Has the Insurance Industry Forgotten the Key Drivers of Success?

09 Jun

The sluggish organic growth the insurance brokerage industry is experiencing is certainly a consequence of the general economic downturn coupled with the continued soft insurance market.

However, for many firms this may be further exacerbated by a failure to understand the elements needed to achieve organic growth and a further failure to align their resources in support of progressively higher sales achievements by their production teams. This may have arisen from a lack of precision in measuring organic growth, the elements of which drive behavior and priority of resource allocation. Firms that do not correctly measure organic growth and distill from that definition pure organic growth and it’s implications to alignment of resources in support of producer sales achievement, will find it very challenging to solve the dilemma of sluggish sales.

This article will introduce the concept of ‘pure organic growth,’ and contrast it against traditional metrics and measurements of organic growth. We will demonstrate how measurements of organic growth can cause brokerages to stray from the focal point, or nucleus, of sales excellence, giving rise
to the adoption of ‘band‐aid’ approaches and short, quick fixes that do not generate sustainability in growth over time simply to maintain the perception of organic growth through what has now become a pervasive, and imprecise, definition within the industry. The effects of those short‐term approaches have, in my opinion, contributed significantly to the sluggish organic growth performance reported by the majority of firms in the industry.

Though contemporary measurements have provided value in evaluating and communicating overall growth results, by their very nature they can often mislead organizations into false conclusions about their ability to generate new clients, thereby drawing efforts and resources away from the vital areas of their operations responsible for new client generation. By examining the elements commonly used to track internal growth, it should be easier to create a better metric, which we will define as “pure” organic growth.

With a definition of pure organic growth in hand, we will then examine it’s foundations and implications which may suggest to some readers the need for refocusing efforts and resources within their organizations. Using pure organic growth as a premise, we will then suggest areas brokerages can examine within their sales infrastructure, and questions they can ask, that may help reveal the solution they are looking for in remedying sluggish sales.

The Traditional Way of Measuring Organic Growth

Let us first examine the industry’s commonly held definition of organic growth: “Net topline revenues year over year” as measured by the following components:

1. New/New business: measures converting non‐clients into clients
2. Net/New business: measures converting non‐clients into clients and deducts lost business for a producer’s book
3. New/Existing: from writing new business on existing clients, also referred to as account rounding
4. Cross Sell: writing new business between a firm’s practice groups, such as a new employee benefits client being generated from a firm’s existing property casualty client
5. Change of Book: measures the growth or decline in a client’s business, e.g., in employee benefits, the rise or fall of employee counts which impact the revenue generated from that client, as well as rise or fall of costs of insuring businesses given hard or soft market conditions or related factors.
6. Book Migrations: measuring the revenue gain newly hired producers bring with them, or departing producers take with them to their new organization as a positive or negative factor towards organic growth.
7. Book Purchases: measuring the revenue generated from a book that was purchased as organic growth.
8. Contingents: the measurement of rise or falls in contingent commissions as organic growth. And so the traditional components used to measure organic growth can be expressed by the following formula:

Organic growth = Net/New + New/Existing + Cross Sell + Change of Book + Book Migrations + Book Purchases + Contingents

Three Implied Components to Traditional Organic Growth

The contemporary formula used to calculate organic growth has three implied components:
1) outcomes generated that are directly attributable to producer achievements
2) outcomes generated that are an ancillary byproduct of producer achievements
3) outcomes that are not directly attributable to producer achievements.

Through these implied components we can begin to see problems and ‘traps’ that can draw resources and efforts away from new client generation.

New business, account rounding and cross selling are all direct outcomes from producer achievements. These actions lie at the nucleus of organic growth around which other components may be congregated on an additive basis. This measurement is the beginning of the pure organic growth theory. Focusing efforts and resources to support outcomes directly generated by producers will contribute to sustainability in organic growth.

Contingents are in ancillary outcome from producer achievements. As producers generate new business, a by-product can be an increase in contingent commissions, though other factors such as change of book can contribute equally, if not more in certain instances depending upon market conditions. However, it is a fallacy to consider a re‐negotiation of contingents as organic growth as it was not predicated on an increase in new/new, new on existing or cross sell activity. Focusing efforts and resources to support outcomes generated that are an ancillary by‐product of producer achievements will have no impact to sustainability in organic growth.

Book migrations and book purchases are non‐producer generated outcomes and have no correlation to individual production achievements – they are predicated on a firm’s ability to attract and retain producers either through direct hire or by the capital resources to purchase blocks of business. A
firm using this formula which actively hires or purchases books of business can post phenomenal organic growth results, yet have a lethargic non‐performing base of existing producers. For organizations that have focused their efforts and resources towards book migrations from recruiting efforts, and counting small book purchases as organic growth, what happens as capital dries up for book purchases and/or available talent pools of veteran producers who can migrate books continue to diminish?

Change in book is perhaps the most challenging to categorize, and, recently, it has had dramatic impact upon the industry’s organic growth experience. Does the producer have any direct control over hard or soft markets? Does the producer have any control over the rise and fall of businesses at the micro level or over economic conditions at the macro level? Can a producer, through due diligence in researching approachable prospects, attempt to pursue firms occupying sectors of industry that appear to show promise for growth? Can retail insurance brokerages with enough mass and infrastructure to support research departments and training facilities attempt to identify upcoming growth sectors and direct sales efforts towards those sectors? Can they re‐train segments
of their producer force to shift specialty away from declining sectors and toward high growth potential sectors?

So the issue of change of book is certainly a gray and murky area, and by definition, out of the direct control of producers, but also by definition, within the ability of producers and organizations to influence results or mitigate damages from these externally generated circumstances. Nevertheless, change of book has been the unpredictable but always significant ‘x’ factor within the retail insurance industry’s organic growth results – especially recently.

