why the agency in the middle is being squeezed

We’re taking a quick break from introducing our pilot agencies for a special episode on independent agency margins. Listen to 4 agency owners discuss why the IA channel ecosystem has slowly eroded margins for the agency-in-the-middle…and what that means for their future.

Get the latest on indie agents’ fight for data ownership:

Want to read instead? We’ve got you.

Syd Roe 0:00

Guys, What is up? I am super pumped today because we’re sitting around we fit somehow we fit five people around one microphone so hopefully, you guys can hear us. But today we’ve got Seth Zaremba, the one and only from Zink insurance. Robbie Burton, from Virginia. Burton and company Christopher cook ally, Allied Insurance Services from North Carolina. And john Horvath rounding us out back to Ohio. super pumped to have these guys here today, but I’m a little bummed because we were going to record this podcast in the car, which would have been epic. There will

Syd Roe  0:42

be plenty of car rides. This will happen again.

Guest Speaker 1   0:47

That would have been epic, though. That would have been. Yeah,

Syd Roe 0:49

yeah. Try to balance a mic on the seat passing back and forth driving.

Guest Speaker 2


Syd Roe  0:57

Right, right. Yeah. So we wanted to, you know, one of them I was just sharing with john, one of the ways that I mark it is by sharing what I’m learning throughout this process. So

Syd Roe 1:10

how many hours have we had in the car together?

Guest Speaker 1  1:14

All of them.

Guest Speaker 2  1:15

Yeah. Everything since Monday morning for you. Well, Sunday night.

Guest Speaker 1  1:18

Yeah. So it’s just been non-stop. But that’s a grind, right? That Startup Grind

Syd Roe  1:22

that Startup Grind. Yeah. So imagine getting to spend like 30 hours in a car with three of the smartest people in the industry. That’s a lot of learning in a very short amount of time. So I wanted to share with you guys or at least lay some groundwork and talk about a topic that was discussed a number of times over the last couple of days. But before we get into exactly what it is and then how we’re going to solve it, let’s just lay the foundation here. So what I didn’t really quite understand What margins were so like, let’s just lay the groundwork real quick for everybody listening here because we’ve got everybody in different places in the industry tuning in what it what our margins and how do they affect the industry

Guest Speaker 1  2:18

all started off and say that’s been the primary purpose of what we’re doing is the lack of understanding around the realities for the independent agent in the middle. And so we’re being asked to do more and more with less and less comp compensation. And so that that’s uh, those cuts start to get deep when you try to operate a customer experience organization with high growth and with reduced access to compensation and increasing expenses and that’s a really uncomfortable reality of people in the middle and I’m fine with just setting it up this way. The top has solved its margin issues. They’re scaling around me strategies and they have external money that’s funding their operations create scale. And it’s giving them wider margins, where they can compete at a different level. The bottom is doing the same thing with aggregation they are, they have also solved their margin issue by aggregating a bunch of small operations together standardizing negotiating better rates, and they’re getting money. And so the guys in the middle, the meaningful relationships, both from the carrier side, and I think deeply invested in the community side, are being asked to maintain the values of the independent system with disproportionate compensation with lack of scale, and therefore a compressed margin and operating revenue that allows them to do what we all want to do. And so that reality is hard. It is cold, it is true. And nobody’s going to solve it for us. And so I think, you know, we’re a bunch of big boys, trying to figure out how to solve it for ourselves. That helps explain Yeah,

Syd Roe 3:54

yeah, well, and I think we’ve talked about moments of scale for agents. And margins essentially are the fuel for that, right? I mean, how do you? How do you hop to the next level, if you don’t have the resources to do it,

Guest Speaker2  4:08

right, you can’t grow without investment and there has to be more margin to have the funds to properly invest in your future and in your growth.

Syd Roe 4:17

So, right now, it seems to be a fact that agents are tightly squeezed on their margins. Is that in comparison to what it was? Is that in comparison to outside the insurance industry, like how do we, how are we defining tightly squeezed margins if that makes sense?

