Uncaptive Agency: The Future of Insurance, Ep. 4

As technology evolves, insurance agents run the risk of going the way of the travel agent, replaced by technology. For some customers it is already happening, through carrier portals and premium comparison sites. What can insurance agents do to stay relevant in the changing field? 

While customers nowadays have all the information at their disposal online, there is a big difference between information and expert advice. This is where you, as an agent, can provide the most value.

Join me as I discuss the future of insurance agencies on my podcast, Uncaptive Agency: The Future of Insurance, with Frank Pennachio and Susan Toussaint of Oceanus Partners.

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Tony Caldwell:

All right, I'm Tony Caldwell and welcome to another episode of the Uncaptive Agency: The Future of Insurance, specifically the future of insurance distribution and the insurance agency business. And I'm really excited today to have with me two outstanding guests, Susan Toussaint and Frank Pennachio with Oceanus Partners. They're down in Florida. And while Susan is somebody I'm just getting to meet today, I've known Frank for a really long time. Frank is a worker's compensation genius. I thought I knew worker's compensation 20 years ago, and found out that I was like Demosthenes stumbling around in the dark. So he helped me learn a lot and really build a terrific program inside our agency for which I'll always be grateful. And one of the things about Frank and Susan is that they are forward thinking people. They are changing the way insurance gets sold and distributed, and they coach people and teach them how to do it. So I'm really excited to have you guys with us, welcome.

Frank Pennachio:

Thank you, Tony. It's great to be with you.

Susan Toussaint:

Thank you very much Tony.

Frank Pennachio:

Thanks for the invitation.

Susan Toussaint:

Pleasure to meet you.

Tony Caldwell:

Nice to meet you. And so what we're talking about is where is the insurance agency industry headed? People have been worried ever since I've been in the business that there wouldn't be an insurance agent in the future. We're always going to be kicked out of the business by technology, by something. We're still here. But, people still do wonder what's it moving to? And the fact that we're having this amazing conversation today on Zoom means that geography isn't as relevant as it used to be. Technology is certainly taking over a lot of the business. So we're just exploring where we think it's going to go. And I'm really curious what you all think the insurance agency looks like, say, five years from now compared to today.

Frank Pennachio:

I think we're going to see increased pressure coming from insurtechs especially whereby the smaller accounts are being targeted. This business has been increasingly commoditized. Literally billions and billions of dollars being spent in advertising every year to talk about price and ease of use. Agencies are seeing literally billions of dollars now being invested in the insurtech space and in other automation to take away their clients. About half of it is going into distribution, half of that money. The other half is going into underwriting and claims. Carriers are starting to align with insurtechs. So in addition, we've seen the business to consumer market, we've seen the business to business market. We have a whole new market evolving now, the business to business to consumer market, with auto dealers coming in and auto manufacturers coming in, Tesla and the like. So there's a lot of pressure. Agents often say to Susan and I as we go around the country, "Well, what we sell is so complex and so difficult, we're not going to go the way of the travel agent or the mortgage broker." But, when we really push back a little bit, we find that they're not providing a lot of value or insight to smaller accounts.

Tony Caldwell:

You know, that's interesting. I read an article just this week in the Insurance Journal, in fact, the editor of the Insurance Journal's article this week is about that very point, quoting a couple of surveys showing a big disparity between what agents think and what their clients think. I want to say it was like 95% of agents feel like they're creating value for their agency, and about 70%, if I'm right, of the clients thought that. And so that's exactly to your point.

Susan Toussaint:

And that's not really getting any better, Tony. We're seeing a lot of surveys come back, a lot of research saying that buyers... One of the reasons why retention rates are so high in our industry, somewhere between 87 and 92%, is because most buyers feel like nothing new is being presented to them, that people are showing up, not necessarily understanding the unique risk to their business, not necessarily understanding the new challenges within an industry, not even being sensitive to the role of the organization of the people they're speaking to. And so there's a lot of opportunity, I would say, for producers and agencies to really refocus their mindset in terms of really understanding what buyers are looking for, because their perceptions is not necessarily the reality that business executives feel.

Tony Caldwell:

Susan just said something really important that I always think about, which is opportunity. So if the house is on fire, my view is let's run inside and pick everybody's pocket on the way out the door. So I want to come back to that, though, but before I do that, Susan, I'm just curious, we're having this huge issue right now with business interruption coverage.

