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Insurance Industry Grapples with Need for Young Talent

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Insurance Special Coverage

Protecting the Future

Lisa Johnson admits an insurance career can be challenging — and a constant learning experience.

“Even our veterans will tell you, nobody knows everything about insurance. They’re learning something new every week — from each other and from formal education,” said Johnson, chief operating officer of Encharter Insurance in Amherst. “We make sure we have people taking classes every year. We incentivize learning; it improves our businvess.”

And that goes double for new employees; even after landing a job, she said, it takes about a year of training to fully ramp up on personal lines, and three years on the commercial side.

“It’s a complicated business. As an agency owner, you have to be willing to put in the time and the energy to make sure people are getting the training they need,” Johnson told BusinessWest. “Sometimes people underestimate the learning curve, and it’s tough to stick with it and get licensed and have a career. You’re dealing with a lot of regulations, it can be a very technical business, and it can be very overwhelming.”

That may not sound like the most appealing pitch, but there are rewards on the other side, she said.

“We have a career that’s not stagnant; you’re always learning new things, learning to manage obstacles, and that should be presented as an opportunity. It’s enrichment for your career. It’s furthering your personal value. This career offers exceptional long-term benefits, a lot of stability. It’s recession-proof, with a lot of variable and transferable skills like customer service and sales. I always tell people, a great salesperson will never starve.”

That said, according to a recent article in Insurance Journal, the Bureau of Labor Statistics projects that the industry will face approximately 21,500 job vacancies each year over the next decade, and “this growing talent shortage is compounded by a rise in the severity of claims and by the industrialization of plaintiff litigation. As veteran employees leave the workforce, the industry loses invaluable expertise. That creates a ripple effect of challenges for claims-management organizations.”

Lisa Johnson

Lisa Johnson

“It’s a complicated business. As an agency owner, you have to be willing to put in the time and the energy to make sure people are getting the training they need.”

And that leaves growing agencies with a real challenge. John Dowd Jr., president and CEO of the Dowd Agencies in Holyoke, said recruiting may be more of a problem in the 413 than elsewhere.

“It has been a challenge for a long time to attract more people into this industry. I don’t think that’s unique to Western Mass., but compared to Eastern Mass. or more metropolitan areas, we just have fewer candidates that are drawn to the industry.”

Still, “I think it’s a great industry,” Dowd said. “We have many people come here to work with us, and most stay. Some don’t because they either don’t like it or they move to a different area, whatever the case may be.”

Recruiting the right people, those who will stick for the long term, has become so important, in fact, that the firm has, for the first time, hired a talent recruiter, as opposed to running ads in newspapers or working through headhunters.

“We’ve done those things for years, trying to attract people, both young people interested in the industry and seasoned people who have been in the industry for a period of time,” Dowd said. “Obviously, it’s easier to hire an experienced person to step in with minimal training and be effective at their job. But those people are not that easy to find. So a lot of times, we’ll say, ‘let’s recruit young people and train them and teach them our way.’ That way, they’re more likely to assimilate into our company’s culture.

“It is a great business, with a lot of different things you can do, depending on what your skills and interests are, and what your long-term ambitions are,” Dowd added, noting that the new recruiter will help build a pipeline of young talent. “We have multiple locations in multiple states. We’re going to have people retiring, people moving out of the area, and we have to fill those positions. We’re excited about this new role because we really think it’s going to help us fill positions and find better-qualified people — either experienced or inexperienced with lots of upside.”

Because of the training involved in hiring younger people, Johnson said, “it’s a huge savings if you can grab one of the seasoned people in our area, but I think it’s kind of a small group of people rotating from one agency to another.”

John Dowd

John Dowd

“Colleges typically don’t direct course curriculum to the insurance industry, and people don’t get introduced to it in high school or college unless they’re looking for that. And even then, it’s difficult to find courses specific to the insurance industry.”

So the industry absolutely needs an influx of young talent — and insurance careers can be appealing to them in a number of ways, she added.

“I do think it’s been a challenge in today’s labor market to find the right people. We’re competing with banks and other roles that appear more modern to younger candidates,” she said. “But it’s definitely an industry that is going to supply young people with a lot of upward mobility, particularly because they’ll bring their technical knowledge that some of the folks retiring don’t have.”

 

School’s Out

Part of the problem, Dowd said, is educational. “Colleges typically don’t direct course curriculum to the insurance industry, and people don’t get introduced to it in high school or college unless they’re looking for that. And even then, it’s difficult to find courses specific to the insurance industry.”