Guest Speaker3  4:39

Yeah, I could say a couple of things there. Certainly. You know, I’m a second-generation agent. So I’ve got some longer view and mentorship from my father, which is something that you know, truly cherish. And I would take it from a couple of different directions. First and foremost, it’s been my responsibility to administer and direct our Businesses 2015. And one of our, you know, I’d have to admit that one of our biggest flaws is the lack of accuracy in my decision making, right? What’s the cost of mistakes from our, you know, eventual decisions that lead our business than what we decide to spend our precious resources on. Not all of it pans out and as a huge success, I don’t get a return on every decision. So having more information and more clarity, more line of sight, all the way through and with which to make decisions is a huge opportunity for margin. Right, that’s first and then second, you know, just the general trend in sort of some non-industry specific things like cost of compensation, cost of benefit packages, those squeeze margins out. But then there’s also no question that you know, what was designed to be just a distribution arm originally, you know, carriers figured out along the way. Certainly that you know, will underwrite will process will service. And you know that model is changed quite a bit. I mean, my father started with just a couple of people helping him in the office and he would go collect information, go get with the underwriter, they do all the work, and he’d go out and sell them. That was basically his whole, you know, that was his sole responsibility. Obviously, that’s changed quite a bit over the years as well. Can I add?

Guest Speaker 1  6:24

Yes, here I picked all these guys so I know a little bit more about them. So you’ve got now you’ve got that hundred-year-old perspective and DNA level understanding what it means now you got john Horvath, john chose to get into this industry. So he was actually in an outside industry until not too long ago. And it might be interesting to hear about your come up and understanding how money actually comes in and how hard it is. It might be interesting to hear from a guy who’s new.

Guest Speaker 4  6:52

Yeah, I didn’t choose to come in. So maybe I’m crazy. But

Guest Speaker 1  6:57


Guest Speaker 4  6:59

I’m thinking about this. Man, I gotta rethink my life decisions. No, I, you know, I came from an entirely different industry. I had my insurance license for about 10 years because I just knew there was an opportunity to buy. It was my in-laws, business, which is we just had her for a year. But I was in a different industry when I first came in and bought the agency almost four years ago. And my wife and I did and when I came in, I sat down and I worked for a big corporation, we were at Tech corporations, we dealt with a lot of universities on the technology side, and looked at their structure of models of how they did things, institutionalize across different campuses, universities, things like that. So I had a good tech background in that in systems background. And I came in and I sat down on day one, and I looked at all the resources that I had, and I basically I thought, Oh, man, I’m screwed. I’m like, I don’t know where the money is. I don’t know where we’re spending money, any ROI on anything. You know, I can’t go to my marketing department cuz I don’t have a marketing department.  you know, all things that we had, at the drop of a dime in a big corporation we no longer have anymore. And I was lost. And it’s interesting. That’s my father in law who he tried to stay up as much as he could. And he did a good job. But he said, Listen, I know this guy, Seth. I’ve been working with them in different areas throughout insurance. I don’t understand why it says half the time but I think YouTube would connect. So he put me in contact with Seth almost right after I took over the agency. And Seth and I sat in this right in this room and he started telling me about neon and all the problems and issues that I saw already. And he said we’re going to fix this. And if you look at other industries, and what they do and how they actually invest, our industries are very backward. It really is. And if you don’t notice that until you’re out of it, or you come into it, and I can tell you, other companies have been doing not exactly what we’re trying to do. With neon here but have been doing similar things for a very long time and are very successful at it. And the moments now because you can’t just keep bleeding, resources, money, and just throwing money at the margins, aren’t there? The margins are not there going back to the margins are not there? And we all know it. Yeah.

Syd Roe  9:21

So let me ask, and this is the one thing that I love about you guys is that you not only look at your individual businesses, right, okay, how is a Life Insurance Services performing? How’s Burton and the company performing? But how do you fit in the entire ecosystem? What how can you sort of move throughout the ecosystem in a way that’s more efficient and how are other players moving and affecting you? We had a conversation yesterday on the way back, I think it was our 29.67 that you know, we were talking about how when reinsurance companies they can only put so much money In the bank, and when they’ve got, for lack of a better term fluff, I guess monetary fluff, they have to put it somewhere goes into the carrier’s will that bleeds down into insurance agencies when the rates get cut. Lower and it’s unexpected. Right. So I guess my question being clearly there are very tight margins on Independent agencies. Is that an ecosystem problem? How do you? Why is that happening today? Like, what is the root cause of these lower margins? Is it something that carriers you know, reinsurance companies are experiencing too? Is it only the independent agent? How are they all working together? That was a lot of questions.

