency needs to have a Strategic Business Plan and valuation.  If a book of business is trying to be sold to another agency, the better the business plan the more the buyer is going to want to buy the book of business.  If the buyer can see clearly how much the agency is worth the buyers are more likely to purchase this agency then another that doesn’t have such a plan.

One of the last and most important reasons to have a strategic business plan is to grow the existing business.  From the Strategic Business Plan an owner would know where the business could grow over the next year or so.  Because of this the owners will be able to focus on sales, acquiring new clients, and making sure existing clients are using the firm to its full potential.  By doing these things the owners are making the most money in the most efficient and effortless way.

In conclusion competition is keen.  Expenses need to be well controlled.  Market cycles continue to cause havoc and agency value is at stake.  This annual planning process and self-assessment is the key to success.  If owners don’t know where they are going, how can one possibly plan for tomorrow and know how to get there? Agencies without a plan are totally reactive to their environment and have little control over their future.  Firms that incorporate an annual planning process tend to be more efficient, more profitable and highly valued businesses.  Make a choice.  Take the time to plan ahead and be successful or be at the mercy of the winds of change. 

At Oak & Associates a perfect tool has just been developed to make planning easy!  We have just launched “The One Page Strategic Business Plan” through Oak & Associates’ website. The plan walks owners and managers through all the steps to make sure that the business plan is up to date and to has set goals.  This plan also shows owners how to achieve them.  Make sure to order a copy of “The One Page Strategic Business Plan” by emailing Oak & Associates at catoak@gmail.com.


Create a Sales Playbook

Imagine that you are the head coach of an NFL team and you are in the playoffs. Your team is down by nine points in the beginning of the fourth quarter.  What is your next move? Will you be creative and come up with some new plays? Or, will you go to your playbook and use plays that match the situation?  Plays that your team has practiced and know how to execute.

Like a playbook is to a coach, a sales playbook can provide an outline of the tools and next steps for a salesperson. Playbooks can focus the sales effort, improve hit ratios, streamline the sales effort, help with producer development, and optimize overall sales performance. In other words, they help salespeople win.

Sales playbooks are a collection of the agency’s best sales processes and the tools required from finding prospects to closing the sale. A playbook is designed for repeatable selling situations. Since much of sales are repetitive, the playbook is designed to reinforce repeatable winning behavior.

Creating a sales playbook for niche or program sales is a great way to get started.  The focus can be on a specific industry – telecommunication firms, or a narrow target – retail shops in the downtown area.  Focusing in on a target niche helps limit the scope of the effort required to create the playbook.

Keep in mind that there is the added benefit of actually sitting down and thinking about and planning sales. Critical questions about the sales process, agency resources and the needs of the client will need to be explored and answered.  The development of a niche market sales playbook will also help the sales staff create an overall sales strategy for the agency and bring clarity to their own goals.  The niche playbook is a building block to an overall sales and marketing plan for the agency.

Building A Sales Playbook

First, start with a three ring binder.  Building a playbook will be a combination of written plans, descriptions, processes as well as lists, copies of forms, documents, sample marketing materials, etc.  It is intended to be an off the shelf reference book – one that is used on a regular basis.

There are five main sections to include in a niche market sales playbook: 1) Define the Niche, 2) Understand the Niche, 3) Evaluate Agency Resources, 4) Presentation of Products and Services, and 5) Sales Tools.  Combined, these sections will allow a producer to know who the target is, understand the targets needs, know the resources and products the agency has available and consolidate the tools required to communicate and work with prospects.

1) Define the Niche

So, who is the targeted group for the focused sales effort? The description should be as specific as possible. Use a page or two to describe industry, size, location, revenue, number of employees, etc. of the target niche for prospects.  Clarity of vision is important in knowing whom to focus on. Once that is done, a master suspect list can be purchased or created.  Refine the master list even further for likely suspects, to create an initial prospect list that can be contacted right away. This takes away the excuse of not having any leads.

2) Understand the Niche

This section allows for the casual observer to become well acquainted with the salient facts of the niche industry. Summarize the key issues for the industry.  Describe the competition in the marketplace.  What is the history of the industry? What are the strengths, weaknesses, opportunities and threats for this niche?

