While the current economic environment is creating many challenges, it is also rife with opportunities. (Photo: Shutterstock)The instant recession created by COVID-19 is regularly compared to the Great Depression of the 1930s, at least in terms of economic contraction. While there are many differences, one thing is always true in times of economic turmoil and destruction, and that is significant economic opportunity for those with the preparation, mindset, and courage to take advantage of it. This recession is no different.
I’ve been asked frequently over the last three months whether this is a good time to start a business, specifically an independent insurance agency. My answer is, “It’s the best time in the history of the world to start an agency.” Why?
Recessions create unique opportunities for any business startup, including lower costs, increased availability of talent, and lower risk.
Let’s look at those in turn.
Unique opportunities
In recessions, all costs go down. Office space and real estate become cheaper as vacancies rise due to business contraction and failure. Equipment is often available for pennies on the dollar. Virtually everything a new business needs to get started is cheaper, including talent.
While recessions result in higher unemployment, savvy business creators use the opportunities to hire people, often with creative or lower compensation. But even without lower labor rates, it is much easier to hire people for a startup (which potential employees often view as a career risk) when unemployment is high. Sometimes the founder herself is unemployed, which is the ultimate availability and opportunity.
It’s also easier for agents to get appointed during a recession because carriers need revenue as they experience top-line declines. Plus, carriers tend to moderate price increases (despite the fundamentals in their books) to retain business and market share. As a result, businesses like insurance agencies, which have distribution limited by the maker (in this case, the carrier), also find it’s easier to get access to great products to sell.
The COVID-19 crisis represents other unique opportunities for the agency entrepreneur:
- Insurance carriers need for organic growth to offset premium losses
- Universal personal and corporate need for cost-cutting
- Opportunity to leverage technology to broaden the market
- Opportunity to leverage technology to attract high-quality talent
- Coincidental hard market
- Adoption of low-cost service strategies to create a budget for marketing and sales
It’s become easier over the last decade for startup agencies to obtain the right to represent top quality insurance companies. That ease is enabled by agency alliances, which help high-quality agents start their businesses with a solid carrier set. But in an economic environment in which many companies will experience 10% to 20% top-line revenue decreases, they will be more willing to appoint new agencies with solid new business capability.
With a 10% or greater contraction in the economy during 2020, along with massive unemployment and widespread uncertainty, clearly, everyone will be trying to reduce expenses. This could literally put every insurance policy in the country up for grabs. This means that existing insurance agencies have to focus time and attention on playing defense. In addition, experience shows that many agencies will not make the necessary efforts at retention, which adds to this unique, perhaps once-in-a-lifetime opportunity for new agencies to grow revenue rapidly.
The digital impact
Agencies have moved increasingly to digital tools to increase speed and efficiency while lowering expenses. New agents can create their business from the ground up with this technology, giving them an advantage in the marketplace against incumbents.
One of the ways aggressive agents are building books now is through the use of Zoom and other remote technologies for prospecting, selling, and building relationships. This technology, which suddenly was widely adopted by businesses and consumers alike, dramatically expands the market for a new agency. It is easy today to sell and service insurance anywhere in the country. The new entrepreneur can and will approach technology creatively to increase opportunity while many older agencies play catch up.
While recessions always grow the talent pool, this one is unique because the same technology that is now widely adopted for prospecting and selling (Zoom, etc.) can be used to recruit and manage employees located anywhere. This is a huge opportunity for new agencies, particularly those located in remote areas with a small employment base. Other technologies like Slack and Microsoft Teams allow agencies built for distributed employment to create and reinforce culture and teamwork as if they were all in the same office.
In addition, COVID-19 is creating a crisis of confidence in the agency system among young employees who believe they work for agencies who can’t or won’t keep up with the times and provide appropriate mentoring and training. In a recent survey of 400 independent agents conducted for Nationwide Insurance, 62 percent of agents aged 18 to 39 said the virus has them questioning whether to exit the industry. This is a huge opportunity for talent recruitment by entrepreneurial startup agencies.
The industry entered 2020 with a growing hard market in commercial property and continuing hardening in commercial and personal auto. The premium rebates and other carrier actions have masked the impact on customers of those market conditions. Plus, COVID-19 itself is creating a lack of availability and price increases for some market segments and lines of business.
These price and availability issues are just now being recognized at a time when businesses try to figure out how to either stay in business or avoid losses. Hard markets are always a great opportunity for new agencies; this one is unique in magnifying the other issues we’re discussing, making its impact that much greater.
Finally, a terrific way to control servicing costs is to use carrier service centers at the cost of about 11% of revenue, compared to agency employment expense, which typically runs closer to 25%. Many existing agencies have resisted these tools, so new agencies with enlightened thinking can turn this into a cost advantage, allowing them to deploy saved dollars into sales compensation or greater marketing investments, both of which allow faster growth.
Unlock the ‘‘how’’
Some of the advantages I’ve discussed are typically available during any recession. Some are unique to the current environment. It’s the combination that creates such amazing and unique leverage for a startup agency. Rahm Emmanuel, the former Mayor of Chicago, said, “Never let a crisis go to waste.” That may be true in politics, but it is undoubtedly true in business.
Having helped hundreds of entrepreneurs start their own agencies, in good times and bad, and having started and operated several successful agencies myself, I recognized that the number one thing that stops talented people from pursuing their dreams of business ownership is not knowing “how.” It is the biggest cause of procrastination and killer of dreams that I know.
That’s why I wrote “The UnCaptive Agent.” In the book, I describe in detail “how” to start a successful agency, including all the details that must be attended to. I also ask the questions that every entrepreneur needs to answer on their way to building a successful agency.
While the current economic environment is creating many challenges, I see enormous opportunities, too. My book is intended to help those with the desire and mindset to improve their lives by creating their own future, avoid common pitfalls that will slow them down, and show them “how” to take advantage of the many opportunities available to them.
The next several years are truly the best time in the history of the world to create a new independent insurance agency.
Tony Caldwell is an author, speaker and CEO of One Agents Alliance, an alliance of 185 independent insurance agents in Oklahoma, Arkansas, Kansas and California. Learn more by visiting www.tonycaldwell.net or contacting him at tonyc@oneagentsalliance.net. The opinions expressed here are the author’s’s own.
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