The four areas of agency transformation that will create the successful post-reform NextGeneration Benefits Firm
By Nelson L. Griswold
Are you a cow… or a buffalo?
You’ll learn why that’s important for your agency’s survival in a moment but, first, here’s a $1 million – or fill in your agency’s annual revenue – question for you:
“What will the successful post-reform NextGeneration Benefits Firm look like?”
A major shake out in our industry continues, with consolidations and acquisitions of benefits agencies greatly thinning the herd. The few winners in each market will be the agencies that can transform themselves to adapt to the new realities… and new opportunities!
What worked for benefits agencies yesterday… simply won’t work tomorrow. And much of what used to work no longer works today.
(And while this article addresses agency transformation, as a broker you can ensure your personal success by transforming your own ways of doing business. Don’t wait for your agency.)
So brokers and agency principals from across the country are asking me what they must do to be one of the winners.
Are you a cow or a buffalo? You’ll learn why that’s important for your agency’s survival in a moment….
If you want your firm to remain relevant, profitable, independent, and growing…read on.
The four areas of reinvention
In our work with agencies, we’ve identified four critical areas for agency transformation necessary for an agency to survive the next five years and emerge a long-term winner. Discussed in depth in our industry bestseller, DO or DIE: Reinventing Your Benefits Agency for Post-Reform Success (a survival manual for agency leaders & producers), the four areas are:
“Oh, is that all?!” you ask.
You’re right, to survive the thinning of the herd and be a winner in the post-reform world, an agency will have to change just about everything in its business model.
Successful agencies will be those that reinvent themselves from the ground up. Out with the old, in with the new business model…the NextGeneration Benefits Firm.
The real post-reform winners, those agencies that will acquire the losers and amass market share, will be the agencies that act on the imperative for radical and wholesale change.
I know this sounds overwhelming… and possibly demoralizing. But it’s the hard truth.
In coming posts, however, I’ll be providing you a step-by-step outline based on our Agency Transformation® Process in DO or DIE where we walk our private clients through this entire reinvention process. I’ll be giving you the critical steps and best practices to transform your agency, make you one of the survivors, make you one of the winners.
If you can follow a flow chart, then you will be able to reinvent your agency before it’s too late!
The great news is you already have the most critical component: a relationship with the employer. I’ll show you how to leverage that relationship to retain and further monetize it in the brave new world of benefits.
So let’s take a closer look at the four areas of agency transformation.
PORTFOLIO: Strategic diversification
For years, brokers have known the need to cross-sell beyond the traditional core benefits. Yet most agencies lack a broad portfolio of products and services with which to solve client problems. If you don’t have the products and services, you greatly restrict your revenue potential.
In DO or DIE, we refer to the portfolio as the cornerstone of the NextGeneration Benefits Firm. Your portfolio determines how relevant you will be in the market; what client problems you can solve; what and how much value you can bring to your clients; in short, your firm’s value proposition in a market that is demanding more & more value.
As more than one agency leader has told me, “Brokers have had it far too easy for far too long.” But the salad days are ending.
For a broker to be consultative (see the section below), he must have a large toolbox of solutions that allow him to eliminate client pain points. Being consultative assumes that you can provide meaningful and effective solutions to the problems you identify in your consultative process.
Enhanced (formerly known as “voluntary’) Benefits are an obvious and necessary addition to an agencies toolbox. And to their credit, 58 percent of brokers and consultants plan to sell more of these benefits, according to MetLife’s 2011 “Broker and Consultant Study.” But Enhanced Benefits must be just one of many product and service offerings.
Building a well-stocked portfolio of both insurance and non-insurance products and services is a necessary change that will help create a NextGeneration Benefits Firm.
In our experience with agencies across the U.S., we find that most agencies are extremely inept at marketing their business and prospecting for new clients.
This is completely understandable. Why should insurance brokers know how to market and prospect?
I’m being totally serious. Marketing and prospecting isn’t taught as part of your insurance school and carriers only offer training on products, so how should an agency leader know effective marketing strategies or be able to teach effective prospecting tactics to his producers?
Agency leaders and producers have done the best they know how in this vital area. But in the post-reform era, mediocre, inefficient, and costly marketing and prospecting are not sustainable.
What is marketing?
At its core, marketing is just telling your prospects (including your clients…who are your best prospects, right?) about the solutions you have and the problems that you can solve for them. The goal of marketing is to attract ideal prospects who are interested in knowing more about what you do and how you do it. (Prospecting requires you to chase prospects who may or may not be interested in your firm.)
How will you differentiate your NextGeneration Benefits Firm from your status-quo, old-school competitors? By spending thousands to put your name and logo on a banner at the golf tournament or sponsor a table at the Heart Gala? Please. That’s not marketing; at best, it’s brand building. Feel free to continue your sponsorships; just pay for it from your charitable-giving budget stop and calling it marketing.
And even if sponsorships generated any business, how would you know? How do you measure results from sponsoring a golf tourney or a fundraising event?