Drill down into insurance related issues. Describe and list unique underwriting requirements, loss control issues, and any other special insurance needs. Include in this section an industry-specific questionnaire or supplemental questionnaires.  List any unique marketing and sales issues that the companies might have.

It is important to be able to speak the language and understand the issues of the niche.  In this section create an industry-specific glossary of terms.  Include current articles on topics of interest. Make sure that there is a list of target-related associations, affiliations,

subcontractors, vendors, trade journals, etc.  Identify current insurance “pains” and gaps that might exist.

3) Evaluate Agency Resources

Now the target is well defined, but can the agency deliver a product or service to the client?  This section needs to be an honest self-analysis of the resources in the agency.

If there currently is one, describe the agency’s program. What are the current available markets for the niche?  Which ones, if any, should be added?  Are there any unique policies and coverages for the niche?  Does the agency have any specialized customer service or value-added services for the targeted niche?

Perform an assessment of the agency’s program for the niche.  Evaluate the strengths, weaknesses, and gaps. How does it compare to the competition? If possible, rate the program against perceived customers’ needs and expectations.  It is helpful to get as much outside opinions as possible.

4) Present Products and Services

The next steps are to clarify how the agency will communicate and promote the niche market program. Use one page to define the sales and marketing strategy —  How, What, When, Why, Who, etc.

Refine the words to highlight key features and the benefits of program into a 30-second elevator pitch that the producers can use.  Create industry-specific brochures and marketing materials for the program.  Very often these marketing materials can be created and paid for by the insurance companies, especially if this is a niche they are trulyinterested in expanding.

Include in this section all customized marketing letters and e-mails, newsletters, sales scripts, etc.  This will be a quick reference for the sales staff. Also, include a list of current clients in the niche and get testimonials from the key accounts.  This helps build credibility and can be an opening to a conversation with a prospect.

5) Sales Tools

The last section is for sales tools. Create an industry-specific pre-qualification questionnaire.  Develop a sample of typical questions and objections used by this niche and then create answers and solutions.  Another great tool are scripts for role-playing as well as for the service staff.  Include general marketing tools and other resources the sales staff can use, such as time management tools.  A list of action items and calendar for closure needs to be drafted.

Part of this process needs to be a way to analyze results and make adjustments.  A system needs to be developed to track what is working and what is not working.  This includes sales techniques, methods of contacting prospects, marketing materials, products and services offered, etc.

Evolve the Playbook

The sales playbook is not a static book.  It will need constant updating to current industry trends, news, issues, as well as prospect lists and current insurance products for the niche.  This is why tracking efforts and results is so critical.

Once the first niche book is created, it can become a template for other focused sales targets. The agency should have one master playbook for each niche.  Producers can then copy it to create a personalized version for their own use.

A final thought

Sales playbooks are the roadmap to access the best approach and techniques for the sales process.  It is a reference book, checklist and bag of tricks all in one three-ring binder. Developing and maintaining a sales playbook is perhaps more important than the end result itself. Producing it encourages you to ask critical questions about how you sell. What you discover during this process will make you a better sales organization.


To Improve Profitability and Sales, ‘Fire’ Your Small Commercial Accounts

By Catherine Oak and Bill Schoeffler

We all know about the Pareto Principle, the 80/20 rule. It also applies when analyzing the profitability and the work required for an agency’s book of business. Roughly 20% of the accounts generate 80% of the revenue, and 20% of the accounts take 80% of the staff’s time to service them. Problems occur when the accounts that require a lot of service work are not the ones generating considerable revenue.

To improve profitability, the agency needs to focus on medium and large commercial accounts only. There is not much margin to sell and service small accounts. Many of those accounts could also cost the agency in profits.

When analyzing the profitability of a business, it is essential to consider the production costs and the servicing costs. “Costs” can involve time or money. There is a minimal amount of time required by the producer and the service staff to acquire a new piece of business. The smaller the account, the more likely the agency will lose money to acquire it. Once the account is a client, the amount of time required to service the account, and the renewal commission paid to the producer will determine its profitability. For a small account, a few hours of service work and a 30% renewal commission to the producer will not let the account break even for your agency.