Considering that landscape, Sam Hanmer, president and CEO of Rush Insurance Group in Chicopee, said it’s valuable to work with community colleges and high schools to recruit through internships and generally expose students to opportunities in insurance.

“We have plenty of work, and they’re paid internships, so we hope we can get some young people to stick around,” he told BusinessWest. “We’ve even reached out to local high schools as well, creating opportunities for them. We want them to come work after school, do some data entry work, that kind of thing. We’re talking to guidance counselors about the potential for them to send over kids who are looking for after-school jobs.”

Sam Hanmer

Sam Hanmer

“Depending on what side of the fence you want to be on, there’s also a lot of financial work, payables, receivables, billing, all of that. And as an agency, we also need IT support. So there are a lot of different areas.”

The problem, as noted earlier, is that only a handful of colleges in the country actually offer coursework in insurance.

Hanmer noted that the Isenberg School of Management at UMass Amherst has put together an insurance club — one more oriented toward the carrier side of the business, not the agency side, but it’s a start toward exposing more young people to career opportunities.

“These are good jobs; they’re actually very-well-paying jobs relative to Western Mass. It’s really about educating people, getting them interested in trying this career path,” he added. “And the interns, we’re paying $22 an hour to keep them engaged. Minimum wage is not going to keep them engaged.”

Dowd, obviously, had an unusual level of exposure to insurance, as his family has been in the business for 128 years, and the business now includes the fifth generation of company leaders.

“I had plenty of introduction to the industry, and I always had an eye on it because it was a family thing. I watched my father and uncle over the years, and I went to work right out of college for an insurance company in New Jersey as an underwriter.”

That said, “I knew being an underwriter wasn’t something I wanted to do for the rest of my life, so I came back and joined the agency as a salesman. I knew that was the area I wanted to focus on. I liked interacting with people, helping them sort through the complexities of the insurance business and insurance policies.”

That movement speaks to one of the draws of an insurance career, Hanmer said.

“Insurance is a lot of contract law, and you get to learn a lot of insurance policy,” he said. “But, depending on what side of the fence you want to be on, there’s also a lot of financial work, payables, receivables, billing, all of that. And as an agency, we also need IT support. So there are a lot of different areas. Someone could come in and hang around and say, ‘hey, there’s an area I want to potentially continue my career path on.’”

Dowd agreed. “What I say to them is, ‘look, there are a lot of different things you can do in this business. You can be in customer service as an account manager, or be on the claims end of things, or be on the accounting end of things, or be in sales, or start as a receptionist and work your way up,’” he explained. “We’ve had some of our best people start as receptionists and work their way up to senior account manager positions or claims directors; it’s really about how ambitious you are, and we nurture them along the way.”

In fact, three current employees in leadership roles started as receptionists, he noted. “They’re thriving, and they’re happy, and we’re happy with them.”

Of all those roles, salespeople may be the hardest to find, Dowd said. “Or, I should say, good salespeople. Everyone thinks they can sell until they find out how hard it is. But it’s easier if you like people, if you’re ready to work hard, and if you’re patient, knowing you have to work your way through and gain experience and gain the confidence of clients. That takes time.

“You have to have perseverance and dedication to the process, becoming a student of the business, to be an effective service professional and service customers far and wide,” he went on. “If you are of that personality and have that dedication, you can thrive in our business.”

Johnson also has senior employees who started as receptionists, so she can testify to the opportunities for advancement.

For most young recruits, she noted, “whether they’ve just come out of high school or they have a PhD, we’re still training them from square one. Typically, our agency is looking for people with experience, but it’s not that we don’t take people without experience — we have done quite a bit of that.”

Youth Movement

Hanmer told BusinessWest that the insurance business may not be flashy enough for teenagers considering career paths, and they’re more likely to gravitate toward more technology-oriented fields.

“Insurance is not tech-heavy, although it’s evolving,” he noted. “So I don’t think insurance is exciting enough for them, and it’s too bad because it’s a great business. When I find a young person and I can bend their ear for a minute, I encourage opportunities to be in the insurance world.”

The Insurance Journal article argues for better efforts at understanding the workplace needs of younger generations, which include remote work, modern tools and technology, a collaborative environment, and clearly outlined core corporate values.

Johnson said Encharter has cultivated an environment that not only values constant learning, but the importance of relationships.

“It’s a person-to-person business, and that’s how you build relationships. I can’t overestimate how important that is,” she explained. “Also, if they think they’re valued and what they do matters, it’s a much more rewarding career — and that’s something we build on with that team environment.”

Dowd said agency leaders check in with new hires 90 days after onboarding process, “to find out not only how they’re doing, but how we’re doing. Are we living up to the promises we made, to the commitments we made, to provide training and support so you can thrive in your new position?