Guest Speaker 2   10:48

Yeah, I’m not sure I’ll fully answer that. But I do think it’s important to back up to the fact that unfortunately, a lot of independent agents don’t understand this. You said it’s a universally known fact that margins are squeezed and margins are tight. And that’s very true for anyone that’s paying attention. They know how it feels. They understand they only know how it feels, but they don’t know why it’s being done to them, right? I mean, I remember being a kid in this business and friend agent said to me, Well if you’re not making 13%, you can’t win in this deal. You have to be making 13 points. If you’re not, there’s no way to win. And my thinking, oh, gosh, he knows something more than I do and starting to pay attention and pair, myself and my agency, to my peer group and to others and to try to understand how to really make a profit in this business. So I’m afraid too many agencies aren’t paying attention to the details. And they’ve allowed this to happen to them. And there are a few folks who have woken up and said, that’s not gonna continue to happen to me.

Guest Speaker 1  11:52

Yeah, and here’s what’s happened. Here’s a cold, hard fact. Every layer of this industry has a pressure really If reinsurers don’t like something, they can drop the price. And they can distribute broadly. And, and same with carriers. carriers are struggling, they can always take rate, they can always manipulate costs or expense on that piece of it. And it’s the same with customers. If customers are experiencing any pain, they can just switch. And so if you look at that stack, reinsurers have a way out. carriers have a way out. Customers have a way out the weight of the model is now sitting on us. And shame on us for not evolving over time for letting those conditions exist. And so we’re the last one where the pressure has nowhere to go. And so you have two choices. You can write hot and just blow up at the end. And that’s what you see. Just hundred-year-old agencies a sellout boom, couldn’t figure it out. Or you can get in and figure out in the space that we are giving with the restrictive nature of the ecosystem for us specifically, we can start solving our own problems. What’s interesting is when agents decide to solve that problem understanding and manipulating the margins for their favor, it actually improves the whole ecosystem. So now all of the opportunity goes upstream. So instead of downstream pressure, causing all sorts of pressure valve blow-offs, you can actually elevate the quality and structure and security of the whole stack. If you allow agents who are on the front line, the distribution, the sole distribution point, to have the room to be really good. And we’re really good customers come and if we run fishing operations, we generate profit and those profits make carrier successful, then reinsurance is healthy again. And so we have taken a completely backward approach to this. And I think what we’re advocating for is somewhat of a revolution because no one’s going to save us. I mean, what does that mean, Larry Bird is not walking through that door, right? And so nobody is seeing our critical issue uniquely, and nobody’s taking the lead. And I think that’s what I love about the particular people and all the pilot agencies were just sick and tired of being sick and tired. But that is what’s happening if that helps answer your question. You want

Guest Speaker 3  14:10

to follow that up, sir? I mean, I think that really nicely frames the issues, right? We’re making less money. We don’t know exactly where our margins are, because we don’t have the available information to calculate it well, but we know we need to hire a marketing person and we need to hire and it because you’ll make it up in volume, right? It’s just it’s like, you know, it’s like the guy who you know, went down to South Carolina and picked up a truck full of watermelons for $1 piece came up and sold them for $1 apiece didn’t make any money and said, Man, I need to get a bigger truck. Right. You know, so that’s the problem. We all know it exists in whether or not you think about it in this way or in different ways. As I said, Every agent feels it. We know it to our core. There’s the problem but the evolution devolution is, you know, what is the solution?

Syd Roe 15:05

Thank you for seeing me up there. Well, I’m learning.