Define Small

The definition of “small” will vary based on the geographic area (urban/suburban/rural) and the local business demographics (type and size of businesses), as well as the resources of the agency (talent of sales/staff and available carriers). In New York City, there are a lot of large accounts that can be written. In Truckee, Calif., (Lake Tahoe area), a good-sized account might be a local restaurant. Agencies without adequate resources (talent and market access) will not be competitive on large accounts, regardless of their location.

Each agency needs to establish its own definition of size. For example, a small account can be defined as one that generates less than $1,000 in commissions, or $10,000 in premium. The threshold can be adjusted periodically. As an alternative, the accounts in the bottom 20% by size in the book of business can be defined as the “small” accounts.

How to Handle Small Accounts

Once the small accounts are identified, a game plan needs to be established. There are three common approaches to handle them: 1) establish a Select Business Unit, 2) outsource the service work, or 3) sell or non-renew the small accounts (“fire” the accounts).

The first step to consider is the role of the producer for small accounts. It might be tough to implement, but producers should not be involved with small accounts. Going forward, commissions for accounts written should be subject to a minimal size threshold in order to be compensated, including renewals.

A book of business report for each producer should be run in descending order by commission. This will help establish how much each producer will be affected financially by not compensating them for the small accounts. It is also helpful to determine how much time they spend on those accounts.

If there is a real financial impact on individual producers, the level may need to be lowered, or their commissions might need to be grandfathered on existing accounts for a period of time. For new business, some agencies will pay a first year only commission on the small accounts, but nothing on renewals.

One noticeable benefit of removing small accounts from a producer’s book is the amount of time it will save the producers. Even if only a couple of hours per year are spent per account, that time will add up. This approach lets producers have more time for new sales and cross-selling. The time saved not handling small accounts can be spent to acquire one or two large accounts that could easily offset the income lost from the small accounts.

Set Up a Select Business Unit

It is very common for commercial accounts under a certain level to be handled only by service staff in a specialized commercial lines department. It should be called the “Select” Busines Unit (SBU) or “special” as opposed to “small,” as sometimes the business owner put in this department might feel they are less worthy of the agency’s attention.

The SBU service personnel have responsibilities similar to that of personal lines service staff. In other words, the SBU personnel completely handle the account once it is already on the books. They are often the ones to initially sell the accounts as well. Responsibilities include rating and preparing quotes, placement and marketing (new and renewal), day-to-day client service and insurance company relationships associated with client service.

If an agency chooses to let producers continue to sell new small accounts, once the account is sold, the producer should introduce the SBU service person that will handle the account going forward to the client. This can be done in a cover letter sent to the client with the new policy, or the service person will contact the client via the telephone to introduce themselves.

Outsource the Service Work

Instead of an internal small business department, some agencies will outsource the service work. There are a few different routes for outsourcing service work, so understanding the costs and types of service offered is imperative.

The first means of outsourcing to consider is the service departments that some of the insurance companies offer. These are reasonably cost-effective and specialize in the clients’ policies since they write them. The one downside is that most agencies will have multiple carriers, and not all carriers offer this type of service. That means only a portion of the small accounts can be serviced this way. Also, clients need to be “trained” to directly contact the insurance carrier for their service work rather than calling the agency first.

Another approach is to contract with businesses that provide outsourced services to insurance agencies. There are differences between these companies, but generally, they can provide full customer service to an agency, and it can be done seamlessly. Most of these services send the work offshore to India, China or the Republic of the Philippines. These services are usually not cheap, but with a large enough book of business, they can be cost-effective. Some services charge a split of the commissions and handle it from start to finish, as well as account rounding. Patra is such a service some of our clients have used, and they charge 50% of the commissions. Other services exist, such as ResourcePro and eDesk.

‘Fire’ the Accounts

Agencies should consider getting rid of some or all small accounts. This can be done by a combination of non-renewing the accounts or selling them. This will be a reduction of revenue, at least in the short term, but it will improve profitability and establish the platform for better future performance.