“It’s a great business because you meet all kinds of new people and learn about businesses of all types, inside and out, and the clients become your friends. Oftentimes, you can have decades of relationships with these people who really become your friends,” he added.

“I say to every one of them, ‘we want you to retire here.’ We’re proud when we can see somebody employed and happy. I always say, ‘we can’t do it without you. And together, we can survive and thrive in a competitive industry.’”

Mergers and Acquisitions Continue to Dominate the Insurance Industry

By
Timm Marini
Insurance Special Coverage

Come Together

Timm Marini

Timm Marini says HUB has become more “laser-focused” in the way it grows.

If you think you’ve seen more headlines than usual lately about insurance agencies being bought and sold, you’re not mistaken. In fact, 2021 was the fifth straight record-setting year for M&A activity in the insurance world. The reasons range from federal fiscal trends to a desire to broaden an agency’s expertise; from pandemic fatigue to the aging of the Baby Boomers who built and grew many of these firms. The idea, area leaders say, is to grow strategically, with customer service and company culture at front of mind.

HUB International is no stranger to mergers and acquisitions in the insurance world; they have long been a key element of the company’s growth, nationally and globally.

“For us and some of the bigger acquirers, we’re getting more laser-focused in what we do,” said Timm Marini, president of HUB International New England. “It used to be you acquired to grow — and grow profitably. And then it became geographic expansion, where you wanted to find some agencies in places where you weren’t.

“In the last 18 to 24 months, it’s gotten more laser-like,” he went on. “When I say that, I mean looking for specialists or looking for specialty shops that may bring in different disciplines, like medical malpractice, life sciences, startup companies, or financial services. In the last two years, we’ve acquired 50 investment firms across the country, four or five of them in New England alone.”

Still, even at a firm with that kind of record, the sheer pace of M&A activity in recent years has been striking, Marini said. Last year, a record 798 insurance agencies were sold in the U.S. — breaking the previous records of 711 in 2020, 653 in 2019, 580 in 2018, and 557 in 2017.

“Part of that was the pending increase in taxes — people were nervous the tax rate was going to go up significantly, and that may have given some of them the impetus to sell,” he noted.

Phil Trem, president of Financial Advisory for Marsh Berry, a leading M&A advisory firm for the insurance industry, noted the same dynamic.

“The heightened activity can be traced back to a number of different factors. Firms who sold believed that they might be negatively impacted by a potential federal capital-gains tax increase and a shift in expectations by the insured community,” he wrote on the firm’s blog. “While tax legislation was not enacted in 2021, there are still looming concerns that it could happen at some point in 2022. Will it be retroactive? Anything is possible, but at this point concern about a significant tax increase has waned.”

But other factors have been in play as well, Marini said. “I also think there’s some COVID fatigue in the marketplace, folks dealing with all the extra issues we’ve all had to deal with. Plus, honestly, the multiples folks are paying for these companies are significant.”

John Dowd, president and CEO of the Dowd Agencies, agreed, calling the current landscape a “feeding frenzy” marked by “irrational exuberance” on the part of buyers. “We look at what’s a good fit, what’s a fair price. We’re not going to chase.”

Dowd, whose own firm has made some key additions recently (more on that later), sees a demographic shift in play as well.

“Baby Boomers, who built this modern-day economy and have been a powerful force in every industry across the country, have been retiring to the tune of 2 or 3 million a year. That obviously includes every segment of the economy, including insurance agencies,” he noted. “A lot of agency owners have reached the point of retirement, and if they don’t have an internal succession or perpetuation plan in place, they might look to sell to somebody. That’s what’s going on out there.”

John Dowd

John Dowd

“A lot of agency owners have reached the point of retirement, and if they don’t have an internal succession or perpetuation plan in place, they might look to sell to somebody.”

As for that feeding frenzy, Dowd and Marini both noted that agencies are being sold for multiples of the EBITDA (earnings before interest, tax, depreciation, and amortization) valuation formula that would have been uncommon just a decade ago.

“Our business models haven’t changed, so why have these multiples suddenly gone so much higher?” Dowd wondered. “It’s causing people to maybe sell sooner than they had planned, thinking the multiples will go away sometime, and they don’t want to miss out on an opportunity to monetize their asset.”

 

Pathways to Growth

There are two ways of growing an insurance company, Dowd told BusinessWest. One is organic.

“That’s what we do every day, trying to attract more customers and certainly hold onto and retain those we already have,” he said. “Then there’s growth through acquisition. Our philosophy and strategy is to do both. Any business plan is going to focus on growth, profitability, and retention. When you put together your growth plan and have a healthy balance of organic growth and growth through acquisition at a pace you can accommodate and not stress your staff and your balance sheet, that’s what we consider a good, strong, healthy philosophy for growth.”

