Your insurance agency has probably spent a lot of money on technology over the years. In fact, AgencyFocus reports that agencies spend around 3% of their annual revenue each year on technology. Larger agencies are spending at an even higher clip, with numbers closer to $35,000 per $1 million in revenue.
Much of that spend is on computers and software licenses for agency management systems, customer relationship management, and various additions to those platforms. The agency value tied to these may be minimal, as an acquiring or merging agency likely has its own in place and will make the integration or conversion. But is that the only value technology can bring to your agency?
We talked with Adam Bowe, the founder of Cake – an InsurTech platform that connects independent insurance agents looking to sell a book of business or a slice – a chosen group of accounts – with other agents looking to grow their business. "Technology can absolutely impact your agency's value. It is not as straightforward as 'if I have (insert a piece of technology), then my valuation multiple goes from X to Y' though. What you should focus on is the impact the technology has on your agency's operations. The more efficient your agency's operational workflows are, the likelier it is that the metrics that matter in an acquisition are going to compare favorably to the industry averages."
Having a workflow that streamlines agency operations is extremely valuable. An MIT Sloan study reports that the top 10% of companies, in terms of technology adoption, technology penetration, and organizational change, are achieving revenue growth that are double those of the bottom 25%.
"The value of your book of business is largely driven by the performance of that book," adds Bowe. "Finding your agency's true market value is a little more complicated than that (we built our free Book Valuation Engine to help agents understand the value of their biggest asset); the factors driving value in your book are fairly straightforward. How big is your book? Are you profitable and growing? What do your growth and retention rates look like?"
In addition, if your agency has developed tech processes for prospecting, generating leads, developing new business, onboarding clients, enhancing the client experience, and fostering retention – you're well ahead of the game.
The Implementation Key
Please remember that any agency can purchase software. The key to adding value for your agency is how you use it. How are you defining and measuring your agency's tech use and adoption? Is your team invested in the successful return on your investment?
Data also shows that insurance customers are switching who they work with based on customer experience. 36% said a "better digital experience" was the reason behind their change. That number will likely continue to grow, which begs the question: "How good is your agency's digital experience?" If the answer is "not very good," you may want to build that into your future strategy. If your answer is "excellent," you may have just identified a new value point for your agency.
Measuring this implementation, use, and impact should be a Key Performance Indicator (KPI) for your agency's strategy. Understanding the tech's impact on your client experience is another.
"These are often the same KPIs that the technology products you are buying are focused on making more efficient. So, yes, technology can absolutely impact your agency's value. But only the technology that is helping you run and grow your agency efficiently," concludes Bowe.
To summarize, can your technology impact our agency's value – absolutely, but only with the right plan, oversight, and measurement to ensure that technology is improving your team's work and your clients' experience.