Often, the smaller clients can be challenging to deal with, take up a lot of time to service or can be a placement issue that usually ends up in an excess and surplus lines (E&S) market. As accounts renew, producers and service staff should be able to recommend the non-renewal of “problem” accounts. These would be accounts that are costing the agency a lot of time compared to the commissions generated. If there are just a handful of “problem” accounts, they can be referred to a competitor down the street. This approach makes the “termination” more amicable.

Although a non-renewal is lost commission to the agency, when the staff is allowed to clean up the book and rid the agency of these headaches gracefully, then the staff will have more time to focus on tasks that help the agency, including new business sales and cross-selling. It will also improve the morale of the staff.

If the agency has a sizeable book of small accounts, it can be packaged up and sold. Some agencies specialize and like to work with small accounts. New agencies are also willing to buy accounts to increase their volume. This can be a win-win-win for the buyer, seller and clients. Regarding price, everything is negotiable, but a 50% split of renewal commissions for two or three years is usually fair for the buyer and seller.


For an agency to make money on small accounts, they have to be handled less, more efficiently and by fewer people, i.e., no producer involvement. Also, using less expensive commercial lines service staff or account managers for the SBU is recommended if the accounts are handled internally. A specialized unit allows that service staff to gain more knowledge in small accounts since many are often harder to place and can end up being placed with an E&S wholesaler.

It is always recommended that producers are paid for what they do. However, it is equally important to make sure that what they “do” cannot be performed by a perfectly qualified commercial lines account manager or CSR. Producer compensation expense for small accounts often makes small accounts much less profitable for an agency.

Agencies that focus on medium and large accounts will find that producers and service staff have more time to improve service, generate new sales and cross-sell accounts. The best place to start is to “fire” problem accounts and delegate small commercial accounts to a specialized internal agency unit or to someone else outside the agency.

About Catherine Oak

Oak is the founder of the consulting firm, Oak & Associates, based in Northern California and Central Oregon. Oak & Associates. Phone: 707-935-6565. Email: catoak@gmail.com.


Internal Perpetuation Versus Sale of the Agency

By Catherine Oak and William Schoeffler Jr.

Death and taxes are as inevitable as life itself. Yet most fail to plan for the inevitable. An ounce of early preparation is worth a pound of last-minute maneuvering. Thinking through the eventual exit ahead of time allows you to build the systems and people equation that takes time. Investors look for businesses that run themselves and do not depend on an owner’s brilliance or consistency in order to profitably function. An Oak & Associates survey found that only 20% of agencies had a long-term plan, which was mainly a purchased life insurance policy.

There are two main ways owners perpetuate. The first is internally to members of the owner’s family or to loyal employees. The second is to an outside investor, such as another independent agency or a national broker with private equity monies.

Internal Perpetuation Route

The usual route for internal perpetuation is for the owner or owners to bonus or gift some stock to the key people. For the remaining stock, there is usually a note promising to pay the owner their value over time, which is based on the firm’s fair market valuation and paid over seven to 10 years. This is compared to a third-party sale, which typically pays out over one to two years, or in some cases, today can be paid upfront. Remember the firm needs to be profitable into perpetuity if owners expect to receive their full value as it is paid from these earnings.

A popular option is a Grantor Retained Annuity Trust (GRAT), however, the owner cannot die within the first five years. If that is reasonably certain, this option allows the payments to be tax deductible to the agency. The candidates can be family members or key employees. If the former owner does not survive the payout period, the entire value reverts back to the owner’s estate.

Sale of the Agency

There has been something of a gold rush in selling to private equity firms. Buoyed by low interest rates and salivating at the consistent earnings in insurance, private equity money managers have been rapidly consolidating the insurance agency industry over the last few years. This has made the decision for many clients to sell to a third party easier. Key employees and families benefit from large upfront direct bonuses and monetary gifts. This can reduce the payout period and uncertainty. Gold rushes do end, yet interest rates will continue to remain low for the next few years.

After exhausting internal perpetuation options, it is best to develop a great Agency Profile & Pro forma report to use in search of the right buyer.