Susan Toussaint:

And so what ends up happening is they follow the buyer's process, and that process, nowhere in that process are risk assessments being done. Nowhere in that process are buyers identifying new emerging or escalating risk to their business. And so what ends up happening is that copy and repeat. And so most businesses are at risk and don't know it. The only blessing is that they haven't had to rely on their policies.

Tony Caldwell:

You mentioned opportunity, so clearly that's an opportunity for somebody. And Frank, you brought up the fact that there's tremendous competition increasing, more competition from insurtechs and technology and people who are fueling new businesses pointed at insurance agencies' incomes based on that. So a lot of challenges. Where are the opportunities?

Frank Pennachio:

Well, Susan and I believe very strongly that the opportunities are doing basically what Susan alluded to a moment ago, which we have to start engaging in conversations and talk about risks and talk about these issues. Who would have thought that if I had a business interruption policy that I would be covered when there's a business interruption? And insurance is exceedingly complex; the world is becoming incredibly complex and more hazardous. And this commoditized approach is just exceedingly flawed. So the pivot is to start having conversations. We talk to agencies, Tony, and they will share with us what percentage of their smaller accounts are renewed as is every single year. It's striking. And plus, the other piece of this thing we can't forget is there are now more millennials in the workforce than any other demographic. Now, they're not all in decision making positions yet.

Tony Caldwell:

And nowadays 58% of all businesses are owned by millennials.

Frank Pennachio:

There you go. And they just have a different buying style and a different buying approach. You know, there's a debate, is the technology driving the behavior, or is the behavior of how I want things just now being enabled by emerging technology? And if that's the case, we're likely going to see that as millennials continue to make bigger and bigger decisions in the workforce, we're talking primarily commercial insurance today, but it applies to personal insurance as well, but in a commercial space, as millennials get into... You say they're over 50-odd percent already own companies, they get into more decision making power, what's their buying process going to be? Especially in the higher-hazard, more complex, challenging accounts. And I think that's another big pressure we're seeing is this evolution of demands. And there's a couple of other client demands that we'll probably talk about as we go through today as well.

Tony Caldwell:

If we're not doing the job that needs to be done now, uncovering risk and tailoring coverage to risk because we're just quoting it the way it is, it seems to me that technology actually exacerbates the threat there. Because Peter Diamandis, who wrote the book Abundance: The Future is Better Than You Think, and he's really a futurist as well as a serial entrepreneur says that within just a few years, your AI, your artificial intelligence, will know everything you want to know. And so the figuring out for that millennial of not only do I need business interruption coverage, but exactly what does it cover, what does it not cover, is a simple question to his AI or her AI. And if the agent is doing a better job, they're going to be found out, right?

Frank Pennachio:

I would agree. And I think the AI in underwriting is virtually here. A high level insurance carrier person, longtime friend of mine, told me, "Frank, we're getting very close to having just the name of an account put into a portal, and we'll be able to underwrite it and price it," just a name of the account. Yeah, we'll affirm, is that this account? Yes, that's it. And they'll about to... And now, that has nothing to do, Tony, with what you referenced with respect to but are they going to get adequate coverage. So much of the insurtech is around efficiencies and bidding and comparison shopping, but there's a big, big lift yet to get any kind of help with providing better coverage.

Susan Toussaint:

And I think we have to also caution, there's a difference between information and advice. And we do believe that there's still an important role for agents to provide advice. The information is everywhere. But what to do with that information and how to utilize it to make better, more informed decisions, that's where the agent role really comes into play.

Tony Caldwell:

So what I'm hearing both of you way, I think, in one way or another is that the future opportunity for agents is relationships. Is that right?

Frank Pennachio:

We would take it even one step further. Who was it Susan? We've got to give attribution where attribution is due, that a relationship is an award for making a difference in someone's life. When I came into the business, Tony, my mentors used to say, "Go make relationships and make friends because people like to buy from their friends." Today, people don't have time to make new friends. They'll get a dog if that's what they need. What they need is help in discovering adverse financial events that could change their life. And the way to build those relationships that you're referencing, and I think we're probably talking about the same thing, is to engage in a dialog that will raise awareness, pique curiosity about how they're likely at risk and don't know it, which we assert very strongly, Tony. The vast majority of people out there are at risk unknowingly, because of what Susan referenced, the typical way insurance is bought and sold. So we're looking to elevate the conversation, and we have to also just entice people that are distracted, time-starved, and overwhelmed to come into that conversation, because they push back, "I'm too busy. Here, just take my stuff. Everything's fine, just take my stuff. Oh, you've got some value-added services? That's great. Tell me about them later. Just leave." What would you add to that, Susan?

