North Improvement, LLC Turns 1: Thoughts, Plans, Process, and Independent Agency Model Apologia
“All you need in this life is ignorance and confidence, and then success is sure.” – Mark Twain
I recall reading the above quote for the very first time on the back of someone’s personal journal. This was years ago, and long before I had read anything else by Twain. Reading it put a smile on my face, a big one, and it still does. Twain’s statement, both insightful and funny, holds within it more than a grain of truth. Time and again in my life I have found this quote to explain perfectly many of the successes I have enjoyed both personally and professionally. Additionally, many of those attained by North Improvement, LLC during our first full year of existence unquestionably prove Twain’s statements to be accurate. It is important, however to fully comprehend the quote, as ignorance is not to be confused with stupidity, recklessness, or, worst of all, arrogance. Ignorance implies a lack of knowledge, not an inability to obtain or attain the knowledge necessary to thrive in life and in business.
Starting a company for the first time often requires a certain degree of ignorance. If you were to write down a list and fully comprehend the amount of work it takes to simply form the entity, obtain technology and other necessary equipment needed to operate, register in each state where you plan to do business, as well as learn how to pay employees and properly withhold taxes, among a thousand other tasks, you, being a thoughtful person of above average intelligence, would likely shoot down the idea after some brief consideration, and rightfully so. However, learning day by day what needs to be done, and figuring out how to do it is significantly less daunting a task than knowing everything that is needed up front and not having substantial human and financial capital to put towards accomplishing the company’s goals.
Marching into our new endeavor with a healthy amount of ignorance coupled with the confidence needed to achieve many of the goals we had set proved to be a useful tool in being able to accomplish many of the unavoidable, and at times tedious, tasks we have needed to complete. It is again important to understand that this ignorance must be temporary, and in order for it to be temporary, one must have both the resources and the confidence that they can successfully use those resources, be they websites, books, individuals, or intuition in order to learn quickly and efficiently. As a business owner, a disability or unwillingness to learn on the fly, and to learn when you are exhausted, frustrated and/or rushed will be positively deadly. To help with many of the challenges we were to encounter investments from myself and my brother and Co-Founder Joe gave North Improvement not only the capital needed to form, but a partner to join me in this previously uncharted journey, one which at times has proven to be extremely lonely and trying, though ultimately rewarding.
It should further be understood that ignorance of certain of the requirements of starting a company is fundamentally different than lacking knowledge about the industry in which you intend on doing business. Expecting to succeed without deep knowledge of your industry, product(s), competition, and capital needs, particularly when considering forming a company in an established industry, is not ignorance, but rather arrogance bordering on stupidity. Indeed, I would argue that particularly in the industry of insurance, where North Improvement operates, interpersonal relationships along with industry and product knowledge, rather than financial capital, or even intelligence are overwhelmingly the highest and sturdiest barriers to successful entry. ‘Successful’, of course, is the important adjective in the prior sentence.
As I would often tell frustrated or confused underwriters that I trained during my time at AIG, this industry is not simple, and you physically cannot learn it overnight. A person starting out their career could be the smartest graduate from Harvard Business School, but I would somewhat sarcastically wish them good luck on being successful or even impressive on day one. To be successful in insurance, and to really understand the industry and its seemingly endless product offerings and specializations, you need to combine plenty of effort, with a massive amount of time. This may lead you to ask: what amount of time is considered massive? Well, that depends on the individual and their resources, but it is certainly numbered in the years and decades, rather than months and quarters, and this comes with the caveat that you never physically could understand everything.
While Twain's formula for success, ignorance plus confidence, may seem simple, it can feel daunting when you are not physically able to know everything you would ideally wish to know early on. This was the case during my early career, and it remains the case now that I have co-founded my own firm. Though we are one year into our existence, I do not know everything, and in fact, I know very little considering all that there is to know in this business and in life. What is important and relieving, however, is that I have found that I have near endless energy to learn, and an ever growing network of experts in numerous fields with whom I mutually refer business, or lean on to learn new ways to serve my existing and future clients. From wholesale brokers with expertise on insuring complex risks, to brokerage owners whose firms specialize in areas of the industry outside of our area of focus, we have tremendous resources to utilize. Knowing that we have these equally important safety nets, the willingness to learn, and a network to utilize, gives me the confidence to attempt to win business from people and companies that we may not have otherwise thought to prospect, or believed that we could properly serve.