The key is to find the best fit for the agency’s culture and book of business. It is also good for the owners to have representation, so word does not get out on the street and to ensure that confidentiality agreements are signed and the process is properly managed. In that way, the owners can still do what they do best, which is manage the firm and sell new business and handle existing key service aspects of their book of business.

What Assistance Should be Received

Good consultants do add a lot to the process and are there to paint the picture of what the agency is. They also properly screen the buyers so that the number of buyers approached is reasonable and the private confidential information of the firm is not placed in the hands of so many people. After the appropriate buyers are brought to the table and the offers are in, the consultant can manage the analysis of the letters of intent, negotiate price and terms and then can be there for the end of the due diligence process. When the final results come in, the consultant then helps manage why the data received may or may not match what was done in the Agency Profile and Pro forma report. These results then need to be negotiated.

The agency owner’s CPA and attorney are always involved. In addition, the consultant also helps with checking that the purchase agreement matches what was promised and some of the terms that are often typical from one deal to the next are checked. This includes the working capital requirement, agency errors and omissions liability tail coverage requirement, the settling of debts and also looking over the new employment agreements for the owners.


The perpetuation process of an agency is often not easy. It can be as simple as just doing a valuation and getting the price and terms in place if the right players are employed. It can also be a great education process for the perpetuation candidates and the owners. With the assistance of a third party, a perfect plan can be developed. If this does not work out, there then may need to be a sale to a third party with the help of a professional.

About Catherine Oak

Oak is the founder of the consulting firm, Oak & Associates, based in Northern California and Central Oregon. Oak & Associates. Phone: 707-936-6565. Email: catoak@gmail.com.More from Catherine Oak

About William Schoeffler Jr.

Schoeffler Jr. is a financial analyst for Oak & Associates who specialize in financial and management consulting for independent insurance agencies, including valuations, mergers acquisitions, sales and marketing planning as well as perpetuation planning. Phone: 707-935-6565.

Extreme Systemization and Stratification of Agency Operations

By Catherine Oak | January 11, 2021

A few years ago, Catherine had a total knee replacement by an excellent orthopedic surgeon in Fremont, Calif. Dr. John Dearborn was recommended by two of our insurance clients that have had incredible success.

This surgeon implemented “systematic processing” of his business, which we also call staff stratification, and it is very similar to the works of Michael Gerber of “The E Myth.” The E Myth concept is working “on” the business and not “in” the business.

The systemization of work processing is unlike what we see many insurance professionals doing today. Many do a lot of the work themselves, then wonder why they burn out, are workaholics and don’t have enough fun doing what they want to do each day of their lives. This doing the job of others also causes staff morale problems.

From the initial meeting with the doctor to the postoperative work, every step of the way had been systemized. Initially, Catherine met with Dr. Dearborn to find out whether or not the surgery was necessary and what techniques made him ahead of the pack in technology, why she should choose him instead of a local doctor, how recovery works and more. A surgery date was set, and then she did personal planning for the handling of clients and travel for a period of time.

Then, the processes went into play from Dr. Dearborn’s office. These same processes and procedures could be applied to work in an insurance agency office as well. Simply substitute an experienced owner/producer for orthopedic surgeon and substitute account executive for physician assistant and substitute office support personnel for account managers/CSRs.

The Best Process

The doctor sent a binder (similar to a client proposal) about two weeks before surgery that outlined everything to know before, during and after surgery. It also listed all of the appointments scheduled the week before surgery, the day of surgery and follow-up visits.

Then the week before the surgery, Catherine went to the doctor’s office to have all of the X-rays and coaching done, and went to the hospital nearby for tests, such as an EKG. This ended with a mandatory afternoon class with the nurses and physical therapists that would provide all of the information she needed to know in order to prepare, have peace of mind and comfort. This was all taught in a group setting.

These processes saved the physician and his team so much time. The physician delivered everything through the use of a very well written binder, in a group setting, by the people responsible for the different parts of the process. The binder answered basic questions in a very readable format, laid out well with tabs. This saved the nurses and doctors valuable time. Plus, the people who educated the group specialized in these processes. These specialists, who earn less than the doctor, performed all pieces of the puzzle.