Susan Toussaint:

Yeah, and I think we have to define what a relationship is. I think too much time is spent on the front end trying to build relational rapport and trying to be liked by a business owner or business executive. Where the real work comes in developing a relationship is helping them to discover that you're bringing something to the table that they're currently not getting, and as a result they're at risk. They'll then reward you with that rapport. But there is a new demand, a new demonstration that is required for producers to get in the door, and Frank referenced it, is that you have to demonstrate that you are subject matter expert, that you understand their industry, that you understand their business, that you are bringing insights that are absent if they are not in a business relationship with you. That's the new rapport, that's the new currency is to bring insight.

Tony Caldwell:

Many successful agents have used target marketing, for example, to build books of business in the past. In fact, that's how I met Frank was learning how to do that in a better way a number of years ago. So that's not new to agents. But there's a twist here, and so I'm curious, what role does technology have I guess is the place I'd like to explore for a minute in helping agents with that deep knowledge, deep expertise? Is it because they have time to develop that because they have a bigger geography they can operate in because of technology? Is it just that it's going to be harder in the future and they're just going to have to work harder? What do you think all that looks like?

Susan Toussaint:

I think it's easier. I think there's never been a better time to be a producer, to be in sales in general. I think way back in the way back machine when I first entered sales, I didn't have Google to go and find out about my customer. I didn't have access to information that I could get at a snap of a finger to learn about an industry. I couldn't connect the dots between who it is I'm already in a relationship with and whether or not they know one of my prospective clients like I can today on LinkedIn. So the information that we need to be successful, to learn, to build rapport, to develop insights, to gain that specialized knowledge is so much more readily available than it ever was in the past. It's the discipline to use it effectively and efficiently is what's going to separate those that are successful and those that are going to be more laggards.

Tony Caldwell:

Okay. Frank, what do you think?

Frank Pennachio:

Yeah, I think that technology is going to provide greater efficiencies for the lower-level work that has to be done. I can remember the day I took Polaroid pictures of buildings. Come on. We're not going to need vehicle identification numbers and I get one number wrong, an underwriter kicks back things to me. All of those lower-level tasks are going to be automated or they're going to be outsourced, which allows everybody in the profession, not just the producers, but their account executives and support teams, to elevate. I think we've got a misconception of what business process automation's going to look like, that there's just going to be one robot that's going to spit out certificates and buying policies. No, there's going to be a lot of different robots, they're going to have to be managed by people. But if we can automate the lower level stuff, that will allow folks to do that higher level work that is in much demand and is underserved.

Tony, I make the following assertion, and nobody's convinced me otherwise yet, there's not a single building in the country that's properly insured. Not one. Not one. And people go, "Oh, what do you mean?" When we start to drill down into that, and of course one of the advantages Susan and I have working with agents all across the country is when things go bad, we hear about it. They call us for help. And so we hear those tough stories of what happens when, "I just had a 100-year old building burn up. I've got a $3 million building ordinance issue. The carrier gave me $10,000 worth of coverage and I didn't add additional." And we could go on and on, which we won't today. We won't go into those weeds today. But it's the benefit and the opportunity. And the challenge is engaging people in conversations about how they are likely at risk and don't know it. And then leading them through an ongoing process because insurance and risk management also gets treated like an event. It's not an event. It's an ongoing process that never ends.

Tony Caldwell:

Well, if you're right, no building in America is properly insured, then Susan is right, which is that the time has never been better to be an agent, right? Because there's huge opportunities. But let me ask you this. Agents work in agencies, and in the past, agencies have had some structural issues, like, okay, you've got to be a certain size, you have to represent a certain number of carriers, you have to have the right kind of volume, and you have the relationship, and all those things to be effective at having a product to sell to the client. And so larger agencies, particularly in commercial insurance, have always had a lot of advantages compared to smaller agencies. But who wins in five years in commercial insurance? Is it the big agency? Or is it the small entrepreneurial agent maybe in a smaller shop?

