Bruce Cochrane has been a thought leader and innovator in the Massachusetts insurance industry since the late 1970s when he started one of the first group property/liability programs in New England.
In the late 1980s, he formed and managed a successful self-insurance group for Massachusetts union contractors. He followed this in 1994, with a fully insured workers’ compensation program, The Renaissance Plan, serving more than 300 sub-brokers throughout New England. In 1995 he founded Minuteman Insurance Company, Ltd, a Bermuda-based reinsurer that reinsured much of the business underwritten in The Renaissance Plan.
In 1999, he launched Renaissance Alliance, an independent insurance agency alliance to revolutionize and enhance the manner in which the independent agency system typically conducts business. Today, Renaissance Alliance consists of more than ninety agencies writing more than $600 million in premium.
With such a unique perspective on the present and future state of the independent agency system in Massachusetts, Agency Checklists thought Mr. Cochrane’s thoughts and insights on insurance would be of interest to our readers.
Thank you for very much for agreeing to give us some of your insights into the present state and future of independent agents and the challenges they must meet going forward.
I appreciate the opportunity to share my thoughts with you and your readers.
You have a long history as an independent agent in Massachusetts. Could share your story on how you got your start in insurance?
I have both insurance and an insurance agency in my blood. Our dad was an insurance agent his entire career. He owned the Albert G. Ferguson Insurance Agency, at 33 Broad Street in Boston. I joined the agency in 1976, when Broad Street was still the heart of the insurance district. I remember looking out the 10th-floor window of 33 Broad Street down to the corner of Broad and Milk Street and seeing brokers passing slips back and forth on the street: Taking pieces of risks from one another. Obviously, a lot has changed.[pullquote]I remember looking out the 10th-floor window of 33 Broad Street down to the corner of Broad and Milk Street and seeing brokers passing slips back and forth on the street: Taking pieces of risks from one another. Obviously, a lot has changed.[/pullquote]
Before I joined, the agency only had four people. I made the fifth one and then about nine months later my wife joined us. It was a small agency with no automation. Since the agency was primarily personal lines, I decided to focus on commercial lines and started looking around for what every salesperson wants to discover—the thing that would make prospects talk to me as opposed to anybody else.
I eventually found a technique that had been successfully used out on the West Coast, but had not been used much here on the East Coast, called “commercial mass marketing.” Today we would call it “target marketing,” “affinity marketing,” or “association marketing.”
I went out and got endorsements from two trade associations to establish commercial group programs: One for printers and one for dry cleaners. We started these both up in 1978. They were wildly successful, and our agency grew significantly as a result. That success gave me my first experience on how to make this business work on a target market basis.
At some point, you became heavily involved in workers’ compensation issues. How did that happen?
That came about in the early 1980s, when worker’s compensation insurance began to be a real problem, not only here in Massachusetts, but all over the country. From 1986 to 1991, worker’s compensation rates doubled in Massachusetts because the rate-making mechanism couldn’t keep up with dramatically escalating costs.
At that point, the only alternatives to the assigned risk pool were individual large risk self-insurance (Digital, Wang, Gillette, etc.) and 1986 legislation that allowed the formation of self-insured groups for smaller insureds. We pioneered one of the first self-insured groups for unionized heating, ventilation and air conditioning contractors. That was quite an experience, but it gave us the ability to learn how to run and administer, in effect, our own insurance company, even to the point of setting reinsurance stop losses.
You are also a member of the workers’ compensation Rating Bureau (Workers’ Compensation Rating and Inspection Bureau of Massachusetts)
At that same time, I got involved with the Worker’s Compensation Rating Inspection Bureau of Massachusetts. Eventually, I joined the Bureau’s Governing Committee and have been on the committee ever since. The year 2018 is my 28th year on the GC and have served five terms as Chairman.
You had a workers’ compensation program using the Renaissance name. Can you tell us about it?
Once the Legislature passed the Worker’s Compensation Reform Act of 1991, we believed the Reform Act was going to be very successful. So, in 1993, we started the Renaissance Plan for Workers Compensation.
The Renaissance Plan was a retail workers’ compensation program that opened up for business when about ninety percent of the workers’ compensation risks in the state were in the assigned risk pool. The company was very successful because so many risks were dying to get out of the pool and the Plan was one of the few ways for these risks to exit the pool.
In 1995, we formed and capitalized with fourteen other Massachusetts-based agencies, a captive offshore reinsurance carrier, for which I served as CEO. With that addition, we became a virtual insurance company. We were already doing all the front-end servicing work that an insured employer or employee would need, but the reinsurer allowed us to get a very good return on our investments at the back-end of the whole process.
