The Black Telephone
I received one of those chain emails that everyone receives daily. Some amuse and some annoy but this one made me stop and think about insurance agents. Here is the email, titled, "The Black Telephone."
When I was a young boy, my father had one of the first telephones in our neighborhood.
I remember the polished, old case fastened to the wall. The shiny receiver hung on the side of the box. I was too little to reach the telephone, but used to listen with fascination when my mother talked to it. Then I discovered that somewhere inside the wonderful device lived an amazing person. Her name was "Information Please" and there was nothing she did not know.
"Information Please" could supply anyone's number and the correct time.
My personal experience with the genie-in-a-bottle came one day while my mother was visiting a neighbor. Amusing myself at the tool bench in the basement, I whacked my finger with a hammer, the pain was terrible, but there seemed no point in crying because there was no one home to give sympathy. I walked around the house sucking my throbbing finger, finally arriving at the stairway. The telephone!
Quickly, I ran for the footstool in the parlor and dragged it to the landing. Climbing up, I unhooked the receiver in the parlor and held it to my ear.
"Information, please," I said into the mouthpiece just above my head.
A click or two and a small clear voice spoke into my ear, "Information."
"I hurt my finger..." I wailed into the phone, the tears came readily enough now that I had an audience.
"Isn't your mother home?" came the question.
"Nobody's home but me," I blubbered. "Are you bleeding?" the voice asked.
"No," I replied. "I hit my finger with the hammer and it hurts."
"Can you open the icebox?" she asked. I said I could.
"Then chip off a little bit of ice and hold it to your finger," said the voice.
After that, I called "Information Please" for everything. I asked her for help with my geography, and she told me where Philadelphia was. She helped me with my math. She told me my pet chipmunk that I had caught in the park just the day before, would eat fruit and nuts. Then, there was the time Petey, our pet canary, died. I called, "Information Please," and told her the sad story. She listened, and then said things grown-ups say to soothe a child.
But I was not consoled. I asked her, "Why is it that birds should sing so beautifully and bring joy to all families, only to end up as a heap of feathers on the bottom of a cage?" She must have sensed my deep concern, for she said quietly, "Wayne, always remember that there are other worlds to sing in." Somehow I felt better.
Another day I was on the telephone, "Information Please."
"Information," said in the now familiar voice. "How do I spell fix?" I asked.
All this took place in a small town in the Pacific Northwest. When I was nine years old, we moved across the country to Boston. I missed my friend very much. "Information Please" belonged in that old wooden box back home and I somehow never thought of trying the shiny new phone that sat on the table in the hall.
As I grew into my teens, the memories of those childhood conversations never really left me. Often, in moments of doubt and perplexity I would recall the serene sense of security I had then. I appreciated now how patient, understanding, and kind she was to have spent her time on a little boy. A few years later, on my way west to college, my plane put down in Seattle. I had about a half-hour or so between planes. I spent 15 minutes or so on the phone with my sister, who lived there now. Then without thinking what I was doing, I dialed my hometown operator and said, "Information Please."
Miraculously, I heard the small, clear voice I knew so well. "Information." I hadn't planned this, but I heard myself saying, "Could you please tell me how to spell fix?” There was a long pause. Then came the soft spoken answer, "I guess your finger must have healed by now." I laughed, "So it's really you," I said. "I wonder if you have any idea how much you meant to me during that time?"
"I wonder," she said, "if you know how much your calls meant to me. I never had any children and I used to look forward to your calls."
I told her how often I had thought of her over the years and I asked if I could call her again when I came back to visit my sister.
"Please do," she said. "Just ask for Sally."
Three months later I was back in Seattle. A different voice answered, "Information." I asked for Sally.
"Are you a friend?" she said. "Yes, a very old friend," I answered.
"I'm sorry to have to tell you this," She said. "Sally had been working part time the last few years because she was sick. She died five weeks ago."
Before I could hang up, she said, "Wait a minute, did you say your name was Wayne?"
"Yes," I answered.
Well, Sally left a message for you. She wrote it down in case you called. "Let me read it to you."
The note said, "Tell him there are other worlds to sing in. He'll know what I mean."
I thanked her and hung up. I knew what Sally meant. Never underestimate the impression you may make on others.
Whose life have you touched today? Why not pass this on? I just did...lifting you on eagle's wings. May you find the joy and peace you long for. Life is a journey...NOT a guided tour. I loved this story and just had to pass it on. I hope you find it lovable too.