Marini said HUB has made targeted investments in niche-specific talent as a way to better serve customers, but has also not shied away from acquiring good-sized firms in the region — like the Insurance Center of New England in 2019, a move he called a strong “cultural mesh” at the time, similar to the one HUB found when it acquired his former firm, Field Eddy, five years earlier.

Over the past year or so, the Dowd Agencies acquired two local agencies, J. Raymond Lussier Insurance and Wilcox Insurance Agency, citing a similar cultural fit.

“When I talk about a good fit, it’s book of business, carrier representation, geographic location, and, most important, cultural fit,” Dowd said. “By that, I mean, are the current owners sharing the same philosophy that we have in terms of how they treat clients and how they treat staff? When there’s a good match in those two areas from a cultural standpoint, we can begin to move forward with analyzing the proposal that’s on the table.

“Not every prospective agency is a good fit for acquisition,” he went on. “We know the metrics we look for, and we have to check the boxes before we start to move forward. We can’t grow for the sake of growing; we have to do it incrementally and selectively. That’s our philosophy. We see people out there acquiring agencies all over the place; they’ve got their own philosophy, and we have ours.”

Elaborating, he called Lussier and Wilcox good examples of strong cultural fits. “We’ve known these owners for years. We know how important a priority their customers were. It was very important to these owners that their clients, who they worked very hard to build over the years, are going to be well cared for by the new owners, treated similarly and respected and serviced at the level they had become accustomed to.

Phil Trem

Phil Trem

“The build-versus-join decision is bringing a lot of firms to the deal table. This dynamic is not going away, and the market will likely continue to be very robust.”

“The proof is in the pudding,” Dowd added. “Lussier came on a year ago, and Wilcox was six months ago, and they have blended beautifully with our staff. We’ve had some get-togethers as a team where everyone gets to meet and know one another.

“That careful vetting is really important so there’s not any disruption to service to clients, that it’s seamless and smooth, and everyone is comfortable,” he went on, “because people get anxious when there’s change. It’s natural. To the extent we can, we want to address and dispel those concerns before, during, and after the transition. And it’s worked well.”

A larger agency with a broader range of specific expertise is important to customers these days, Marini said.

“Customers are demanding more service for the same dollar amount,” he noted. “And then, industry experts who know the nuances of different coverages can negotiate better premium deals with their carriers.”

It’s a win-win, in other words.

“One major driver of sellers coming to the table is evolving expectations of brokers’ clients, the buyers of insurance,” Trem wrote. “Since the beginning of the pandemic, insureds have created an expectation that their broker act as a consultant, not just someone who helps purchase insurance coverages. The end client is looking for someone who can help provide strategic guidance, risk management, and/or mitigation services.

“This creates a conundrum for insurance brokers who must keep investing in tools, resources, and talent in order to effectively compete,” he went on. “Independent brokers have to decide whether they want to use their cash flow to make these investments or partner with a firm that has already done it. The build-versus-join decision is bringing a lot of firms to the deal table. This dynamic is not going away, and the market will likely continue to be very robust.”

 

Bigger and Better

Building broader and deeper expertise in an insurance agency is one way to counter the bottom-line-focused direct writers, Marini said, especially on the personal-lines side, where they continue to grow market share in New England. And not just expertise, but relationships.

“We don’t want to be big just to be big; that thinking was 10 or 15 years ago. Now it’s getting big to be good, or just being good … and part of that model is having independent expertise, services, and claim advocacy like never before.”

He noted that HUB has won some national awards for its COVID-related communication about how the industry should react and deal with all the different challenges the pandemic has wrought. “We’ve had some competing brokers, large companies, bigger than us, grabbing those materials for their customers. We didn’t protect it; we shared it.”

Dowd agreed that M&A activity often focuses on what it brings to customers, from a broader carrier mix to specific expertise. While the mergers with Lussier and Wilcox focused more on the shared culture, he added, any benefit to customers is a factor when considering an acquisition.

Nationally, those mergers and acquisitions will continue to be a major story in the insurance world. After five straight years of setting new records for M&A activity, Trem doesn’t see a major slowdown in 2022.

“Buyers and investors are continuing to push their way into the marketplace,” he wrote. “If anything, the pandemic reminded the financial community what a great investment the insurance distribution space is and that demand is greater than ever before. It is a very favorable seller’s market because there is still more demand than there is quality supply.”

 

Joseph Bednar can be reached at [email protected]