Aligning Advertising

Isn't it odd that people and businesses buy more financial products when prices are highest, rather than lowest? After all, the way to make money is to buy low and sell high. But as the real estate bubble showed, people generally do the opposite with financial products. This has been true forever and is a key reason bubbles inflate.

Isn't odd, too, that businesses buy more advertising in boom times than in bad times? Businesses buy more advertising when sales are already good and buy less when sales are the worst. I understand that pennies must be watched when business is not good, but to make money most businesses have to advertise. So why do businesses advertise their services and products less at a time when it is critical for them to be increasing sales? It is especially curious considering that advertising rates tend to be lower in bad times and it is easier to get more attention from advertisements since fewer entities are advertising.

One theory is that most executives do not advertise to increase sales. They advertise to tell the world how great their company is. When times are tough and there is less to crow about, they advertise less. But if company executives can set aside their egos and realize that advertising is a necessity rather than a luxury, now can be a great time to advertise.

Below are a few tips about how to advertise effectively that I rarely see considered:

Size Matters. Study after study shows that the bigger the advertisement, the better the results. This has to do more with the message the size sends rather than the message itself. Size costs money. When a company is willing to spend a lot of money, people see that as a sign the company is successful and, therefore, they are more likely to do business with it.

President Lyndon Johnson put it well relative to political contributions. To paraphrase him, he said, "Why do contributors think politicians will pay attention to them for $1,000 contribution? It's not enough to get my attention. But spend $50,000 and I'll know everything about them!"

Why do GEICO and Progressive advertise so heavily? It's not as though any U.S. citizen cannot know who the companies are, what they offer, or even why they should call to get a quote. Buying a lot of advertising now is a deal.

Define a Purpose. Some advertising is for branding. Other advertising is for attracting immediate sales. GEICO and Progressive commercials seem to have hit the gold mine of combining effective branding and immediate sales advertising.

Some advertising carries a secondary message such as the company is a great place to work. Many agencies fail to think about advertising for the best employees and even carriers. I am not talking about advertisements that are larger versions of help wanted ads. Rather, these are general advertisements, similar to branding advertising but aimed specifically at audiences from which the agency might draw the best employees. They subtly suggest that employees thrive at this agency.

Aim at a Target. All types of advertisements require focusing on an ideal customer. If a firm's ideal customer uses the Yellow Pages to find insurance, then the firm should advertise big in the Yellow Pages.

Web-oriented advertising is similar to advertising in the Yellow Pages. I don't mean to rain on anyone's parade, but most of these customers are passive, extremely price sensitive, and don't value an independent agent over a captive. Most of these ads are really nothing more than inducements to get a prospect to call. This is great, provided that prospect is the agency's ideal customer. Agencies should not fall for fast sales pitches that web-based marketing is the "end-all and be-all" of marketing. It is valuable, but web-based advertising is only one part of the puzzle.

If an agency has more than one ideal customer (kind of oxymoronic but common), then two completely different advertising campaigns are necessary. There is no "killing two birds with one stone" advertising for run-of-the-mill personal auto clients and high-end manufacturing. An agency that does this ends up creating the oxymoronic statement seen on many agency business cards, "We specialize in auto, home, life, business and health insurance." No one competently specializes in all five areas. These statements are really announcements that the agency is a jack-of-all-trades and master of none.

Measure Results. Many businesses do not know if their advertising works because they do not have the right measures in place. Why even advertise in good times, egos aside, if there is no way to know if it is working?

Immediate sales advertising is easy to measure. Activity, and sales, should immediately increase. Special telephone numbers and web-sites can be used to track the quote activity resulting from advertising.

Branding advertising is generally an expensive, long-term process from which direct results are difficult to measure through sales. However, surveys can be used to determine if consumers know the brand better after the campaign.

Integrate. After an agency has made the decision to advertise, settled on what kind of advertising campaign to wage, designed a campaign to attract its ideal target, and figured out how to measure the effectiveness of the advertising, it still has one more step. The agency needs to incorporate the advertising effort into producer compensation, producer duties and agency publicity.

After all, is a producer who makes sales partially or wholly created by advertising worth the same commission as a producer who makes sales completely on his or her own? I don't think so. Too many agencies make the mistake, and pay dearly for it, of paying for all the advertising from which their producers reap the benefits. If producers are going to benefit from significant advertising, marketing, leads lists, loss control, or whatever tools the agency provides, shouldn't they pay part of the price?

Next, align the agency's advertising with producer and agency duties. Too many agencies are advertising services they do not really provide. For example, if an agency is going to advertise it specializes in something, it must have special expertise in that area. Or if an agency advertises that it finds the best combination of coverage and price for customers, then the agency must market ALL accounts every year. Or what about agencies that advertise they will take care of the clients' coverage needs but they do not use coverage checklists? An agency's procedures and services must match whatever promises it makes in its advertising. Otherwise, the errors and omissions (E&O) exposure and, in extreme cases, the fraud exposure can be significant.