I learned long ago in church that one never knows when someone is looking up to you or when you are making a difference in someone's life. This unknown is why a person might always consider living an exemplary life. For insurance agencies, this story illuminates the missed sales, the missed opportunities to build a greater reputation, and is a key reason the internet/800# insurance companies are making inroads into many agency's market share.
Insurance sales are about selling a product the consumer hopes to never use, the agent hopes the insured never uses, and the insurance company hopes the insured never uses. So far we have perfect alignment between all parties that the product being bought and sold hopefully will never be used. Frequency of claims has decreased significantly across most lines so the odds of an insured using their insurance any given year are quite small. The focus has migrated to cost rather than coverage as a result.
I interview hundreds of CSRs and producers annually. Between the workload and pressure to make sales, their focus has shifted to just getting through the day and getting through the sale. The difference agents can make and the value agents can bring are rarely immediately recognized by clients. Just like in the story, sometimes an insurance CSR or producer does not learn the difference they made in someone's life by selling them, by convincing them to buy the coverages they truly need, for years. Then when the claim occurs, an event none of the three parties ever wanted to occur, happens, the insured discovers they have the coverages they need to get their life back together more easily than they expected. Maybe they even realize they can get their life back together versus if they had simply chosen the lowest price.
Agents have this rare opportunity to increase sales, increase their reputation, and make their clients' lives better and safer if they take the long view. Sell the coverages people and companies truly need even if the client does not understand they need them. Do the job of a real professional even if it means taking a little more time. Somewhere, someplace, others are watching and learning from you. Sometime, someone will be thanking you for protecting them.
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Should you really issue a Binder?
First, what is a binder? I ask this question of agency personnel all the time. I've asked it of hundreds of producers and CSRs. Approximately 98% do not know the answer to this simple question. It is an important question from an E&O perspective because if one does not know what a binder is, the odds of violating the agency's binding authority is about 100%. When an agency violates its binding authority and a loss occurs, the insurance company knows it can sue the agency and likely win.
What is a binder? A binder is a temporary insurance contract. A binder is not proof of insurance. Proof of insurance is evidence or a certificate. A temporary insurance contract is required rarely these days. It is required when an insured needs coverage now, before an insurance company can issue a policy number. If a company issues a policy number, the policy is effectively issued.
Agency personnel often do not understand that a policy does not have to have been received for it to have been issued. This creates two common and expensive mistakes. The first is that they do not send a bill to the insured because the policy has not been "issued." It has been issued, just not received and if a policy has been issued, premium is earned. Therefore, the agency is best served if it sends a bill.
The second mistake is that if a policy has been issued, it is effective. If a policy is effective, why issue a second contract of insurance in the form of a binder? Would you ever issue two homeowners policies on the same house? Of course not, but that is what agencies do all the time when they create a binder for closing. The annual policy has been issued though not received and the agency issues a second, 30 day policy for the same house. (Regardless it seems whether the agency has 30 days' binding authority.)
Some mistakenly argue that the binder is not really a second policy because it expires when a policy is issued and since the regular policy has already been issued, the binder was never affected. Beyond the convoluted circular logic, why would anyone issue a temporary insurance policy that was never real? In court, even if it is shown the binder was not a second policy, the agency is going to be made to look like an absolute fool for issuing a contract that was never a contract.
I doubt this would be the result though. More probably a case will be made that double coverage, stacking exists. The problem is the binder does not contain all the terms and conditions which arguably expands coverage.
Even if I am totally wrong, the agency has committed a second E&O error. Almost inevitably the reason the binder, which again is a temporary insurance contract, is issued at the behest of a mortgage company/bank. Would an agency ever issue a regular policy at the behest of someone that is not an insured? Agencies are never supposed to issue or reduce coverage per the request of any one that is not the named insured or a person authorized by the named insured. So now the agency is issuing a binder because a mortgage company told them that is what they, the mortgage company, needed. Not only does a mortgage company not have the right to request that an insurance policy in someone else’s name be issued, but they are not insurance professionals. They do not even know what to ask for and yet the agency is fulfilling their order.
Another serious mistake is that when a temporary policy is issued, premium is earned and cancellations must be requested. When is the agency suspending the binder to make sure the premium is collected or a cancellation is processed? What happens if a binder is issued per the request of a bank but the actual insured refuses to pay for the coverage? They did not request coverage so why should they pay?
Not understanding what a binder actually is creates significant E&O exposures, company relation issues, bad debt issues, accounting issues and yet, almost no one in agencies seems to know what they are or how they are supposed to be used appropriately. The only time an agency binder should be used is again, when an insured needs coverage from a standard carrier and their risk falls within the agency's binding authority with that particular carrier and that carrier cannot or will not issue a policy immediately. At that point, the insured needs temporary coverage.