Frank Pennachio:

The big are getting bigger and are making demands of carriers. And we have agencies now that are bigger than the carriers they represent with respect to revenue. And they've got a lot of leverage. Now, all this is happening in a low interest rate environment. A lot of it's heavily leveraged debt. I'm not predicting interest rates are going up. There will be those niche players, those boutique shops, but by and large, we heard from a very reliable source, Tony, I didn't have any way of vetting it, but from a very reliable source about a year ago, that there were only 2,500 agencies left that are independent with more than $3 million of revenue. $3 million of revenue, and other than prior to COVID, they were being picked off 500 to 700 a year. So we see bigger for the foreseeable future, a lot of leverage, we hear carrier people sharing with us that it's changed the relationship, this size. They could come to you, Tony, and say, "I'll give you $50 million in premium in the next three months. But here's what I want."

And will there always be niche, boutique players out there? Yes. The one thing that's different for the niche, boutique players today that I didn't have the advantage of when I hung out my shingle with no clients for the first time was with these clusters, and I know sometimes they don't like to be called clusters, but I could join a group and get access to just about anybody overnight, where that didn't exist 25, 30 years ago. So the small boutique players can get access to carriers, which access to carriers is no real value. Everybody's got access to everybody pretty much, with very, very few exceptions.

Susan Toussaint:

Yeah, and I think I might answer it a little bit differently. I think that's there's going to be room in the marketplace for both. I think the big are going to get bigger. But let's talk about the challenges that they're facing. They're acquiring at an enormous rate. They don't always know what it is they're acquiring until they get them. They're acquiring agencies that maybe haven't grown organically. They're acquiring agency principals who are looking for an out pretty quickly and don't necessarily have a perpetuation plan that's tight, and that's why they sold. And they have acquired all agencies that have different processes, client experience models, different technology. And so they've got to sort through all of that. So at some point, there's going to be a reckoning. Are they going to be able to take all of these acquired entities and help them row in the same direction, provide a strong client experience, and grow organically where they couldn't independently? Those boutique agencies, they have it a little bit easier. If they are spin off from an agency and they start up again, they have that experience and they have the ability, perhaps, to grow pretty quickly and maybe move into a lifestyle agency versus a big aggregator.

Tony Caldwell:

If you think about the points both of you are making, so Frank, on the one hand, is making the point that, "Hey, market access is no big deal, so you can get the carrier," and Susan, you're really talking about the things they offer isn't that big a deal because what really matters is this conversation with the client or the prospective client, that it's really about talent, not about size or carrier access, right? If that's the real future, then it seems to me that there's opportunity regardless of the agency size you're in. Maybe agency size matters less than it ever did before. What do you think of that idea?

Frank Pennachio:

It's a case to be made, especially to combine with what you just said, Tony, with the specialization, whether it be an industry or a product specialization, or a combination of the two, that look, we know some very success smaller agents and agencies, they're very, very good at what they do, they can compete with the biggest and the best. So I think it could go both ways. What we're seeing with the aggregation is, as Susan mentioned, I think the vast majority of agencies were not growing, and they didn't have a perpetuation plan. If the kids didn't want to come into the agency, the top producers really didn't have the money or the interest in buying it, and the aggregators came in. So there's a lot of different things moving around in the industry right now. But I think someone could succeed in both places and be as happy as they want to be, either in a small agency as a niche player primarily, and there's a high demand for the high-hazard, complex account getting the best advice, to go back to something that Susan said earlier. There is a paucity of that. It is lacking. And if someone steps up to fill that role from a big shop or a smaller shop, the marketplace is going to reward them.

Tony Caldwell:

Again, back to this whole idea of targeted marketing, subject matter expertise, niche marketing with people that you really understanding the needs of better, the traditional limitation of an agent, whether it was a small shop or a big shop, was you operated in a geography. You were in a town or a city or you were in a state. Maybe you went next door to the next state. But very few agents have ever really been successful at building a regional or even a nationwide practice. It seems to me that this amazing thing we're doing today, this Zoom call that we're on, and a coach of mine, Dan Sullivan says, "Zoom is not a communications technology, it's a transportation technology." Because I can transport myself from here to Florida, or you're in Oklahoma, right? A smart agent that's got great skills and great knowledge in a niche can niche deeply but market broadly today in a way he could never do before. So do you see that as something agents have recognized, begun to take advantage of? Or is that still out there in the future?

