S3E2: The Looming Change

Watch this episode on YouTube: https://www.youtube.com/watch?v=vyJO_sj5HXY

In this episode of the Agency Navigators podcast, Roe and Don Polczynski discuss the current "hard market" and its historical impact on independent insurance agencies. While this hard market has boosted revenues and profitability for agencies, such conditions won’t last forever. When the market shifts to a softer state, many agencies may be caught off guard and experience a noticeable drop in their key financial metrics/data. The lack of insight from agency management systems and overall agency technology is adding an extra layer of difficulty to prepare for the looming changes.

As CFO’s, our job is to remove your blind spots and guide you through navigating the changes that lie ahead and make strategic, proactive decisions.

Listen to this episode to stay ahead of the curve and prepare your business for success in a rapidly evolving world!

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Transcript

Roe Polczynski: Hi, welcome to the Agency Navigators podcast. I'm Roe. 

Don Polczynski: I'm Don. 

Roe Polczynski: We are from AgencyCFO and today we are talking about the looming change. What have we got? 

Don Polczynski: Well, the looming change is really all about the hard market. We've been experiencing now for In the last couple of years, a hard market, it varies by geography, but it's supporting, it's inflating revenues essentially, whether it be mid single digits to we're seeing high double digits.

Don Polczynski: There's a lot of growth that agencies are experiencing purely because of the hard market. 

Roe Polczynski: And our friends at agency performance partners have done a lot of work with. It's helping agencies on the hard market and selling through it. And we're seeing it in the financials. Now as CFOs, we're always strategic.

Roe Polczynski: We've always got to be ahead of the game and we are. The looming change is staying ahead of the hard market because it's going soft. 

Don Polczynski: Well, and when it does, I fear that a lot of agencies are not prepared. 

Roe Polczynski: The pain points. 

Don Polczynski: Absolutely. My sense is. We work with a lot of agencies and we see the financial results.

Don Polczynski: The hard market has been a benefit to the financials of most agencies. 

Roe Polczynski: Maybe not organizationally, may not be 

Don Polczynski: organizational challenges, but the financials, essentially, the revenue is getting a boost, and some of that revenue is turning into profitability. I would have to say for the vast majority agencies.

Don Polczynski: The hard market has been very good financially, 

Roe Polczynski: but nothing lasts forever. 

Don Polczynski: Yeah, and I fear that many agencies across the country are going to get caught off guard and they're going to say what happened when all of a sudden this nice double digit revenue growth they're experiencing goes to zero or even negative.

Don Polczynski: Profitability drops a few points And they're going to say, what happened? 

Roe Polczynski: And when we think about the fear is this impending pain because it's coming and the AMS systems are not showing it. 

Don Polczynski: No, unfortunately I, and I fail to understand why I, I haven't seen an agency management system that can tell us how much.

Don Polczynski: of your book is being impacted to what extent by hard market rate growth. So when we have renewals on average, you know, what, What's the premium growth? What is the annualized commission growth? The agency management systems can't tell us. 

Roe Polczynski: And as good strategic financial advisors, we are staying ahead of the curve.

Roe Polczynski: And we're doing this through this intelligence suite, which we've talked about before. We are prepared for this industry change. 

Don Polczynski: Absolutely. And, you know, we work with our partner agencies. Here's, you know, showing them, here's then the historical impact of the hard market. And here's what it will look like when, let's say, let's say we go to a flat market.

Don Polczynski: Well, here's how your financials are going to be impacted in the future. And it's going to be dramatic for many, many agencies. That upcoming change will be dramatic. Be a dramatic financial impact. 

Roe Polczynski: So we promised a deeper dive into the intelligence suite. Absolutely. And reach out if you guys want to see it live in action.

Roe Polczynski: Just reach out to us. We will happily demonstrate it one on one. But the first part of this is a clarity of numbers. 

Don Polczynski: Absolutely. And, and this is both financial for, you know, revenue, profitability. So we provide that clarity, new business and retention. So that's, you know, you must have those key points of clarity, but the second part of that financial clarity.

