Why I Ended My Partnership with a Farmers Insurance Agency
For almost 15 years, I gave my Farmers Insurance agency everything that I could – my financial investment, energy and, most importantly, the majority of my time. In return, I received an incredible education, met some of the most skillful salespeople in the industry, and enjoyed a good amount of success.
I started my career as a telemarketer, then became an agency producer (Vice President of Sales on the business card as a “pat on the back”), and ultimately became an equity partner; earning “ownership” in a growing percentage of my book of business. I was in a position to purchase, thus own/operate the remainder of the most successful agency in the history of Farmers Insurance – by their metrics, not mine, for the record. I attended Topper Club and Championship every year I was eligible and the agency never missed a Presidents Council (or MDRT, for that matter). So if all was well, why would I leave?
When I made the decision to leave Farmers to become an independent agent, I was 34 years old. I had built a book of business that was over three times the premium of the average Farmers agent, and I knew I’d have to leave that behind due to contractual restrictions. But I had to think about what the next 25 years were going to look like. No one can argue that there have been massive shifts in the insurance marketplace. Companies are more consumer-direct than ever. I don’t believe the value of a real, live agent will ever entirely vanish, but in order to thrive in this rapidly-changing landscape, I knew I had to dramatically expand my ability to serve a wider variety of risks.
In the simplest possible way to explain it, here’s my line of reasoning for leaving Farmers:
Suppose 20 people are considering spending their insurance dollars with me and my agency. If I want to run an efficient and successful business, I need to help all 20 of those people to the best of my ability. If quoting 20 households takes five hours, and I am able to generate $200 in gross revenue per household, a 50% close ratio nets me $2,000 or $400/hour. Now if my close ratio is only 7%, then I can only generate $280, or $56/hour. By the time I factor in the cost of running my business, what am I netting? Is it enough to grow and operate a business successfully for the next 25 years? Now, the ideal would be to incorporate commercial and life insurance. If I want to generate revenue in those fields, would I be better suited to work a narrow risk appetite in a saturated market, or a wide range of opportunities in any market I choose?
With Farmers, specifically where I was located, my close ratio in auto insurance never got above 10%. (For anyone with real familiarity with the data, we can both laugh at the generosity of that figure later. But for now, I’m not looking to diverge into that debate.) As I mentioned, we worked tenaciously and we invested significant time and money into marketing. Failing to meet the needs and/or expectations of 90% (90%+!!!) of the individuals willing to spend their insurance dollars with me is simply a bad business model. It’s inefficient, bad business.
I don’t blame Farmers for protecting their bottom line. Again, it’s a good company ran by people whom I consider to be very intelligent. But that isn’t my problem or a reasonable basis for the remaining course of my career. Farmers Insurance allows agents to own their books of business insofar that they can generally, under favorable circumstances, sell and leverage their books. But truly, you own your book of business – not your actual business – and that’s a crucial distinction. You sell only what you’re contractually allowed to sell, when you’re in a competitive position to sell it. Further, if you don’t serve just about everything on the menu of products, you’re literally allowing your commission dollars to fall into another agent’s pockets.
If there was anyone willing to take the bet, I would wager that I’ve run more FFR’s than anyone, anywhere, ever (Farmers Friendly Reviews, for anyone unfamiliar). I was always proud of myself for acting with integrity. I would put the best interest of the client first and generally encourage them to do business elsewhere if I felt they could save money. I often explained to long-term clients that I would never want anyone to do business with me and resent me for it, so if I felt there was a reasonable savings to be made, I would honestly tell them to pursue it. I could sleep well at night knowing I was honest with clients.
But why should integrity and fair business practices COST me business?
Why did there have to be an inverse relationship between honestly serving my clients AND growing my business’s revenue? That doesn’t make any sense. Shouldn’t I focus on creating a business model in which honesty, integrity, and true client advocacy are rewarded accordingly with business growth?
Speaking of an inverse relationship, through my independent network and carriers, my close ratio is now above 80%. Instead of failing to provide a solution to nine out of ten people, I can help over eight out of ten people, and be compensated for my services as earned. Rather than the fear of inevitable rate increases causing me to deflect and delay requests from family members, I can be confident in my ability to pivot on my clients’ behalf as needed if one carrier becomes less appropriate than another.
So why would I walk versus purchase a prime agency within Farmers Insurance?
If I were to cash in my equity and take out a loan to purchase the balance of that book, it would have required borrowing a very large amount. Even at a reasonable multiplier considering the value of the book, I was looking at leveraging myself well into the “approaching-retirement” years. So if I was going to be responsible for paying considerable debt over a 20-year period —and my ability to satisfy the debt was contingent on Farmers’ likelihood of competing and stabilizing rates from now through the year 2040— then it became ultra-clear to me that it would be riskier to stay than it was to walk from the revenue stream I had built.
Even if the finances weren’t an issue whatsoever, I’d still be working to outpace the rate instability and moving targets of growth bonuses rather than focusing on my clients: current and prospective. And I’d be struggling with the ethics behind retaining clients and earning business while knowing they could find a more appropriate alternative with another carrier.
How has this decision worked out thus far?
Don’t get me wrong – there’s a lot to learn. I’m familiarizing myself with dozens of carriers and their various endorsements, rates, appetites, and underwriting practices. But thanks to the support team behind me, it has been a surprisingly smooth transition. I’m closing the vast majority of what I work on, and the efficiency allows me to focus on growth efforts in other lines of insurance. I don’t have mile-high stacks of quote sheets that I intend to file as x-dates for use in a fruitless pursuit ten months down the road. Most importantly, I enjoy my work again.
When most of us got into the business, there were initial periods of fun. Closing accounts, winning business, hitting goals/winning promotions, etc. —it was all so addicting. Somewhere between rate change, rule change, commission change, and product change, selling was less fun and more desperate. I’ll get back to where I was in terms of income possibly faster than I had initially anticipated. But in the meantime, I’m having fun again helping the majority of people that I meet, and I feel good about what I do.
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