Frank Pennachio:

Look, I think there's a camp out there that says, "I'm just going to hunker down until this thing's over. I can't wait to get back out in front of people. And I'm going to tolerate this, and I'm going to work my way through it. But I have no intention of using this beyond a therapeutic coming out or a vaccine or herd immunity, whatever it takes. I want to get back out in front." There are others that are seeing this is a big opportunity. Now, we would assert, Tony, that... You mentioned skills. You've got to be a lot better doing it like this because we're giving up a lot. You can see the top half of my body. You can't see my whole body. That gives up a lot of communication. There is challenges to be overcome. They can be overcome with better skills. The skills that got you to success face to face, you've got to amp them up in order to do it via Zoom. What would you add to that, Susan?

Susan Toussaint:

Yeah, I think just two really quick stories that are related. One is I think that if you're in a demographic environment where you have the ability to specialize within your local area, it makes it much easier to spread. If you're in North Dakota, it's hard to be a specialist in something that you don't have enough of it to get the muscle memory to understand the challenges enough that you can expand. So geography matters in terms of specialization. Those that live in more condensed environments, have the ability to gain that specialization locally and then expand it nationally.

With regards to where we are now within the pandemic, working with a young producer who has to drive fairly far to meet his revenue targets, this pandemic has actually been a great thing for him in that he identified, "You know what? I'm pretty good at running my first meeting over Zoom. I'm going to continue to run my first meetings over Zoom, and if that person then qualifies, then I will move to an in-person meeting, either for my second meeting," although now he just reported to me, "I'm doing more and more risk assessments over Zoom." So I think that what's happened is that people who are naturally aggressive, naturally interested in excelling and exceeding and doing well will utilize this time and take advantage of it. They're not wasting the crisis. They're making the crisis work for them.

Tony Caldwell:

Well, you know what? That's back to the point you made earlier which is that talent really trumps everything. But I would argue this with Zoom. So if you think about Zoom as being a transportation technology, just to stay with Dan Sullivan's comment for a minute, think back to the first part of the 20th century when automobiles were first invented, they didn't call them automobiles or cars or anything like that. What did they call them? Horseless carriages.

Frank Pennachio:

Horseless carriages, right.

Tony Caldwell:

Yeah. And they did that because... And same thing with movies. You didn't have movies, you had talking pictures. And I think that's interesting because people try to describe this new reality using an old lexicon. Because they didn't understand even then what it was capable of doing. So you're driving this horseless carriage not understanding that you're going to go 100 miles an hour across the country in two days on a super highway in a generation. And having had some experience with virtual reality, augmented reality, things like that, I wonder... Well, let me say this. You couldn't use Zoom a year ago. I've been a Zoom subscriber for four or five years, but there wasn't anybody to talk to. It was like having a phone but you're the only guy in the county that's got one. But now everybody's got it. So augmented reality would be the same way. If you geeky people, I've got a computer in the back office with a headset, and I go in there and I'm constantly dragging the computer off the desk because I forget I've got a six-foot cable. But I won't have that soon. Soon it'll be a pair of glasses.

And so when that happens, and then you've got that pair of glasses, and we have this... So it'd just be interesting to see how that... To your point Frank, about using the whole body for communication, when you get that back, when video communication, in other words, is not just two dimensional. And that's likely to happen in this four or five year period of time we're talking about. But Susan, what I think I'm hearing you say is the aggressive, ambitious, talented, driven individuals are going to latch onto whatever that is to find a unique edge, to be successful regardless of who they work for and how big the organization is. Is that right?

Susan Toussaint:

I do. I really think that that's the case. And we see that happening. We even see it with the folks that we're coaching. There are those that said, "Okay, so now I need to move my meetings to Zoom. I'm comfortable doing that. I'll role play it a couple of times, and I'll lead my buyer and my prospects to that." There are others, like Frank said, that have hunkered down and said, "Geez, I'm really not comfortable." We have to get comfortable being uncomfortable, because change is inevitable, and the rate of change is only increasing. And so we have to get comfortable with whatever new technology has come out way. If we had our druthers, we would only train in person. We love that interaction, we like the sidebar conversations. We like being able to stop, go off script and engage. You can do that to a certain degree with Zoom and other technology platforms. But there's going to come a point where perhaps this is the way we train and then we move into that virtual reality. And Frank, you've got your own thoughts around the future of training.