The business adage says, “If you can’t measure it, you can’t manage it. And if you don’t manage it, it’s not important.” Marketing is too important to the future of your firm not to measure and manage it.
With commissions in decline and a diet of leaner fees on the horizon, agencies can’t afford to waste valuable marketing dollars on brand building (billboards are the worst example of this). Today, your firm needs serious and immediate return on investment (ROI) from your marketing. And your producers must produce serious results with their prospecting efforts.
To become a NextGeneration Benefits Firm and be one of the winners in the post-reform world, agencies must transform their marketing and prospecting into high-ROI activities.
SELLING: No more human quote engines
Most benefits agencies have been transactional, that is, their role has been to facilitate the employer’s purchase health insurance of from the carrier. Doing a bit of plan design, shopping the carriers, spreadsheeting and then carrying the lowest quote to the client was all that was required to earn a substantial commission on the medical.
If you can’t measure it, you can’t manage it. And if you don’t manage it, it’s not important.
Helping a client get a lower price on a product they already have and intend to keep… that’s not selling. Nothing wrong with being transactional; but being a human quote engine is no longer sufficient to earn or keep the business.
As more than one benefits broker has told me using remarkably similar words, “Brokers have had it far too easy for far too long.” Good for you. It was a great run. But the salad days are ending.
The days when agency revenues were derived almost entirely from commissions on the medical, medical trend drove annual revenue growth, and clients had no greater expectation than a low quote are over. Medical carriers including Aetna already have started to eliminate commissions on large group medical plans and moved brokers to a fee-for-service model. This just the point of the spear; other carriers are soon to follow.
In DO or DIE, consultative selling is described as the foundation of the NextGeneration Benefits Firm. To justify the fee in a fee-for-service model and to bring greater value to the client, an agency must adopt a consultative selling approach that provides value by solving client problems and eliminating client pain points.
The majority of brokers and consultants recognize this, according to the MetLife study. Fully 58 percent said they plan to become more consultative in their selling.
The value of any salesperson is not in what he sells (does anyone have an exclusive on products?) but in how he sells it.
Becoming consultative is one of the key transformations that agencies must effect to become a NextGeneration Benefits Firm.
MANAGEMENT: No margin for error
Much like marketing and prospecting, agency management of sales and operations must become more productive and efficient in the NextGeneration Benefits Firm. The new economics means there is no margin for error and no place for inefficiency.
Top-line revenue is the growth driver of any business. With lower per-client revenue driving a need for more and better clients, rigorous sales management that demands true accountability is imperative to ensure that producers become more efficient and effective in prospecting and closing sales. As with marketing, if you don’t measure it, you can’t manage it and if you don’t manage it, it’s not important. Too many sales organizations are hampered by poor or non-existent sales management that doesn’t really manage producers at all. And the message to producers is clear.
Profit is a function of efficiency in fulfilling the operational requirements of an agency. Agency operations must become leaner and more streamlined, leveraging best practices including automation and outsourcing to create maximum efficiency. The goal is to drive as much of the top-line revenue to the bottom line without sacrificing quality service and the ability to fulfill the promises made by the producers. Today, an agency’s profitability will be determined largely by technology.
The NextGeneration Benefits Firm will have superior sales and operations management in order to maximize its resources and drive as much top-line revenue as possible to the bottom line.
Cow or buffalo?
My earlier question about whether you are a cow or a buffalo speaks to your odds of surviving the inevitable thinning of the herd and being one of the winners.
Clearly benefit agencies are facing a tremendous storm and survival will require every agency to make radical changes in their business model. The question is how will agency principals react to the storm?
Interestingly, cows & buffalo respond very differently to a storm and the difference is very instructive.
Herds of buffalo and cattle both roam the Great Plains, living a similar existence but with one big difference.
When storms cross the plains with crashing thunder, blinding flashes of lightening, and tremendous winds, the cows turn away from the storm in a panic and run in the same direction the storm is going. Buffalo, however, turn to face the storm and, with all their energy, run straight into the storm.
Cattle spend all of their time and energy running from a storm that they cannot outrun, prolonging their exertion, their terror, and their time in the midst of the storm. Buffalo, however, by facing the storm and running headlong into it, find themselves quickly passing through it. Cows run away; buffalo charge headlong into the storm.
You have a choice as the storms rage about you: you can be like the cows, spending your time and energy running away from the unavoidable changes you must undertake for survival…and prolonging your misery. (Incidentally, many cows drop dead of exhaustion while running away.)
Or you can be like the buffalo, face the necessary changes head on, embrace the changes and get quickly through them. Either way, changing your business model is essential for survival; how we face the changes makes us who we are.
After the thinning of the herd, there might be a few cows left standing among the winners. But the winners will be the buffalo, who also will have had a much easier and shorter run to long-term success.
As you survey the changes necessary to become a NextGeneration Benefits Firm, be the damn buffalo. Charge!
A version of this article previously was published in Employee Benefit Adviser magazine.