Publicity is the last piece of integration to consider. I find few agencies have a publicity plan. Free publicity for doing good work and achieving awards should not be underestimated. I see many agencies generating publicity for ego purposes more than business purposes. Please do not confuse the two. Using publicity well requires considerable effort and planning.

If advertising fits in your agency's business model, now is a great time to put an advertising plan into action.

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Recently Enacted US State and Federal Data Encryption Requirements
by Ken Fredericks, RPost US, Inc.

First the good news, if you or your Agency send all of your outbound communications using either the US Postal Service or delivery services such as FedEx or DHL, you don't need to read this.

All others pay close attention as a failure to meet current privacy protection requirements may leave you without E&O Coverage in the event of a claim.

Currently 46 States and Puerto Rico and the US Virgin Islands have enacted laws that require senders to encrypt any communications that include "PII," Personal Identifying Information and/or "PHI," Protected Health Information.

Under State Encryption laws senders are required to encrypt information both in transit and when at rest.

Rest means, if it's on your Agency system, workstations, personal computers, cell phones and any other electronic devices, it has to be encrypted!

Definitions and Requirements

Personal Identifying Information (PII) is defined as an Individual's first and last name or last name & first initial combined with any one or more of the following data elements;

1. Social Security Number;
2. Driver's license number or State-issued identification card;
3. Financial account number or credit or debit card number, with or without any required security code, access code, personal identification number or password that would permit access to an individual's financial account.
   • Note additional identifiers frequently included in Agency Communications with Insurers and Clients
     1. Address
     2. Telephone number(s)
     3. Date(s) of birth

Protected Health Information (PHI)  Under HIPAA Regulations PHI relates to the "Privacy Rule" to protect "individually identifiable health information" held or transmitted by a covered "entity" or its business associate, in any form or media, whether electronic, paper, or oral. Individually identifiable health information that relates to;

• The individual's past present or future physical or mental health condition;
• The provision of health care to the individual;
• The past, present, or future payments for the provision of health care to the individual and that identifies the individual or for which there is a reasonable basis to believe it can be used to identify the individual.
  • Individually identifiable health information includes many common identifiers such as; name, date of birth and social security number.

Potential Penalties for Non-Compliance

Enforcement and Penalties for Noncompliance -- The Department of Health & Human Services, Office of Civil Rights is responsible for administering and enforcing standards. Parties that fail to comply may be subject to monetary fines and in extreme cases for violations of the "Privacy Rule" may be subject to criminal prosecution.

• Penalty amounts -- $100 up to $50,000 or more
• Calendar year cap -- $1,500,000

• Note: In 2011 Massachusetts General Hospital voluntarily paid a $ 1,000,000 fine resulting from the loss of 99 records that were removed by an employee from the hospital and left on a subway train.

How does this impact your Agency?

The laws are very clear on the requirements to encrypt certain types of information when an email message or other forms of electronic communications contain certain types of PII (Personal Identifying Information) or PHI (Protected Health Information).

Consider your communications with Insurance Carriers when requesting a quotation or placing coverage for Auto Insurance. What is typically included in your request?

• Complete names of all covered drivers
• Date(s) of birth
• Home and/or business address
• License number(s) or State issued ID card number(s)
• Payment details -- how will the coverage be paid -- credit or debit card, automated payment from checking account, etc.

If you've failed to encrypt this information, you are in violation of State Encryption requirements in 46 States.

Data at Rest Requirements

A second major requirement that needs to be met is that all privacy protected information (PII & PHI) must be encrypted at all times when at rest.

This applies to information on your agency management system, server(s), work stations, personal computers, cell phones and other devices where protected information may be stored.

Solving your Problem

The good news is there are solutions available at reasonable cost that allow you to comply with the new encryption requirements.

One of the easiest to use is RPost's Registered Email Service which works directly alongside your existing email program, typically Outlook. The Service adds a second sending option allowing you to send your message encrypted using RPost's SecuRmail password-protection service.

• Compose your message, check the send encrypted box, click send and the encrypted message is on its way.
• Prior to delivery, the email recipient receives the password that will unlock the encrypted message. Enter the password and review the message.
• If a response is required, the "recipient" is able to reply using SecuRmail encryption. No additional software is required.
• RPost SecuRmail service complies with current State & Federal privacy-protection requirements.

Note for Applied Users: Applied has integrated the RPost "Send Registered" button into 3 platforms making the service available directly thru the Agency Management System.