Some agency personnel do not understand that agencies never have binding authority with surplus lines markets. This is a huge mistake. Sometimes the nuances are important here too. Agencies like to take credit for getting things done so they’ll tell an insured that "they'll bind", "we've bound", "we'll get it bound", etc., with a surplus lines market. When you tell an insured that you've bound a risk, you've arguably bound the risk even though you do not have authority to do so. More properly, the agency will advise they'll ask the broker to bind it and if the broker binds the risk, the agency will advise the insured the broker has bound the policy.
Violating binding authority is a significant risk. Many carrier suits against their own agencies arise in this category. From a carrier's perspective, it makes sense to sue your own agency if the loss is large. Think about it from their perspective. If a $500,000 loss occurs and the agency has violated its binding authority giving the company an opportunity to get its $500,000 back, why would it walk away from $500,000?
Even better, if an agency stops issuing incorrect binders, the staff's workload decreases. So not only does the E&O risk decrease, but staff productivity increases.
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Overcome Two Common Personality Weaknesses
and Soar to Success
The majority of the thousands of agency owners I've met are people pleasers. Being a people pleaser is often a key to sales success. Being a people pleaser is a key to failing as an agency owner. Managing people successfully, especially managing producers successfully requires difficult conversations on a regular basis and people pleasers are absolutely emotionally incapable of having difficult conversations that may cause the other party to become upset. So they avoid, avoid, avoid. People pleasers want to believe with all their heart that if they ignore the problem, it will go away.
I have lost count of how many agency owners have told me they have known for years they need to discuss poor performance with their producers. Knowing these conversations are needed has been weighing on their mind then for 365 days a year for maybe five years or more! That is more than 1,500 days of emotionally draining baggage. Being weighed down that long takes much out of a person. The drain retards the agency's future too, by years and maybe decades.
A person can overcome being a people pleaser many different ways, but the first step is the hardest step and that is admitting a hard improvement must be made. The reward for the emotional price of making that change is better sleep, an easier agency to manage, and more success. Taking this step requires acknowledging and accepting the price is paid first and the rewards will come slowly and later. This is not an easy step for a people pleaser because essentially what is required is potentially displeasing a few people now to please more people later. To a non people pleaser, this is easy but for a people pleaser, this goes so against their grain that many simply will never be able to take this first step.
For those who can, one solution is counseling to achieve the emotional point of successfully being capable of having crucial conversations. I am not getting loopy or soft. Some of the counseling is relatively simple. Look up Sensory Therapy on the internet. It works quickly for many people. More sophisticated counseling that also builds true leadership skills will take a person even farther. I have partnered with Jay Brennamen of SageQuest Consulting (email@example.com) for similar situations. His work developing leadership skills is remarkable.
In some ways, an even simpler solution is to hire someone to do what you might consider "dirty work" for you. My clients that have chosen this path, and then given these people true authority to do the "dirty work," have had considerable success. Aligning a person's strengths and when possible, not forcing a person to do what they are truly uncomfortable doing, creates hugely positive momentum.
Quick Start/Bad Follow Through
While maybe not a majority, clearly a common personality trait among agency owners is the Quick Start/Bad Follow Through.
Being fast to act and striking while the iron is hot is great for making a sale. But when operating an agency, flooding employees and producers with new ideas all the time kills morale if the agency does not possess enough resources to follow through. The follow through does not enter the brains of the owners who start fast because they follow through on so little. Follow through simply is not part of their thought process.
Agency owners who are quick to jump on ideas and sales opportunities are particularly lethal to their own agencies when it comes to developing new producers. Developing new producers successfully demands significant follow through and attention to details. These kinds of agency owners simply do not have the ability to develop producers personally. The only option is to outsource and get out of the way. Let someone with the right strengths get the job done.
Delegating is key to these agency owners' success. For some, a personal assistant is the ticket. However, my experience has been that a personal assistant only expands the owner's capacity. That position does not expand the owner's leadership abilities. So sometimes the agency is able to achieve, for example only, 15% more success before it hits another hard cap.
An option that promotes more growth is hiring a COO or at least a capable Agency Operations Manager with authority. While these positions are not feasible for some agencies, when one of these positions is feasible, the agency's capacity to grow and become more profitable is expanded exponentially. Opportunities to grow expand because the agency becomes more efficient. Opportunities expand because people are held accountable for their jobs -- including hopefully -- holding producers accountable for making sales. Opportunities expand because follow through is created. Not only does follow through result in things getting done, but follow through gives employees faith and confidence and boosts their morale.