Our ability to serve a broad client base has proven to be among the most rewarding aspects of forming North Improvement. Although we formed the company to focus on a particular space in the personal lines insurance market, we kept our options open to service clients outside of our target area, which has allowed me to meet and assist dozens if not hundreds of individuals and companies who are either clients or referral sources, many of whom I had never known of before starting our firm, and likely never would have met without forming the company. Being licensed in many states to write Property & Casualty coverage as well as Life & Health insurance, for which we can now refer clients to experts outside of our firm, allows a small brokerage like ours to provide full service capabilities without the costly up front expense of trying to build out these practices in-house via multiple hires.
While having a broad product offering was not necessarily our precise plan at the time that the company was formed, both the needs of our existing clients and our desire to be flexible enough to properly serve them and future clients going forward have made expanding our service capabilities an area of increased focus. Aside from increasing revenue, this has allowed us to become a gatekeeper for all things insurance related for those who work with us as either clients or referral sources. While we have many referral partners, we do not work with everybody that we meet, and in fact I am quite strict about who I will do referral business with. The logical question I ask myself as I consider who to partner with, formally or informally, has been and will continue to be the following: even if we cannot directly make money off of the relationship, would it benefit our client and strengthen our relationship with them if we are able to recommend a respected person or service provider that I have personally vetted and know they can trust? The answer every single time is, unsurprisingly and emphatically, yes, however the individual or company we are talking to may not be the right fit. Whether it is a referral to a health insurance expert to help a business owner whose insurance we handle find the right healthcare plan for their employees, or a referral to a trusted high-end watch dealer to make sure a client is able to purchase a gift for their spouse or child that will be priced fairly and sold with proper papers, we want to make sure our clients are well taken care of. We just need to know that we are referring them to the perfect person or company for the job.
In order to be able to build out our referral network, I spend a large amount of time getting to know the individuals with whom we mutually refer business or are considering partnering with. This typically involves meeting for coffee or getting drinks, and then introducing them to additional individuals within our network and testing the waters. If I cannot figure out what makes them tick from a business standpoint, and if they are not easy enough to talk to and deal with (e.g. too stiff and formal, not knowledgeable enough in their profession, too focused on a quick buck, etc.), I am usually quite forward in explaining why we will not be taking our business relationship forward. At times some have found this approach to be a bit cold and blunt. Blunt or not, if I can notice in the first conversation or two with a potential business associate that they may not be the right person to refer our clients to, there is a great chance that they will not be a good fit. Thankfully, I have been blessed to meet dozens of great people who have become both business associates and friends during my time networking, and thus far things have typically worked out as well as or even better than I had envisioned.
Setting up and marketing the company as well as building out our referral network has been fun and successful so far, but how about the actual sales process? Before forming North Improvement, I already understood our market well, and learned a great deal about how a brokerage operates during my time at AIG. However, an area where reality has proven to be different than the way I had envisioned things revolves around an assumption that I had made early on. I formed our initial marketing push around the belief that people do not want to talk about insurance. I assumed that the topic was boring to them, and that I would be viewed as a nuisance if I pushed too hard to have a discussion on the topic. Many people may not like to talk about insurance in general, but as it turns out those same people do want to talk about their insurance. As proof of this, I have found that clients and potential clients often bring up the topic themselves when they see me. It could be an old friend, or someone from the town I grew up in who has learned what we are building at North Improvement. Sometimes conversations occur with business owners who I meet that feel lost with their current broker and insurance package. Often they just want me to take a look at their current policies to make sure everything thing is in order, and sometimes they just want to save money however they can. Either way, we take the same approach regardless of account size. We confirm whether or not their existing coverage is adequate for their, and/or their business’ needs. Next, if they are over insured we look for ways to reduce their coverage without leaving them inadequately protected. On the other hand, if they are underinsured we show them the areas where this happens to be the case, and why it makes sense to potentially spend a little more money annually to fully protect the belongings that they have worked so hard to obtain or to better protect the business that they have built.