The Foundation of Pure Organic Growth Extracting a Definition That Will Provide Guidance to Resurrecting Industry Growth

The foundation of pure organic growth lies with the three types of business embedded in the traditional organic growth formula: New/new, new/existing and cross sell. However, the definition must add an important element in order to enable progression of achievement in those areas by producers and contribute to the sustainability of overall growth results achieved by an organization.

We define pure organic growth as:

“The ability of an individual producer within a brokerage to demonstrate progressively higher sales achievements year over year in new/new business, new/existing business and cross sell business.”

The definition is complete, and contributes to sustainability in organic growth results,
because it combines the following:
1) producer ability,
2) progressively higher sales achievements being generated, and
3) an organizational focus toward outcomes directly attributable to individual producer achievement.

Pure organic growth must use more precise measurements than the broad sweeping measurements used to determine overall organic growth, requiring that we focus on the sales pipeline (i.e., a list of prospects and revenues that might be expected from the closing of each transaction identified by each stage of the sales process) as the primary tool:

1) An organizational focus upon increasing the total volume of potential sales in each producer’s new business pipeline
2) An organizational focus upon increasing the average size commission/fees per client in each producer’s new business pipeline
3) An organizational focus upon shortening the amount of time taken to consummate transactions from the beginning of each producer’s sales pipeline to the end
4) An organizational focus upon measuring and openly communicating the commissions/fees derived from ‘won’ cases during the course of a 12‐month period for each producer

Measuring a Producer’s Sales Efforts As You Would Measure a Retail Store Located in a Mall – What to Look For So You Can Align Support Correctly.

To put the above four measurements into perspective, imagine that you just purchased a retail store in a shopping mall. How do you make progressively more money each year with that same store?
Perhaps you would:
1) increase the flow of foot traffic into the store
2) increase the average size sale per customer
3) increase the speed of inventory turnover
4) measure the total sales year over year as the final benchmark. The same principles apply at the micro level to managing pure organic growth.
Now what would happen to same store sales (organic growth) if you chose to spend all your time negotiating deals from your suppliers and forgot to manage the store (contingents)? How about spending too much time travelling and purchasing new stores in other markets at the expense of managing the store (book purchases)? So for organic growth to thrive, focusing on pure organic growth must be the primary driver.

Identifying and Supporting Progression in Producer Achievement

How can organizations align themselves to support progressively higher producer sales achievements? It’s all about producer development and the reallocation of resources to support progressively higher producer achievements in new client generation:

1) Assess your producer’s skill sets against those of the top 5% of performing producers nationwide. Essentially those generating in excess of $200,000 of new business per year. How do your producers match up? What skill sets do they have and what activities do they perform that match, and what’s missing? Determine ‘developmental areas’ that need remedy so that they are ‘mission ready’ for competing and achieving top sales results.

2) Assess your sales management processes and supporting sales infrastructure to determine if you can support top performers and help others achieve that status within your organization. Identify areas of producer activity that are heavily reliant upon your organization’s support mechanisms, and identify ‘choke points’ within your organization that may be hindering producer achievements.

3) Provide standing 12‐month sales training curriculums that support your producers’ desires to increase their knowledge, improve upon their skills, and develop new techniques and processes that will help them compete and win new business. A standing curriculum will benefit developmental hires by providing a training platform, existing producers by allowing them to improve upon skills and performance, and provide an ‘onboarding’ (new hire integration) platform for veteran producers brought into your organization in order to help them integrate into your culture successfully.

4) Perform sales planning and develop sales initiatives in accordance with the sales achievements your producers desire and reconcile them against your firm’s growth goals. This will ensure an alignment between efforts expended by producers with the desired results of your organization.

5) Re‐tool your supporting sales infrastructure constantly in order to accommodate upward shifts in desired achievements expressed by your producers each year. Structures designed for top producers not only tend to keep top producers, but also have a tendency to ‘pull up’ other producers towards that level of achievement.

A final note about pipelines…..I recognize that only a small percentage of producers update and manage their pipelines consistently! However the majority of the top 5% of the industry’s performers do! How can leadership drive the use of pipeline management into the lower ranks?

First, demonstrate that top performers swear by their pipelines. Second, bundle time management tools, research tools, Producer Sales Suites, Lead Relationship Management systems (LRM’s) and Client Relationship Management systems (CRM’s) to the pipeline making it more convenient and
useful to producers to research prospects and set up drip campaigns (or other forms of ongoing marketing or ‘client intimacy’ generating campaigns) and organize the tools they use when they transact their business. Third, tie the issue of leveraging organizational resources, human capital, training and development, etc., to the information the producer records in the pipeline. The pipeline must be established as the information ‘bridge’ between producers and their organizations. Such a bridge can identify and enable the procurement of additional resources to the producer. Once this is understood by producers, a pipeline will be used more frequently and pervasively throughout a production platform.

It’s About Enabling Progressively Higher Sales Achievements!

In summary, organizations that align themselves around increasing the individual producer’s ability to demonstrate progressively higher sales achievements year over year will win the organic growth game. Establishing producer training and development programs, combined with aligning organizational tools and resources to increase pipeline volume, transaction size and speed through the pipeline are the key elements to achieving pure organic growth.

Rainmaker Advisory LLC is a results oriented sales and operations consulting firm specializing in the retail insurance broking sector. Founded in 2008, Rainmaker has relationships with over 5,100 insurance agencies and brokerages nationwide in all practice specialties. Through offices in California, New York and Oregon, Rainmaker Advisory is a leading provider of the tools, resources and vendor partners necessary for successfully growing organizations on a sustainable basis.
For more information, visit or

Written By:

David E. Estrada
Founder & Managing Director of Rainmaker Advisory LLC


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