RPost's other featured services;

• Registered Email -- provides legal proof of sending receipt and email content and returns a verifiable court admissible record.
• eSignOff -- RPost's e-signature service is useful for obtaining signatures on agreements and policy changes and speeds the completion of Agency processing.
• For additional information on RPost you may visit the website at www.rpost.com; To contact the author, request a trial subscription, or receive additional information on Registered Email service; Ken Fredericks at kfredericks@rpost.com

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Are You a Players' Coach?

I was in Dallas around the time Wade Phillips, then head coach of the Dallas Cowboys, was on the verge of being fired. The sportscasters and journalists were hot on the topic of whether his team's failure was correlated with his reputation as a players' coach. In other words, players loved playing for him but he was an inadequate disciplinarian.

If there is one single cause of agencies not growing organically and having at least a 75 percent failure rate among producers (failure defined as producers never building at least $300,000 of their own commissions), this is it. Ninety percent of agency owners I've met over the past 25 years are this industry's equivalent of players' coaches. Everyone loves them and they want to be loved by everyone, even if it effectively means no discipline and limited success.

I have completed dozens of errors and omissions (E&O) audits as an approved E&O auditor. In approximately 90 percent of the agencies I've audited, producers did not have to follow procedures. In fact, I have found that most agencies don't even make following procedures a job requirement for producers. I've surveyed over 300 agencies this year and less than 5 percent have procedures for producers. Additionally, my personal experience and most of the studies I have seen show that most producers do not have definitive production requirements. I know I've asked hundreds of producers as part of E&O audits and due diligence processes if they know how much management expects them to produce. Most often the answer is either, "no" or "a lot."

The National Alliance Research Academy report shows that the average commercial producer with 10-19 years experience only has $340,000 of commissions. We know that producer books do not follow a bell curve; instead, producer books follow more closely Pareto's 80/20 rule. A relatively few producers generate the vast majority of sales while the majority of producers never achieve even average success. Quite often, the producers achieving the vast majority of sales are agency owners and their producers are often the ones with sub-par performance.

One reason producers track more closely to the 80/20 rule is because many agency owners do not like competition from good produces inside their own agencies. Many agency owners hire people who can't succeed or they foster a system that limits other producers' success. This is almost always done subconsciously as a result of deep insecurities or huge egos.

A company cannot thrive when the majority of its sales drivers are less than average. Even if the reality is there will always be some winners and some losers on every team, why do the lesser producers on your team have to be no better than industry average? If the answer is there are no better producers, does the agency then really need these producers? One of the great strategies employed by some of the best brokers is that when they buy an agency, they fire producers that are not performing and yet their retention rate does not decline by much, if any, because the secret they've discovered is that these producers are not important to keeping the accounts!

If you introduce discipline to your producers and those producers are substandard, what is the worst result? They could leave but that usually has little negative impact because poor producers have less ability to take business with them. A definite benefit is it frees money to hire better producers. It also likely improves morale and decreases E&O exposures. The real damage is the heartbreak that players' coaches suffer if producers get mad because they want everyone to love working with them (not "for" them because players' coaches are players' friends).

Amidst all the undisciplined agencies, I've had the great opportunity of visiting disciplined agencies. Sure, some producers gripe about the rules, but they enjoy the success of the agency and their personal success, too. Morale is always higher throughout the agency. The agency has more money with which to grow. And interestingly, these agencies become known as great places for producers to work because they have an environment that helps the best producers become more successful. Especially interesting is that often in the transition, a few producers leave because they can't abide rules and procedures, but then when they see how well their former companions are doing and how they are not achieving any more success in their new producer-friendly environment, they begin making inquiries about returning.

This industry is plagued with players' coaches and the results show it. Discipline and procedures enhance success. For whatever reasons, this may be one of the few industries where following rules has such a negative connotation. Just because the players perceive discipline and procedures in a negative light does not mean any cruelty is being expressed by instituting discipline. It does not mean management needs to be mean when instituting procedures and discipline either. Procedures and discipline are neutral, in and of themselves. Good rules are not mean and good rules are not nice. Good rules are meant to improve results and provide a basis for measuring performance.

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NOTE: The information provided in this newsletter is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.

Burand & Associates, LLC is an advocate of agencies which constructively manage and improve their contingency contracts by learning how to negotiate and use their contingency contracts more effectively.  We maintain that agents can achieve considerably better results without ever taking actions that are detrimental or disadvantageous to the insureds. We have never and would not ever recommend an agent or agency implement a policy or otherwise advocate increasing its contingency income ahead of the insureds' interests.

A complete understanding of the subjects covered in this newsletter may require broader and additional knowledge beyond the information presented. None of the materials in this newsletter should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this newsletter. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.

If you wish to be removed from this mailing, please e-mail AgencyAdviser@burand-associates.com. Copyright 1995 - 2011, Chris Burand