Syd Roe 15:09

Yeah. So at a high level, but conceptual abstract level. Okay, we have to reverse the system. What does that look like in the daily actions of an agent? It makes sense. So what’s the start of that? Like? Where do you

Guest Speaker 1  15:27

say in two words, domain expertise. So you got to know what you got to know. And you got to do it. Well, to start the upstream flow of less restriction, more profit, and more economic health in the channel. You got to have domain expertise, meaning you have to be able to run an independent agent in the right way. And the supporting ecosystem has to support it. So rather than seeing us as adversaries on some level, which sometimes we have made ourselves out to be, we are better served to enable independent agents to understand the foundational elements Which is distribution, nobody else wants to sell policy reinsurers aren’t standing on the other street in Winston Salem saying, Hey, want to sell a policy and how many carriers would ever want to be in front of a customer with a billing problem? Not many, right? And so we’re the plan. And so by enabling domain expertise within an independent channel, we now create a whole ecosystem of how often so we need the tools, we need the community. And we need the scale that we could achieve to have that domain expertise. Because here’s what I know, if you equip independent agents with the right tools, these guys will figure it out. Maybe faster than anyone and I don’t know if it’s a combination of just dumb luck, country wit, or maybe a little bit of criminal intent. But it’s just a crafty group of fellas. And ladies. I mean, these are the last cowboys on the range and given a fair fight. They’ll figure it out every time but they need the expertise to do it.

Syd Roe  16:59

So domain expertise would an example be if you don’t mind me sharing so you and Robbie have collected about 10,000 Welcome cases, I guess. But inside those cases, there are behavioral data performance data about not just the consumer, what they’re asking and how they’re interacting with your agency, but also what your team is doing, how they’re interacting with the customer, and also how they’re interacting with the carrier. So for example, let’s say somebody calls in with an endorsement, gotta change, you know, got to add a brand new TV or something to my renter’s policy, right. Okay, so how many touches does it take for us to solve that issue from start to finish from when the customer calls in all the way up until everything’s wrapped up with the carrier and now you’ve notified the customer and they can go on their way Right, how many emails how many phone calls, how many text messages, how many papers, signatures, all of that stuff? You guys are tracking in a very structured way, what that process looks like. And through that documentation, I’m guessing I’m using air quotes here, domain expertise, right? Having that knowledge, you’re able to approach the carrier and say, Look in aggregate, this is how much time extra time these processes are costing my team because of the friction on your end. And so how can we work together to reduce that friction so that we can give the customer a better experience and lower the cost and increase my margins? So is that in it? Would that be an example of what you mean by domain expertise? Or

Guest Speaker 2  18:55

as we wrote around this week, for a couple of days, I made notes of just

Guest Speaker 2  18:57

amazing things that were said that I wanted to stick with me for the foreseeable future, and the one comment I made in regard to that question as a big question, the margin is in the relationship, we can regain a lot of these margins by understanding that relationship. And that’s not just our relationship with our client. The independent agent focuses on that too often. That’s our relationship with our carriers. That’s our relationship with our team members. That’s our relationship with our financial health, understanding the whole thing, the margin is in the relationship and these cases do allow you to understand what that relationship is, and thereby improving

Guest Speaker 1 18:38

everything is just an interaction. It’s really the term we’re looking for here. interaction with your customer’s interaction with your teammate’s interaction with your carriers, underwriters claim adjusters everything. And within every interaction is our expense. That’s where 100% of payroll goes is it and so by looking at interactions with everybody in the ecosystem, that relationship Shift the margin is in all the relationships and the interactions that are there. And if we can understand those who are responsible, who is best positioned to help, we can change all sorts of things like customer experience, as our business performance, as our carrier results, like reinsurance treaties, all of its there, we just never looked at those things as factors we always have defaulted to what we were taught. And that now, it may be in a past time that was okay. But as the margins have compressed, and as the fat has been trimmed, now we have to get down to this. And so evolution, survival, whatever it is, we’re at the point where we need to understand on a granular level, what a relationship it is and what the true costs are.