When necessary, we obtain or attempt to obtain quotes from other carriers to fill coverage gaps and/or create an opportunity for costs savings without reducing their existing limits. Sometimes this last step, arguably the most simple conceptually, can render savings in the hundreds and typically thousands of dollars annually with equivalent or greater limits and often objectively superior coverage with a different, albeit top rated and highly regarded carrier. I love that being able to get to this point costs the client nothing beyond the time it takes for them to send us their existing policy documents and drivers license(s) (typically by email or as pictures in a text). We can offer them a free property and casualty insurance review, and 9 times out of 10 we can also offer them a way to save money and improve their insurance package, at no cost until they decide to pay for their new policies and let us work with their prior broker or carrier to cancel their old policies and get them a partial or complete refund (when applicable). As I say to potential clients, there is no reason to not have us at least take a look at their policies, even if they do not have plans to change brokers or carriers. This is an extremely easy value proposition for me to confidently sell.
Many potential clients have been more than willing to let us take a look at their policies, and I am honored that the majority of those who have given us the chance to review their existing account ultimately decided to formally make us their broker, and when necessary switch to a new carrier when that was our expert recommendation. With that said, they do not always agree to purchase optional coverage or higher limits. Our goal is to make sure that our clients are as broadly protected as possible, but many clients that we work with are wealthy, and if an optional coverage or policy is seemingly expensive and not legally or contractually required, they may choose to partially self-insure. When this first happened I was disappointed in myself as a salesman, and worried that I may not be properly serving my client base. I then stepped back, sat down and thought about the situation. Was our client better protected and potentially saving money with the offering we set them up with? Yes! Were they going to be receiving superior customer service from both our firm and their new carrier? Yes! Were they going to be better assisted in a potential future claim scenario by working with a broker who is well versed in insurance contracts? Yes! Did we fill some, but maybe not all gaps in their coverage with the new package? Yes! And finally, were they well aware of why we offered them the additional coverage that they chose not to purchase? Yes!
Once I ran through these questions, I was able to feel confident that we were in fact serving them well, and undoubtedly better than their prior broker, agent or direct writer carrier. Business is a world of pragmatism, and sticking too strictly to absolute ideals rather than general principles will harm clients and associates, not help them. A pragmatic approach to working with our clients is necessary to our being able to serve them properly. If we were to refuse to act as their broker because we only got them to agree to 90% of the terms we negotiated on their behalf, it would most likely harm, not help them. An insurance relationship is also potentially, and hopefully, one that will last for years if not decades, leaving dozens of future renewal conversations to serve as opportunities to revisit adding coverage and filling any remaining gaps that they may have in their package.
Speaking of decades, that is how long many of our clients were with their previous broker/agent or direct writers. At a bare minimum among our existing book of business, we have won clients who had a previous collective 150+ years with their prior provider/broker, and this just from a few of our accounts where we know precise numbers. Note that this is not simply a combined 150+ years of having insurance in place, rather this is 150+ years with their immediately precedent broker/agent, and at times carrier as well. While we have moved clients from captive agents, independent brokers, and direct writers, each in roughly equivalent numbers, the savings in particular when moving a client from a captive agent have thus far proven to be the largest on average. The accounts with the largest coverage gaps have most often been those previously insured by a direct writer. The above takeaways affirm three very important truths. The first is that the insurance industry stats about consistently high customer retention (I won’t use the word loyalty, based on the second truth) appear to be quite accurate. Truth number two is that there are an enormous amount of folks who are substantially underserved by their existing carrier or agent/broker, but have not been incentivized to make a switch or have their existing package reviewed. The third truth is that in most cases, outside of rare accounts with extremely minimal complexity (e.g. younger clients seeking renters insurance as first time renters with few belongings), the independent agency model is far superior to the captive agency or direct writer model, particularly in the long term.