When an agency owner recognizes their sales strength as a people pleaser or their desire to jump quickly into every opportunity is an operational weakness, and they commit to overcoming this weakness, agency success skyrockets. Even better, their stress decreases.
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The Onion, a wonderfully cynical/sarcastic news magazine, had an article several years ago that was so real I wondered if they had mistakenly written a real piece. The article stated that whenever this young woman had a semi-tough decision to make, she sought out the exact same advice from as many people as possible who she knew already would agree with her. The article goes on to explain this young woman also seeks identical opinions on recipes, gifts, boyfriends, attire, etc. "Calling on those close to me to endlessly reconfirm my worldview makes coming to conclusions that much easier."
I have met and interacted with more than a handful of agency owners who actually do this. Not only do these agency owners ask all their friends, but they ask company reps and they hire professional advisors (attorneys, accountants, and consultants) who will agree with them too. Then if someone happens to disagree, they will say, "I asked X, Y and X and you’re the only one with that opinion so you are wrong."
This practice emanates from deep insecurities and to assuage those insecurities, they need assurance they are correct more than they need the correct answer. I have witnessed this behavior many times, so maybe we all have some tendency to behave this way at times. To check yourself to learn if you are seeking agreement or seeking knowledge, consider these points:
Multiple opinions can be valuable if, and only if, those opining are:
- Knowledgeable of the entire story. Another aspect of those who ask opinions of many is they rarely tell everyone the entire story. They only tell the part of the story most likely to result in the other person giving the opinion the agency owner wants to hear. So are you telling the entire story?
- Knowledgeable period. Many times I've experienced an agency owner telling me so and so's opinion but I happen to know so and so does not have the education or experience to have an opinion of any value. For example, asking advice on an acquisition from someone that can't read financial statements with any expertise. Would you ask your CPA to opine on the CGL form?
- Honesty. Honesty is critical, even to the point of putting honesty over being liked. If the person being asked is first and foremost a people pleaser, they will likely give a people pleasing answer at the cost of some honesty. If the person is a professional advisor, they may have a conflict of interest. Their oaths prohibit people pleasing answers at the expense of honesty, but money does talk.
As one of those advisors asked to opine daily, I enjoy my clients who seek other quality opinions from true experts that are totally honest, even brutally honest, who know the entire story. The solutions developed are the best and my client is served the best. I enjoy knowing the other experts are not pandering or enabling the client to confirm a preconceived conclusion just so the client likes them more. In some cases, the most rewarding work is helping an insecure client gain security by learning that different opinions can build strength and confidence.
If you are seeking different opinions for a difficult decision, give a moment to think about these points.
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Retention and Organic Growth
When rates go down and "organic" growth plummets, I always hear rationalizations such as, "We're not losing any accounts so our growth is actually good." Yet when rates are rising, I hear comments such as, "We're growing 10% a year now!"
Similarly, when rates are increasing, agencies tend to claim to achieve higher retention even though they are not retaining any more accounts. The key to both scenarios is accounts. Retention relative to agency management is really a measure of account retention. It is not, properly at least, a measure of premiums retained because rate and exposure fluctuations materially affect premiums without regard of whether the agency is losing or gaining accounts. In a hard market, an agency could easily achieve retention exceeding 100% if measured on a premium basis which really proves the point because retention exceeding 100% is absolutely impossible.
Similarly, organic growth measured purely on commissions gained or lost is also a misnomer. Rates and exposures have too much effect. Both retention and organic growth are important metrics for good agency management so neither should be ignored. In fact, the Gallup Organization in the fantastic book, The Coming Jobs War, by Jim Clifton, lists organic growth as THE MOST IMPORTANT metric for any firm to achieve. To measure these critical items then, agencies need to use their management systems to count policies and accounts by line. In other words, how many accounts and how many policies does the agency write in personal lines, commercial lines, benefits, life, etc., etc.?
The serious problem I have witnessed in valuing agencies and helping agencies become more successful is that at least 50% of all agencies cannot provide accurate historic account counts. If you cannot provide accurate historic account counts, it is impossible to truly know the agency's retention or organic growth. Even worse, a material portion of agencies cannot provide accurate current account counts and policy counts.
Not only are correct account counts and policy counts important for measuring retention and organic growth, but both are more important for judging staff workloads than commission and premiums. Account counts are critical to judging workloads because a certain amount of work is required on accounts no matter what their size. A huge mistake I am seeing agency owners make is forcing staff working small accounts to work a huge number of accounts so their commissions are similar to staff working larger accounts. The result is always higher E&O exposures and poor morale because people working so many accounts simply cannot be as thorough as required.