Guest Speaker 3 20:45

Yeah, that’s awesome. Right? And I look at this, probably because of my background and what I get exposed to, you know, come from a manufacturing region. My sisters, my sister, and her husband own chocolate. manufacturer right there a producer. So, when you look at their business, I mean learning to read the financials of a manufacturer has been a real education for me because they do things in a lot of ways much better than the way we do them. I think we should do it why? I don’t know it just feels right. Okay, go ahead. No, they don’t if you talk about margins getting squeezed you know if the price of gasoline goes up a little bit or the, you know, that affects all the distribution of all of their raw materials, I mean, the margins and manufacturing are non-existent, right, you can’t make mistake so the way they deal with that is through barcoding and ultimately tracking every little mind you know, minute detail of everything. So they can look at past history and start to you know, predict how much sugar to buy next month, how much chocolate to buy next month, what they can expect to do what their margins are finite Li on every single product they sell. So their pricing models are appropriate. They make the right decisions on hiring because To stand, you know, additive and incremental cost and all of those things, and if they don’t do all of them, they’re going to go by the wayside. They’re going to close their doors. And so I, you know, I would just draw the correlation to make the argument that we’re just at an earlier stage of evolution than manufacturing our distribution chain, because of the tools we have at our disposal, couldn’t get that information. So it’s not that competitive while we’re here. Here we are. And if we don’t learn to do all of those things, and make decisions that accurately all the time, then we won’t serve as the best distribution system for our industry.

Guest Speaker 1 22:40

That sounds like domain expertise

Guest Speaker 3  22:42

is dumb, and they only have domain expertise. That’s right.

Guest Speaker 4  22:46

And I think another piece of this too, is when we’re talking about margins. Something has seen this industry is that there are set roles right so there’s they would always have their commercial teams, their personal teams and didn’t matter if you’re tough. See paid CSR was sitting there doing certificates all day long when the person you just hired is doing the same amount of work. It’s no offense to anybody, but the new person shouldn’t be doing the new person, should we do the certificates and the person who has the customer relationship that should deal with the customers? You’re paying for their expertise, right? And that’s something we don’t do in this industry. It’s like, well, you’re a commercial CSR. So you do everything now, but now we can actually break it down to how much time is that commercial CSR spending doing certificates which you can train someone that’s an entry-level position, how to do that, or you can, you know, you can outsource it to a VA if you want. So I think that’s even more important, like where you know, can we shift the in our office, can we shift some of the responsibility when people are overwhelmed or overworked or maybe doing work that they shouldn’t be doing when it’s much more important for them to be customer-facing? And I think this is the part that we can pull out of that so margin wise because then I can maybe hire two people. for the price of one of my top CSRS hours to do the work. So they could be in front of the customer. So I think there’s, there’s more of actually getting into, you know, just throwing more people at it isn’t the best thing it’s let’s figure out where we can use those resources more effectively, to get our most bang for our buck for what we’re paying.

Guest Speaker 1 24:15

That’s fractional units now, so we used to think of units as I have five people, you have five units that we can break up now into 50 units. And so the understanding of fractional capabilities and resources available the third party through carrier relationships within our own agency within new roles within different service types, by breaking everything up to its lowest common denominator, and allowing it to find the margin where it is most profitable. We can be successful and it also allows us to manipulate our organizations in a way that can really put the customer out front because that’s where the what we’re talking about here. By the way, we’re all in the factory. I don’t care for your carrier and agent or her reinsurance, we work for the customer. And now so if we can fractionalize our organism And understand them and have that domain expertise what the cost of gas does to our whole organization, we can now respond quickly and accurately and be agile. And we can always maintain the customer experience and the margin, which is being clawed away with these basic unit measurements. They’re just they’re not accurate enough.

Syd Roe 25:18

So instead of seeing and here’s what’s so interesting is that I think it seems like there’s there may be people out there who agents out there who see their agency as a sales center, right? It’s just, I got to pull money in, and then I have some expenses that I gotta payout. I gotta, you know, but I need to just keep pulling money in and you got I mean, it’s kind of blowing my mind. I’m processing as I’m listening here, but it’s, you’re really seeing it as a business, right? And how, how splitting out the different departments and even the different processes in each department. What is everybody doing? And how much is it each piece costing me and who’s doing each piece and how much am I paying them versus and then how Is that piece generating in revenue? I mean, that’s, that’s like a whole new level of running an insurance agency, right? And then how does that piece interact with and fit into the rest of the insurance puzzle?