Frank Pennachio:

Well, I think there's a lot of things happening. In the workplace right now, there's virtual reality being used to put people in the situation they're going to be in when they build a cellphone tower. They go through it virtually before... And then they go through it virtually in the dark. We're already seeing that kind of application. The thing that we're hearing from our clients right now, Tony, with respect to training is the content comes through virtually, the informal learning that happens over dinners and lunches and breakfasts and adult beverages or other types of beverages, that's missing, that the informal conversation, you and I are having dinner and I say, "Tony, how do you handle such and such?" Now, will people spend the money for an airplane ticket, two nights in a hotel to get informal learning to go with maybe the 95% of the content that's coming through without leaving your family for a couple of nights and expending the time and energy, and right now taking a risk? I don't know that we have the answer to that just yet.

Tony Caldwell:

You know, I think this is really interesting because my observation is that really successful people, people who are extraordinary, are people who are always trying to get better and who invest a lot of money in themselves for training. And then you have the people who are kind of happy, they don't care about growth, and they never do that. And this is really two types of people. But I think the thing that you're talking about, Frank, I'd almost call that something else. I think of that as coaching. A coach is a teacher, "I'm going to teach you a system." But the coach is also that person that's a great observer and a great relater with people. But coaching has probably been taking place, but it hasn't been talked about. But I'm seeing it being talked about more and more all the time. What are you seeing?

Frank Pennachio:

Well, we know that the clients that work with us with our coaching program, post-training have the greatest success. Because behavior change is hard, and it needs to be reinforced. And in training, there is a forgetting curve. There's a certain amount of forgetting that happens over time. But when those principles and those strategies and those ideas and those tactics can be reinforced in real time with real clients or prospective clients until that becomes the default behavior, because that's the biggest thing that we see. What we teach agents is pretty significantly different than what's in the marketplace by and large, Tony. We don't try to persuade people with evidence and reason. We use the neuroscience around emotion and things like that. And we're not going to get into the weeds on that, but that needs to be reinforced. Because if it's not reinforced, and mentors back at the agency, if they're not trained, they're just going to say, "Ah, forget that. Here's how I did it over the last 30 years. Just do what I say and you'll be fine. And by the way, put away your white belt, it's after Labor Day."

Susan Toussaint:

You know, I think you're dead on, Tony, in that the coaching is what... And Frank. The coaching is what creates the changed behavior. Training is information, it's insight, it's experienced that's being relayed. What coaching does is it makes it applicable to the person who's trying to utilize it through real live experience. You're going into a first meeting, here's what we trained you to do, let's talk about it, let's talk about how you're going to execute on it, or let's debrief and talk about how we can get better the next time, or how you might have to go back and start over again in a certain area. So training without coaching is... I hate to say this, it's a challenge, I think it's a challenge. Producers need that hand-holding. Anybody who's trying to adopt a new behavior or to try to do something differently. Very few people can sit in a classroom for two days, absorb it, and then execute it. And I think that coaching is critical, and mentoring.

Tony Caldwell:

And what's the difference, in your view, between coaching and mentoring?

Susan Toussaint:

Mentoring, to me, is really more about the big picture, the big philosophy of where you are, where you could be, some of the big steps that you need to take. The coaching is really that, "Let's walk through it. Let's have it happen. Let me help you engage in new behaviors." When we talk about mentoring, it's what do you aspire to be? Where do you want to be? Coaching is how are we going to get you there and what are the steps that you need to take.

Tony Caldwell:

That's a great... It's as well-defined as anything I've ever heard, and I really appreciate you sharing that. Here's what I'm kind of getting at in our conversation today, which is a lot of enthusiasm and excitement about the future and belief that the agency and the agent has a big future, but that it's different than today, it's more demanding from a technical point of view and a relationship point of view, because as Susan really points out, relationships are going to be maybe in a sense more real because they're based on things that really matter to the prospect in the future. The doesn't matter whether you work for a big agency or a small agency, it's about the talent. And what technology does is make the job, the grunt work, the grit work, I think as Frank pointed out, it makes it easier so that you can focus on those things that do really matter. And that to make that transition and to maximize potential requires training, coaching, and mentoring. If I could wrap it all up in a bow, that's kind of what I'm hearing from you guys. What am I missing?