As is often the case, the small details are what make the big differences. The agency owners who pay attention to these points are likely to realize much better agency management if they begin thoroughly tracking their accounts and policy counts in detail. They will realize the consistency in sales efforts to keep making sales in good times that will also help make them much more successful in slow times because they will not have to "get sales in gear again." The sales effort will have stayed in gear and momentum will be on the agency's side.
Additionally, the agency will be more securely profitable. The agency will be staffed more appropriately and therefore will not be overstaffed or understaffed. The agency will also be much better prepared to understand its own cost structure.
One other seemingly small but potentially huge value in managing account count data is E&O/Privacy exposure. Many, many agencies with which I have worked to correct their account counts found their counts inflated by hundreds or even thousands of dead files. They quickly realized that each dead file was an unnecessary exposure. If an agency is sued for violating privacy issues, the penalties and fines are often on a per record basis. If your records are inflated incorrectly, you get to pay unnecessary fines.
So if the benefits do not motivate you to manage your account and policy counts correctly, maybe this last point will. Either way, the agency will be better positioned to achieve much more success.
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Does the policy you just sold provide the coverages
the client truly needs?
Let me ask the question another way. Does the policy you just sold provide the coverages you and your agency need?
Insurance is such a wonderful invention. The option to purchase protection against something going seriously wrong with your life is ingenious. All three parties, the insured, the agent, and the insurance company all hope the policy is never triggered. If it is triggered, the insured is betting the policy will make them financially whole. So if the agency does not sell them the coverages they truly need and a loss occurs, they will not be whole unless they win an E&O suit against the agency. Therefore, does the agency also need to make sure the client gets the coverages the client truly needs?
95% of all agencies I meet do not use a coverage checklist. The only way to make sure the agency is coming close to offering all the coverages clients need is by using a coverage checklist. Without a coverage checklist or a perfect photographic memory combined with a 160 I.Q., simply remembering all the applicable coverages in any given situation is impossible. Some people do not use coverage checklists because they're unfamiliar with them. Most fail to use a coverage checklist because they feel checklists are cumbersome, it will cost them the sale, or they do not know the coverages listed so they do not want to mention these coverages to the insured.
In other words, the agency is choosing to not offer the client all the coverages the client needs. This is not an error. It is an omission. Now maybe if the "duty to read" case law prevails if the agency is sued, this is a slightly moot point. But isn't the agency better off if they’re not sued initially? Isn't it better for the insured to have the coverages they need and not suffer a financial loss? Isn't it better for the insured to be happy they bought the right insurance and therefore they have the necessary coverage? Isn't it better for the agency's reputation if the insured is happy they purchased the appropriate coverage rather than if they have an uncovered loss and then they tell everyone about how the agency screwed them?
Did the last policy your agency sold provide the coverages the client truly needs? Did it include business income, cyber liability, an umbrella, EPLI, and all those difficult coverages clients may not even understand they truly need? Did the last policy your agency sold provide the coverages the agency truly needs?
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Chris Burand is president and owner of Burand & Associates, LLC, a management consulting firm that has been specializing in the property/casualty insurance industry since 1992. Burand is recognized as a leading consultant for agency valuations, helping agents increase profits and reduce the cost of sales. His services include: agency valuations/due diligence, producer compensation plans, expert witness services, E&O carrier approved E&O procedure reviews, and agency operation enhancement reviews. He also provides the acclaimed Contingency Contract Analysis® Service and has the largest database and knowledge of contingency contracts in the insurance industry.
Burand has more than 20 years' experience. He is a featured speaker across the continent at more than 180 conventions and educational programs. He has written for numerous industry publications including Insurance Journal, American Agent & Broker, and National Underwriter. He also publishes Burand's Insurance Agency Adviser for independent insurance agents.
Burand is a member of the Institute of Business Appraisers, a department head for the Independent Insurance Agents and Brokers of America's Virtual University, an instructor for Insurance Journal's Academy of Insurance, and a volunteer counselor for the Small Business Administration's SCORE program.
NOTE: The information provided in this newsletter is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.
Burand & Associates, LLC is an advocate of agencies which constructively manage and improve their contingency contracts by learning how to negotiate and use their contingency contracts more effectively. We maintain that agents can achieve considerably better results without ever taking actions that are detrimental or disadvantageous to the insureds. We have never and would not ever recommend an agent or agency implement a policy or otherwise advocate increasing its contingency income ahead of the insureds' interests.
A complete understanding of the subjects covered in this newsletter may require broader and additional knowledge beyond the information presented. None of the materials in this newsletter should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this newsletter. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.
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