The Insurance Agency Succession Problem: Family Matters
The insurance industry is experiencing a huge generational shift. As aging baby boomers head to retirement, younger generations of agency owners prepare to take charge. Are they ready to lead? Leadership succession is always a disruptive time in any organization. You can lessen the turbulence and future-proof a healthy agency with proper planning and clear communication.
If your agency has multiple generations of family owners in the office, you are probably familiar with one of the following scenarios:
Scenario 1: One or more agency principals is ready to retire and looking to divest of their agency ownership in the short term – for the sake of argument, let’s say within the next few years. This looming transition puts major operational and financial burdens on the agency.
Scenario 2: One or more agency principals is on the fence about handing over control. Maybe they are waffling about retirement and can’t bring themselves to step away. Maybe they are already taking a back seat to the younger generation but aren’t yet willing to give up total control. It’s hard to step away from an organization you’ve built over the course of your working life. It’s about more than money: it’s about control, pride, uncertainty and even fear of the unknown. Succession can be messy.
Both of these common scenarios present major issues the agency will need to address to enjoy long-term success. There is an inherent conflict between the goals of younger, rising principals and their soon-to-retire senior executives. Younger principals seek growth. They want to maximize future earnings and are willing to leverage risk to do so. Older principals seek stability. They want to maintain what they’ve built and protect their near-term financial interests.
In our first scenario, the tension plays out as a passive-aggressive tug of war between competing interests: the agency needs to grow to generate the income to pay off the retiring principal(s) but can’t afford to invest in growth initiatives because of the financial strain created by paying off the retiring agency principal(s). In our second scenario, the conflict is more overt: the younger agency manager and future principal is thinking long-term and wants to invest in growth initiatives while the older agency manager, the outgoing principal, won’t approve spending due to short-term financial implications.
How do we solve these problems? There is no right answer. Every agency, like every family, is unique. There’s no single solution guaranteed to untangle the complex knot of issues created by agency succession. That’s the bad news. The good news is that there are questions we can ask, goals we can set, and steps we can take to bring these issues into focus so that we can make a plan in the present to solve the problems we anticipate arising as the generational transition approaches.
First, we act with integrity. Our number one, overarching, primary goal is simple: the family relationship is of paramount importance. Everything else is secondary. Family comes first. All our solutions will revolve around this central axis. This often means making hard compromises on all sides of the equation: money, time, control, and process - it’s all got to be on the table, in the open, and up for discussion. All generations have an interest in ensuring the agency’s long-term health and viability.
Second, we ask questions.
- How much growth do we need to manage succession while maintaining a healthy organization?
- Where are our low investment/high impact growth opportunities (hint: cross-selling and referrals)?
- How do we maximize our current resources?
- What percentage of income over expenses will be allocated to growth initiatives? How much are we willing to reinvest in the agency to see additional future gains?
Third and most importantly, we use those answers to make a plan. We future-proof. We lay down a strong foundation for all our business activities that takes into account the details of the transition of leadership.
This is hard. It’s painful work. But remember that you are not your organization. All stakeholders must set aside ego and ambition for the time it takes to implement a transition plan that works not only for agency principals, but also for all others within the organization and the clients they serve. Separating the organization from the identities of the individuals involved is an enormous task, but it’s a necessary part of putting together a successful plan that will maintain the long-term health of the agency and, most importantly, strengthen the family bonds amongst those most invested in the agency’s success.
Author Heather Cochrane Russo is the VP of Public Relations and Development at Renaissance Alliance. Renaissance Alliance is uniquely positioned to assist agencies as they navigate their way through succession and organizational change. We create operational efficiencies and provide an environment of growth that allows agencies to fortify their current financial position and provide the extra capital needed during these times of transition. For more information, contact Heather Cochrane Russo at firstname.lastname@example.org