The other key is that all of these people were acknowledged and praised by their boss. Dr. Dearborn stated how they were integral parts to the process and all very good at what they did. It was by far the most efficient organization we have ever seen.

This whole system allowed for the doctor to perform up to 10 surgeries in a day. The system in place let the surgeon walk into a surgery with the patient totally prepped, do the intricate part of the surgery and walk out with his assistants able to finish up with the client. The doctor came out after surgery and greeted each family to discuss how the surgery went. At least one time, post surgery, the doctor came to visit his patient with his team. The physician assistants (not doctors) came to visit as well.

The joint replacement patients recovered in the doctor’s own building behind the hospital, were well taken care of and were not around sick people. We had our own team of people working with us on coaching and walking right away the next day and then we attended two or three physical therapy classes.

In Catherine’s first follow-up visit (two weeks after surgery), there was always camaraderie formed in the lobby, which helped everyone mentally through the process.

Catherine also received a customer service survey to complete about the job they had done and asked for recommendations for improvement. It was very thorough, with a strong emphasis on customer service.

Relevance to Agency Operations

Consider the agency’s client proposal the same as the initial instructions given by the doctor and his team in the pre-surgery meeting. Replace a client insurance binder containing the insurance policies, summary of the services provided, description of the firm’s policies and procedures and service team (AM/CSR assigned, claims and loss control people), for the patient’s guide to their replacement surgery.

In this scenario, the owner/producer gets a referral and screens this prospect over the phone using a prospect qualification list of key questions. If the prospect qualifies for the agency model, then the producer and the account executive visit the prospect and gather the appropriate data.

Back at the agency, the account executive puts the ACORD forms together in conjunction with the CSR or marketing person that markets the account. The CSR or the CSR assistants type up the proposal, and the account executive and producer review it. Together, they present it to the prospect.

If the prospect agrees that the coverage will be bound, then the account executive does the appropriate work to get the policies placed. When the policy comes, the CSR first checks it over, then either sends the policy to the client or an account exec delivers it to the insured.

As service calls come in, the AE or CSR do the work. The producer only gets involved if there is a serious problem or at the next renewal for a visit with the account executive.

We recommend the agency set-up seminars for networking of clients and prospects. Often, the agency can present such topics as risk management, loss control or providing unique coverages such as business interruption, employment practices liability insurance (EPLI) or cyber insurance. Prospects will enjoy mingling with clients and gain insight on the quality and professionalism of the agency and its producers.

‘By systemizing the business, owners and producers can concentrate more on what they do best, which is usually sales. The roles, systems and procedures can be streamlined and handled by qualified, but less expensive people.’


By systemizing the business, owners and producers can concentrate more on what they do best, which is usually sales. The roles, systems and procedures can be streamlined and handled by qualified, but less expensive people. Owners and producers can make more money and employees will feel empowered if they are properly trained to follow the agency’s systemized processes. This is the epitome of what we call staff stratification, which is delegation of service to the least costly, qualified employee.

About Catherine Oak

Oak is the founder of the consulting firm, Oak & Associates, based in Northern California and Central Oregon. Oak & Associates. Phone: 707-935-6565. Email: catoak@gmail.com

Producer Management, Goal Setting and Performance

Sales management is vitally important to the growth and survival of an agency. However, as important as it is, sales management does not have to be a full-time job in most firms.

Often the task falls to an owner or the top producer in the firm. This is not necessarily a good idea, because sales management can take away time from the manager’s own sales efforts. The key to effective sales management is to set up a system to monitor performance and encourage the producers.

Ideally, once an effective sales management system is created, self-motivated and properly trained producers can essentially “manage” themselves. The sales management role, in this hypothetical situation, is to monitor performance, remove any unreasonable obstacles to production and create an overall environment for sales.

However, producers are human too, and in reality, need guidance and support in order to succeed on a regular basis. A good sales management system creates a structure for the producers to succeed while minimizing the effort required by the sales manager.