Frank Pennachio:

I think the only thing we would add, and it ties in, it's not missing, it deserves mention, and that is that larger, more complex accounts are demanding more data. Insurance producers tend to not have an acumen for math. So it's a big lift to have an agent producer get comfortable, and we're not going to ask them to become actuaries, but they've got to be able to tell the data story, they have to be able to work with the actuaries, because as you move upstream, the demand of CFOs, which by the way, they're being challenged with robotic process automation where a lot of their work with general ledgers and financial statements is going to be robotic, so they're being told... Read their journals. They're being told, "You better become far more data analytically inclined or we're not going to need you. We're not going to need 80% of you."

So one thing that we're seeing a big challenge for agents and agencies is how do they bring more data to the table that is being demanded by the CFOs that's actionable around what's the loss projection, what retention should I be using, is the collateral correct, should I even be on a law-sensitive plan, are my losses developing better or worse than like or similar? And on and on. As we do some training around this, and one of our favorite quotes is by Dr. Demming, Dr. Edward Demming, who said, "If you don't bring data, you're just another person with an opinion." And it's hard for agents that are just not analytically inclined. Susan, would you add anything to that?

Susan Toussaint:

I wouldn't add anything to the data, but to your point, Tony, around the skills that agents are going to need to bring to the table, there's a skill that I don't know if it can be taught or not that I think the most successful agents, most successful people have, and that's curiosity. They're naturally curious. I don't know, but I want to know. I don't know where, but I'm going to find out. I don't know how, but I'm going to learn. When people ask, "How do I build a million dollar book of business? How do I build a two million dollar book of business?" Yes, there's a process, there's a sales process, there's a client-acquisition strategy, there's technical knowledge that you need to have. But you have to be curious about getting better. You have to be curious about what the future is going to look like for yourself and for your clients. And without that curiosity, boy, it's going to be really hard.

Tony Caldwell:

Well, it sounds like the elements are there for the agent to have a role into the future and to be successful into the future, but that on balance, it's more demanding. Let me ask you this, so if somebody's listening to this going, "Crap, I don't know if I want to do all of this. This sounds like hard work." I've got a friend who's a vice president for a big national insurance company, and he's on the carrier side obviously, and we were at a cocktail party, he said, "You know, when I retire, I'm going to become an independent agent." And there should be a little drumbeat in there, because you get the joke and you start laughing. He thinks we're lazy. And the truth is, in the past, you could work really hard for three to five years and build a lifetime of high income and be retired in place. What I really kind of am picking up from your opinions is that's no longer possible, that to really be successful in this business, you've got to commit to being a professional and working hard to get better every day for the rest of your career. Is that a fair statement?

Frank Pennachio:

I think it's fair for a number of reasons. First, tell me an industry whereby there was great inefficiencies and it's still operating the way it used to, mortgage brokers, full-service stockbrokers, travel agents, poof, poof, poof. Now, they're still around. Travel agents are now called outfitters. They're doing something very specialized. They're not selling a hotel room booking or an airplane ticket anymore. So there's a tremendous... Just with the microprocessor, with data storage being practically free, with quantum computing right around the corner and already the computers are blazingly fast, because who would've thought that the Intel guy was going to be correct that computer processing speed would double every two years, and it has for the last 50, and now it's going to go a quantum leap ahead of that. So all of that is driving out the inefficiencies. Why have two point some billion dollars a year for the past three or four years been invested in this industry? Because private equity and other investors see residual income which carry great multiples, they see people not doing much, and they're seeing people not doing much with a lot of overhead. We could do nothing cheaper. We can be far more efficient. You're going to do nothing, we'll do nothing. But we'll do nothing with machines. But the opportunity just has pivoted to a place where it should have been all along, Tony.

When I first came in this business, it was also what plaques you had up on the wall, what carriers did you represent. Well, that's gone a long time ago. And we just continue to see a push towards the real purpose of the business is that the irony of this business is you may not know how good you are for five or 10 or 15 years. Living in Florida, we always had hurricanes, you had to button things up for the hurricanes. But adverse financial events are infrequent, but when they occur, they're life changing. The likelihood is unless we elevate the profession, which now the pandemic, more technology, all of these things we've talked about, I don't need to repeat them all, are providing an opportunity to elevate. And I think that it's much needed. It is much needed and will continue to be handsomely rewarded.