Don Polczynski: And that one that's missing for the vast majority of agencies is clarity around the book of business. And that's what. That's a blind spot that we are seeing in our industry, and it's, it's a dangerous blind spot. 

Roe Polczynski: And people are picking up on it a little bit, I've heard little bits, but this is, when you say the book of business, how are you doing it?

Don Polczynski: What we do is a data extract. You know, right out of the agency management system, we extract key data points from the book of business and we do we load it into our tool. We do some massaging. We do some data integrity checks. We do some data. 'cause the whole 

Roe Polczynski: data integrity is a whole different, it is a whole nother different.

Roe Polczynski: That's a whole, that's a, that's whole nother, that could be a [00:05:00] podcast unto itself. 

Don Polczynski: That's a whole nother episode. Yeah. But we we're there to help. 

Roe Polczynski: Yeah. . 

Don Polczynski: And once we do that, the end product is, we are able to deliver back a tool mic Microsoft Power BI tool. 

Roe Polczynski: It's an interactive dashboard that will not just a PDF Oh.

Roe Polczynski: It is live. 

Don Polczynski: It allows agency owners. I, through just click, click, click, you know, five minutes, they can look at their book of business in almost infinite dimensions. 

Roe Polczynski: And we, by doing so on the side panel, there's these slicers they're called. Absolutely. I've learned new terms in this. Absolutely. And again, Adam is very involved in this and whether you can slice it by producer, by By CSR, by line of business, by profit center, however your agency is set up.

Don Polczynski: In any combination. 

Roe Polczynski: Mm hmm. 

Don Polczynski: And that's what, and that's what allows you could, it's almost infinite. When you start combining, I want to see this producer in this department for a specific [00:06:00] policy type. Wow. To do that conventionally, if you could do it it's a, it's a massive undertaking. You run a report, get the raw data, and then what are you going to do with it?

Don Polczynski: What this tool allows, as I said, is to get a complete understanding of your book of business, all the dynamics, look at it from many, many different dimensions, and to be able to accomplish that every month in about five minutes. 

Roe Polczynski: Alright, so first Is it really real? 

Don Polczynski: Oh, absolutely. It's real. 

Roe Polczynski: All right. Why is it really real?

Roe Polczynski: What, what have we done as agency CFO to ensure what we're looking at? 

Don Polczynski: Well, first of all, we work with partner agencies on data integrity. So what we're looking at for every policy, is there a valid premium? Is there a valid commission amount? If not, we can fill in some of those blanks with some estimations, but we also report back and say, look, these these are elements need to be cleaned up.

Don Polczynski: These policies are missing data points. And if you want to get a better product, you know, go back, do a little work, a little cleanup goes a long [00:07:00] way. And we've had agencies unusable to being top notch, 

Roe Polczynski: you 

Don Polczynski: know, 99 percent integrity. Because 

Roe Polczynski: we give it an integrity score. 

Don Polczynski: Absolutely, in weeks. 

Roe Polczynski: In weeks. So, then what we did was, once it was, the development, and we did the beta test with a few select clients.

Roe Polczynski: They were on Applied Epic. It was easy to extract the information and you, this has really been tested. 

Don Polczynski: Absolutely. And now we've gotten very, very good at it. So we know our way around data and we've been able to now roll this out with almost any agency management system. So if you're on AMS 360, if you're on Hawksoft, if you are on IMS Anatech, QQ Catalyst, you name it.

Don Polczynski: Now search. We know how to, one, extract the data, two, to analyze it, and three, to put it in a tool. So the, the real power of this is, if you're running Microsoft Epic, I'm sorry Applied Epic, or you're on VertiFOR AMS 360, Our tool, from the agency owner perspective, you would never know what system you're on because the tool is consistent regardless of the agency management system.

Roe Polczynski: And as this gets rolled out, further beyond our partner agencies, If you are in a mastermind group and you want to have something that you can all have comparable data, the intelligence suite is there. Because now let's get back to where we started, the looming change. For the first time, we're seeing the visual impact of rate.

