26 Mar How Does Your Agency Define Success?
Obviously, one of the many goals of the E&O Plus agencies involves achieving growth. Typically, with few exceptions, this is measured in terms of revenue, although writing more new business with a strong focus on retention are, most often, two key components. Some firms have purchased additional agencies or opened new branch offices. Some firms have expanded into the MGA or E&S worlds. All with the goal of increasing revenue.
I certainly understand that revenue growth is extremely important. After all, it pays the bills and provides the firm with the means to expand and add new products and staff. Having said that, when your agency increases its revenue, does that mean the agency has been successful? Could increasing revenue per employee result in your E&O culture suffering? Very candidly, one of the issues that somewhat concerns me is whether the agency’s E&O growth is at the same level as the revenue growth. In other words, if the agency is growing revenue by 8%, is the E&O focus at the same level, or could it be going slightly backward in some cases? Actually, for those divisions achieving growth, kudos! But the same question applies – is your E&O culture keeping up with your growth?
My concern is elevated in two areas — acquiring new agencies and new staff joining your firm. First, let’s talk about new agencies.
When your agency acquires a new firm, is there the possibility that the firm’s E&O culture is at a different level than yours? Actually, this is often the case. Does your agency know the E&O culture of the firm you just acquired? Hopefully, but in many cases, the answer to that question is unknown. Surely, the loss history provides some insight, but in my 37 years of E&O experience (50 years in the insurance business), one comment I have made to many agencies with a good loss history is, “Are you good or are you lucky?”
Some issues/questions it would be interesting to know when you are doing your due diligence:
- How do they handle exposure analysis (both new and renewal)?
- Is there a strong focus on memorializing client/carrier discussions?
- What is the staff’s experience level?
- Does the agency do any auditing? If so, how is it done, and what are the results?
- What is the process for policy checking?
I understand that confidentiality is of the utmost importance when an agency is looking to acquire another firm. But would it be possible for the agency’s senior management to have a small group of key staff that can help senior management with analyzing the E&O culture of the agency being considered? Whether this leads to the purchase still occurring is for those with a higher pay grade than mine to consider. The goal is to find out before, not after, what the issues/problems are.
The other issue of concern dealing with revenue growth involves staffing. When you grow, there is a good chance you need more staff to handle the growth. Bringing on quality new staff with a strong focus on training is critical. What is the experience level and technical knowledge of those new staff?
Training the new staff on your agency’s process will be needed. It is also highly suggested that there is strong oversight of the new staff (even those with experience) to ensure your processes are followed. Often, this is done with a second set of eyes overlooking the work product and potentially transitioning to having the agency’s audit programs shed some light. It is always good to have more files audited on the newer staff.
Growth is good, but it presents some challenges that need greater attention.