Syd Roe 26:17


Guest Speaker 3  26:18

it was like that one step further. And then after I get, you know, myself organized and my own house in order, let’s go find, you know, 13 of my best friends. And let’s just compare notes fully across the board and see and see how much we can learn then. And that’s, that’s the evolution of our internal margins, right, which is always focused on the customer, because we’re doing something better, we’re rewarded, that’s rewarded by the customer. But you know, maybe the next step is to evolve to be better suited and offer more value to our carriers.

Guest Speaker 1  26:54

Right and how we can do that. And if you could solve it for 13. And if you could document that If you could understand the mathematics behind fractional units and their margin value within an organization, and if you could standardize it and support it with repeatable technology, well, my goodness, it’s almost like someone knew what they were doing, isn’t it? Because then you could roll it out to a whole industry of like-minded agents who value that. And then a whole industry could support what independent agents do which really supports the communities in which they do which there’s nobody on Wall Street trying to do and so and now we can affect more than just insurance we can affect lives. And isn’t that the noble purpose that we’re all seeking?

Syd Roe  27:36

Is anybody else’s mind blown? Is it just me?

Guest Speaker 3  27:44

You know, and that’s a wonderful way to frame it, right? Because we’re a part of people’s lives. We’re a part of our communities, right? It’s not about selling insurance policies. And what we do is we help people sleep at night, and we manage their risk. So when we talk about evolving In the insurance agency evolving the relationships with our partners in both directions, what we’re truly talking about maybe at the end of that road is evolving completely the transfer of risk. And even if we evolve it just a little bit, if we’re able to use the information that we collect, to provide more value to our carriers that we work with, and allow them to deliver their products a little bit more accurately, for a little bit lower cost to them more properly rated. The customer pays less the carriers to have fewer claims

Guest Speaker 1  28:32

when we’ve truly evolved the whole lot. It’s even better than that. Because we talk about margins. We’re not talking about math. I mean, what it independent agents do at the margins. I know tons of independent agents now there are very few driving Ferraris.

Guest Speaker 2  28:44

Yeah, they all reinvest it back into their communities. We talked about last night’s families. We talked last night Robbie talks about some things that are at a very deep level but when he boils it down to nothing left the one thing is he wants to say Martinsville To make sure his community continues to survive, I think every independent is like that they’re

Guest Speaker 1  29:05

putting their heart and soul back into the places they love. Yeah, we’re not talking about margins, man, we’re talking about making enough money so we can do the right thing. I mean, we can make this a math movement, we can make this a technology movement, or we could just make it what it is, which is a loving opportunity to be good caretakers and stewards of our communities, and the risks that they bear and that that is the noble purpose. I mean, the margins are necessary, and that’s why we’re doing the hard work. But the margins are really the machine that turns us back into what we’re all going after funding is funding for your why. And that’s why when, when, and this is anybody on the channel, listening carriers, we’re not looking for more money, we’re looking for better margins so we can be more meaningful and So help us be more meaningful. Help us, help us be more successful and we will do what is This independent channel’s brand which is, uh, take care of you

Syd Roe 30:06

guys, I think we’re gonna have to Mic drop on that note that that was That’s powerful. It really is the truth. Yeah. And I yeah, we saw on an agency yesterday morning. Was it yesterday morning? blending together? Yeah. He’s got five locations in the middle of Ohio.

Guest Speaker 1  30:27

Yeah, that’s the middle of Ohio. Yeah.

Syd Roe 30:30

You walk into his office, and that guy has so much pride about what he does for that the people that he represents he’s in the agriculture industry, so the farmers and he knows so much about their lives. And he cares so much about his team. We were in there talking about neon, and as soon as you stopped explaining what neon was, he just turned around, looked at his team, and said, Well, what do you guys think? You know, like that’s, that’s a guy you want to help move forward, you know, so All right, any, any final words? any parting thoughts for our amazing listeners today?

Guest Speaker 1  31:08

Stay tuned. Stay tuned.