Roe Polczynski: How are we doing it? 

Don Polczynski: Cause it's super cool. It jumps off. 

Roe Polczynski: It does. And 

Don Polczynski: for me, it never gets old when I look for the first time we get their data and we put it into the tool. The first thing I look at. is what's their trend of their customer count? And oftentimes we're seeing it negative. Then I look at, okay, how are they trending on policy count?

Don Polczynski: And it's negative. And then we look at commission and we look at premium and they're the opposite story. They're going up. 

Roe Polczynski: Yeah. 

Don Polczynski: What does that tell you? Well, that tells me as a CFO is The hard market is bolstering commission revenue and premium when we're apps that actually in many, many cases are the foundational element of our, our customer accounts.

Don Polczynski: We actually have fewer customers and it trickles down. You can see it go down every month policies and you can see it go down every month and those two are opposing and that is a hard market. But when the market flattens, Well, that game is over. You know, if your customer account is going down and your policy account is going down in a flat market, the likelihood is your commission and your premiums are going to be going down, and that's going to be a very different financial landscape.

Roe Polczynski: And to do this, capturing this book of business, it is literally a snapshot in time. Yeah, absolutely. Because it's ever changing. And we've been on it for quite a while, capturing it monthly, so that we can come up with these comparables and these visual elements. This has not been easy. Yeah, absolutely.

Roe Polczynski: This has been harder 

Don Polczynski: than I imagined. Yet the result is well worth it because when you can see your book of business trends, the story is so much about the trends. And what we see is a great point of learning for agencies is when you, when you, when you look at your customer count, your policy count, it, it's not negative one month and up the next month and down and up.

Don Polczynski: No, we're 

Roe Polczynski: not seeing 

Don Polczynski: it. We're not seeing it. There's two main scenarios for the, for a lot of agencies. It's down. We lost a few customers this month. It's the same story next month, next month. I call it inertia. Once that trend is established, that trend stays consistent. When the policy count starts dropping, that trend stays consistent.

Don Polczynski: And that's a big point of learning. And that's been one of the big surprises to me. It's not variable. It's either generally we only see two trends. You're either on a downward trend or an upward trajectory. Nothing in between. 

Roe Polczynski: Yeah, very, very true. So having this leading indicator in this book of business and understanding it separate from the financials, because we still have our financial core.

Roe Polczynski: We are true to who we are. 

Don Polczynski: Absolutely. 

Roe Polczynski: How did the two intermingle? What's the relationship? 

Don Polczynski: When you run your income statement or your balance sheet, it is the most historical information. That you'll ever run. You know, that information is the product of things that happen essentially could be 12 months ago What's going on in your book of business is pretty much real time and ultimately Your financials your income statement balance sheet are going to be a reflection Of what is happening in your book of business today?

Don Polczynski: It's the 

Roe Polczynski: leading indicator. It is 

Don Polczynski: your book of business changes first the financials I always say, or at the caboose of the train, the you know, the the book of business is kind of in the middle of the train. So what happens there will ultimately flow through later to the financials. 

Roe Polczynski: And in the end, what we're trying to do is educate using the financial model, the monthly reports the power BI dashboard, the whole intelligence suite.

Roe Polczynski: It's to educate not only us as CFOs to give the guidance. but agency partners, the industry, and pretty much coming together because we know changes are looming. Let's, let's stay ahead of them. 

Don Polczynski: Absolutely. So we want to remove that blind spot, but so much for owners and leadership teams with this information, it's actionable.

Don Polczynski: They can make better decisions. They can address things much sooner. So they aren't caught off guard and then they're in a crisis mode. You know, months later when it's, I don't want to say it's too late, but the damage largely has been done. 

Roe Polczynski: Absolutely. Inertia. That's the word of the day. Thank you so much as always for listening in, reach out to us.

Roe Polczynski: I'm row at agency CFO. com. 

Don Polczynski: And 

Roe Polczynski: we're happy, happy to have any conversations. Move your agency forward. Thanks so much. 

Don Polczynski: Be financially well.