Producer Performance
What is an acceptable level of producer performance for experienced, “seasoned” producers? It depends on a number of factors, such as:
• available producer support;
• sales skills of the producer;
• size and type of accounts in the geographic area;
• the competition and
• the local economy.

If performance standards are not set for producers, they will set their own—which most likely will be lower than what management expects.

Ideally, management can use the performance of the best producer who has ever worked for the firm as a guideline for “top” producer performance. The average property/casualty commissions per producer, from firms in our database, are in the range of $250,000 to $350,000. The range is based on size of firm, the location and the typical target clients of the agency. These commissions are not the producers’ book, but include “house” accounts and direct bill commissions of the firm, which are not necessarily commissions “handled.”

Well-run firms have $350,000 to $600,000 in commissions per producer. In surveys in which owners are asked what size book they would expect experienced producers to handle after three years in the firm, they report $150,000 to $300,000 in commissions handled, based on size of firm. In regard to their expectations for new business produced each year in addition to the books handled, the range is $30,000 to $65,000, based on size of firm. New business produced each year as a percentage of the book handled averages 18-20 percent.

For new producers without experience, approximately $100,000 in commissions handled is expected after three years, and new business of $25,000 to $40,000 in commissions per year. For new producers with experience (and without existing books of business) $150,000 to $200,000 in commissions handled is expected in three years, with $35,000 to $50,000 in new commissions produced per year.

Setting Producer Goals
Producers should be involved in the goal-setting process. Each year, every producer (including seasoned producers) should be given a new production requirement, for example 10-20 percent growth, net of attrition. The producer then should let management know how this production will be accomplished (for example, the number of quotes and customers that need to be written to accomplish his or her annual objective).

Based on the producer’s own hit ratio and size of account written, it should be determined whether or not the production goal is achievable. The goals should be broken down into monthly quote-to-write activity to make it easier to manage producer performance. Management actually needs two sales goals for each producer. One goal is the required new business increase in the number of accounts or commissions handled by the producer. The second goal should specify the type of account as well as the source of the new business to be pursued (such as account development, writing new accounts from referrals, target marketing or direct mail programs, etc.).

Sales Meetings
Effective sales meetings need to be held so sales activity can be properly monitored. Specific sales activity should include new business produced, lost business, hit ratio for each producer, prospect activity, what referrals have been obtained from new sales, etc. These meetings also should provide owner and non-owner production staff with information on markets, sales goals, collection problems and service backlogs.

There should be individual coaching of producers at least twice a month, in addition to the monthly sales meeting.

Producers have egos and need recognition. These sales meetings are also an excellent time to recognize superior performance, encourage double-teaming, and provide support by coaching and training.

Hit Ratios
Another sales management key is managing the producer’s hit ratio (the number of risks written to the number quoted). A hit ratio of 20 percent to 25 percent is average for commercial lines, but obviously the closer to 100 percent, the better. In personal lines, the hit ratio is usually 40 percent to 60 percent. If the hit ratio is improved, the firm’s expenses will be reduced greatly.

Hit ratios can be improved greatly when more time is spent initially qualifying the prospect. Key areas to uncover in the first critical 20-to 30-minute interview are: what is most important to the prospect in the insurance program; what are the politics, price and product the producer is competing against; and has the producer built a good rapport after this initial meeting, etc. Survey forms and collection of copies of existing policies should be completed in the second interview after the prospect has been properly qualified.

Producers can greatly improve their hit ratio on writing new accounts when they have good marketing/placement support. More and more firms today are using a central marketing person or department to help write new medium-size or large commercial accounts.

Sales management is critical
To have a successful, growing firm today in these difficult times, proper management of sales and producer performance is critical. Sales management can be easy if a system is established that monitors specific sales activity and performance. Effective sales management not only will reward the owners, now and in the future, but also will assist non-owner producers in achieving their goals.

About the Authors: Bill Schoeffler and Catherine Oak are partners in the consulting firm, Oak & Associates, based in Northern California. The firm specializes in financial and management consulting for independent insurance agencies, including valuations, mergers acquisitions, clusters, sales and marketing planning as well as perpetuation planning. They can be reached at (707) 936-6565 or by e-mail at catoak@gmail.com.