Tony Caldwell:

Those who do elevate, though, I think they have an opportunity for much, much bigger rewards. We helped an agency start about five years ago. They sold April 1st for 15 times EBITDA. They built the agency with that in mind, they went out and did exactly all the things that we've been talking about for the last 30 or 40 minutes, they did all those things. And they got an enormous reward for it. And you tell people six times revenue, they just can't even believe it. But that could be the norm for the future for the people who do what you're prescribing. So I just want to put that out there as look, this isn't all drudgery. Because six times revenue and 15 times EBIDTA, you could have a really, really nice life and do anything you want to do. So it's still a wonderful business.

Frank Pennachio:

Absolutely.

Susan Toussaint:

Well, and Frank, I think you would say that one of the best rewards of this business is you get to pick your customers. You get to choose who you want to do business with. This isn't retail where everybody walks in off the street.

Frank Pennachio:

That's the other thing, Tony, there's so many ways to make money and make a lifestyle in this business. I've told Susan many times, "If you ever see me open a retail establishment where anybody can walk in and I would have to serve them, get the coat that ties in the back and then take me away." Because especially as I got later and later in my career, got more and more selective. I felt like I should write a check to my clients for providing me such insight and wisdom and friendship. And this profession allows that. It allows us to choose who we want to spend our day with. And there's some incredible people out there that you get an opportunity to spend your day with and get paid to do that. So yeah, that's a big difference. It's a profession unlike many.

Tony Caldwell:

It certainly is. Well, I really appreciate you all taking some time out of your day to share your wisdom and insight. I know you're working with highly successful agents every day, people who are building something for the future. And so I really appreciate it. Any last thoughts before we get off our call today?

Frank Pennachio:

My last thought is this is a serious business, and I know Susan knows I'm going to the movie quote, for serious people. And that we have a far greater responsibility than a lot of people think about. I'm hoping that one of the silver linings in this very, very tragic dark cloud of the pandemic is that it does become a watershed event where we can now ask people, "Did you even have the opportunity to buy pandemic insurance? It wasn't available, but would the conversation even allowed it?" Because without that conversation that would have even allowed a choice, you can't have the conversation around making sure you have adequate and accurate insurance. We are going to have a significant power grid disruption at some point. Who's insured for that, Tony? We all know what's going to happen. And let's start paying attention to people that are outside our industry. Bill Gates told us five years ago this was going to happen. I didn't pay close enough attention. It was out there in 2015 on TED Talk. Zurich and Marsh have been doing heat maps for the last 15 years, it barely showed up as a blip.

So we have to take what we do extremely significantly, look out across the horizon. There are things we can't insure. Pandemics are not insurable. Doesn't work for the industry. We have $800 billion in surplus. There's a trillion dollars a month in lost business income. Not going to work without a federal backstop. But there are a lot of things we can insure that are not being talked about, or they're not being talked about enough, or there's not the guts and gumption and talent to step in and say, "Push that paper back across your desk or hold onto that pdf that's been zipped up, don't send it to me yet. Let's talk. It is likely you're facing adverse financial events that could change your life for generations to come. It's likely. Let's talk." And hopefully there's a silver lining in the pandemic that will help people just start to think differently about this entire profession and the industry.

Tony Caldwell:

That's great. Thank you. Susan, any last thoughts?

Susan Toussaint:

Yeah, as I was listening to Frank and thinking about something that you said, this can be an incredibly rewarding career, but it also requires a lot of responsibility. You're entering into a business relationship as a professional, and you have to believe that businesses are at risk and they don't know it. And you owe it to them to search and to look and to help them discover those risks and to help address those risks. And don't take the easy way out. Don't copy what somebody else did and assume it's correct. You owe your customer that, and you'll have a far more rewarding career as a result. So risk and reward, I think it's a great industry and I think it's a great business, and I think the folks that take it seriously are going to continue to be successful regardless of the direction of a large agency or a small agency.

Tony Caldwell:

Well, Susan and Frank, thank you both so much. Oceanus Partners, you guys teach, train, mentor, develop, and coach people in how to do these things. And anybody out there that would like to learn how to be a better professional, be more successful, I'm a believer in you guys and I encourage folks to reach out to you. So again, thank you for being with me.

Frank Pennachio:

Thank you for the invitation, Tony. Appreciate it. We enjoyed it.

Susan Toussaint:

Thank you so much, Tony. Appreciate it.

Tony Caldwell:

I'm talking to independent agency owners about this all the time. If you'd like to have a more personalized conversation, click on the button or the link in the description, and we'll make that happen. You can also reach out to me at tonycaldwell.net/contact.