While the independent agency model can admittedly feature some of the same drawbacks as the captive agency and direct writer models (e.g. it can be both easy and tempting for companies to sit on renewals and not shop accounts or check in with clients to check for account changes), if we take away the insurance specific side of the business, the logic in favor of this model is rather straightforward. The basic questions at the center of the independent model philosophy goes something like this: when buying a product would you rather work with a company that represents you and negotiates for you, or with one that represents another company and negotiates with you? Further, aside from the representation side of things: would you rather work with a company that can sell you a product that you want to buy but also offers you product offerings of equivalent quality from several different manufacturers that are all fighting to earn your business by each trying to charge less than the other, or would you rather work with a company that can only sell one product on a take it or leave it basis? We believe the answers to both are quite obvious.
Forming North Improvement as an independent brokerage was admittedly our default option. This was a given because my entire carrier side experience occurred within this distribution model, coupled with the fact that one area of my expertise lies in insuring and serving affluent clients, many of whom have homes, cars and jewelry or art collections that are too high in value to be insured properly or at all by a captive agency or a direct writing carrier. Though we may not have pondered the pros and cons to forming North Improvement this way, I have certainly thought deeply and learned a great deal about the various operating models after being in business for a year. As I have worked with dozens of clients whose insurance programs, established before working with us, have come from one of the three aforementioned models, I have found that, without question, those who were previously being served within the independent agency model were the best served, even when they were inadequately served. While they may have come to us lacking important coverage, paying more than they needed to, or missing the quality of service that they deserve, they are generally in significantly better positions when compared to those served by the captive agency or direct writer models.
Of course, this is again an admission that the independent model is imperfect. That is only natural, as businesses and business models are created and operated by people, and people are imperfect. It is natural that no model could ever be perfect, and therefore no business could be either. Because of this, there will always be a place in the market for alternative models, as there can admittedly be benefit to doing business with some captives and direct writers. Indeed, sometimes depending on the needs and location of an individual or business, these operations can better serve them than an independent, at least for a period of time. With that said, and speaking for the majority of cases I have worked on, this has not proven to be the case, and I believe this to be so primarily due to the basic philosophical questions that I raised above.
Looking outside of the clients’ interests and strictly at our own temporarily: would it have made sense from a business standpoint to form North Improvement or start building our book differently? Early on this would have made life exponentially easier in many ways. If we decided to form as a captive State Farm, or Allstate office, for example, we would have been able to hit the ground running almost instantly with a company name that holds sway nationwide. Additionally by receiving support via a constant advertising campaign run by Home Office we would have been able to earn many of our clients with minimal effort and no expense paid out of pocket even though we would have only one company's products to offer. It would have also automatically provided us with the trust of millions of potential clients to whom we would have been able to market our products by leaning on our brand name alone. We also would have been bestowed with the legal and licensing infrastructure that took us months to put in place by choosing to go the independent route, and which delayed our being able to book any revenue early on. Going the captive route would have prevented much of our early frustrations, if again we were thinking primarily of our own interests rather than our clients’. It is important to note, however that I am not suggesting that captive agents or agency owners are generally selfish, I am simply reiterating that the way we intended to serve clients when forming would have been significantly hindered had we gone this route strictly to focus on generating revenue immediately.
Much of the same benefits would have been realized if I were to have simply joined an established independent brokerage (large or small) and built out a book as a producer. I would have had immediate access to the infrastructure needed to book business, including licenses, carrier appointments, a servicing team, and a locally, regionally, nationally or perhaps even internationally recognized name on my email signature. This option would have also provided me with in-house guidance from experienced producers. Interestingly, while I respect and remain in contact with many independent brokerage owners, executives, and producers, I never once truly considered going this route. This is partially because I had come from a large company and wanted a change, and largely because I am operating with decades rather than quarters or years in mind. Having complete equity in my book of business and ownership of sub-producers’ books and the books of producers who we will employ down the road is significantly more valuable in the long term than having immediate access to carrier markets and other infrastructure. Additionally, this approach would have left me hindered with a multi year non-compete agreement to deal with should we have decided to form North Improvement later on, which I knew was my ultimate goal.
Finally, the direct writer model (and I will include some MGAs in this group), has certainly seen growth in popularity as an option for startups. Companies like Lemonade have taken niche and even large market segments by storm, thereby shaking up sleepy parts of the industry. This is, frankly, great for the carrier side of the business, though perhaps not great for customers broadly speaking. Increased competition and the push towards technological advancement are undoubtedly making life easier for customers, and probably making rates lower for some, but operating in this format was simply not feasible, realistic or even ideal for us had it even been realistic or feasible. To form as a technology focused direct writer would have been nearly impossible early on. Technologically this would have been doable (I have app development experience), but from a regulatory, marketing, and human capital standpoint we would have required a significant investment to work with. Additionally, forming as an MGA, while reducing our capital requirements, would have left us beholden to a carrier who expected high premium volume as well as a large chunk of our income, while only affording us the ability to write niche risks, not to mention the technology expense of developing our own platform. Neither situation would have been ideal when considering the client base that we were forming with the intent to target, as their accounts are too complex. If we had a simple niche market to focus on, this may have been a worthwhile route to consider. Additionally, given the difficulty of insuring this client base properly, neither the direct writer nor MGA models would have been realistic, as these formats simply do not generally work well when dealing with complex risks. They rely too much on either writing extremely simple risks, or on customers having a deep knowledge of insurance and their unique needs, which in an industry this complex is unfair to ask of even the intelligent and sophisticated clients with whom we work.
Bringing the clients’ needs back into focus, it is clear that the non-independent options outlined above simply would have put our interests and those of our clients either at odds, or if not at odds, at a level that is less than equitable. I am convinced now, and likely will remain convinced that operating as a completely independent brokerage is the ideal situation for both our clients and firm in the long term. Further, I believe that this philosophy and structure allows us, and actually incentivizes us to perfectly align the interests of North Improvement with those of our clients. In the long run, and again we are making decisions with decades rather than quarters or years in mind, this structure will allow us to grow with our clients and to service even the most unique needs that come across our "desk". Remaining independent will allow us to remain flexible and capable of helping our clients with their most complex risks, while still being able to target the specific market segments where we plan to maintain our focus. Put plainly, no alternative operating structure could allow us to operate as intended.
Independent model apologia and philosophy aside: what does the future look like at North Improvement, and how do we intend to grow? This is a fun question, and one that I naturally think about often as a business owner. Lack of growth, by its very nature causes not stagnation, but decline when the world continues to move around you, so we must if not for our own benefit, for the benefit of our clients continue to grow at a rapid pace. Growth allows us to strengthen our carrier relationships, as well as hold additional sway with underwriters on accounts where they may be on the fence due to loss history or other reasons. While we have already doubled our GWP obtained during the final 5 months of 2019 in just the first quarter of 2020, we are only getting started. In addition to growing our ever-expanding base of referral partners, one big plan for the remainder of 2020 includes launching an extremely unique and exciting program that will serve a growing segment of wealthy millennials.
While details about this program will be made public soon enough, I can say now that its formation was influenced by my observing both anecdotally and across the industry that the future of the affluent market space will likely not look like the present, and will certainly not look like the past. Sure, generational wealth will always be around, and many producers will continue to have success networking at country clubs, but young people building their wealth now have unique interests, insurance needs, and account structures, particularly those living in metropolitan areas. We intend to become this group's brokerage of choice, while continuing to serve clients of older generations just as well as we have thus far. In order to achieve this goal we need to offer knowledge, service and products that fit their unique needs and set us apart from our competitors. This will be a focus of ours not just during the remainder of 2020, but for the remainder of this decade and those to come. We are beyond grateful and honored that our clients and referral partners have put and continue to put their trust in us, and as much fun as the last year may have been, we cannot wait to see what the future holds, and I hope that you will be a part of it. With a little less ignorance, and a little more confidence we begin year two!
Hayden A. Kopser
April 26th, 2020
North Improvement, LLC