The Renaissance Plan worked very successfully until about six years ago when we realized the success of the Worker’s Compensation Reform Act had made rates so thin that it did not make any sense to continue the Renaissance Plan and its offshore reinsurance facility. Today, rates are forty to fifty percent lower than they were in 1985, with Massachusetts now having the third-lowest average worker’s compensation rates in the country.
How did the Renaissance Alliance for independent agents start?
The two major strengths of the independent agency system are independence and locality. Independence gives us the ability to access any carrier to meet the widely varying specific risk-transfer needs of our clients. Locality enables us to develop close relationships, which is the backbone of our industry. However, the Achilles heels of the American agency system are also independence and locality. The local independent agents cannot generate the kind of scale they need in today’s environment where big is better because they have a uniquely local and independent focus.[pullquote]The two major strengths of the independent agency system are independence and locality.[/pullquote]
We saw this problem of scale first appearing in the 1990s, and we said to ourselves, “OK, how do we take these small independent agencies and give them the ability to create the kind of scale these agencies need to survive?
We started researching agency “clusters”, and we found that three major things distinguished the successful clusters from unsuccessful clusters.
One was whether or not the cluster had a vision. Ninety-five percent of the groups today do nothing more than share markets and profit-sharing.
Our vision is that we aggregate not to aggregate. We aggregate because we are building the agency of the future. I see it as a major, major differentiation.
Number two, the presence or lack of full-time professional management. Most of the groups had part-time central management, usually a volunteer from among of the principals of the agencies, but whose real attention was justifiably back in the agency. So, the principals spend their time at the agency as opposed to driving the benefits of collaboration through the aggregation.
Number three is a lack of capital. There is very little capital on the balance sheets of most independent agents needed to fund the infrastructure required to manage centralized operations. That takes the capital.
So those were the things that we saw that distinguished the successful from the unsuccessful clusters. That formed the basis of Renaissance Alliance.
In 1999, we hired our first employee and spent fifteen months doing nothing but building the infrastructure. The first agent we brought onboard after Cochrane and Porter was in April of 2000. That marked the beginning of Renaissance Alliance: We are now in our 19th year.
What are the demographics of the average agency that joins the Renaissance Alliance?
Presently, Renaissance Alliance has approximately ninety member agencies. Sixty percent of them are in Massachusetts, thirty percent in Connecticut, with the rest scattered between New Hampshire, Rhode Island, and Vermont.
The overall business split between personal and commercial lines is about fifty-four percent personal lines and forty-six percent commercial lines. Massachusetts agencies tend to have more personal than commercial lines, while the opposite is the general rule in Connecticut.
What are the main benefits of an agency being a member of the Renaissance Alliance?
Scale, technology, access to specialized expertise, carrier management, offloading a host of backroom operations, agency research and development, etc.. We help drive down expenses, an create another layer of revenue that is not normally available to independent agencies. With these we can deliver service capabilities, such as access to expertise and technology that most agencies could not afford to achieve on their own. We spend a lot of time ,resources and focus on agency growth, because, that’s what it’s all about. Combine high sustainable long-term growth with expense minimization and you get exceptional annual profits that translates into incredible wealth. We try to remove much of the non-revenue generating activities off the shoulders of our agents, allowing them to focus more on income-producing activities.
We also manage carrier relationships. We do not get in the way of the agent; the agent still maintains their relationships with the carriers, but we manage the upper level of those carrier relationships, which can be very, very time-consuming. We have about forty standard markets, but our members do not have to spend the time managing the annual plan with the carriers at all. All those discussions happen here at Renaissance Alliance, so it enables our agents to spend all their time focused on growth. We envision shortly a point where our agents and their client-facing talent will be spending 80-90% of their time building relationships and driving real consultative value to their clients. Agents in general need to get out of the transaction business and into the consultative value business.
What also separates us from other groups is our use of technology. We have created a very robust data warehouse model and are doing the R & D for our agents on a day-to-day basis to drive to them the benefits of the confluence of technology, data and analytics so foreign to most independent agencies today.
Over the last five years, the average growth rate among all our agencies has exceeded eight percent per year, which is four times the national average. Our top twenty-five growth agencies have averaged better than 18% growth per year over that same five year period. Agencies who want to grow join Renaissance Alliance.
We do about eighty percent of the marketing and placing of commercial lines here at Renaissance Alliance. That means an agent fills out one application, electronically sends it to us, and we return coverage and quote offerings from every one of our forty carriers who have an appetite for that particular risk. On the other side of the coin, we guarantee our carriers, every single risk that comes in the door; they are going to have a shot at it, regardless. For the agent, that process dramatically cuts down the time they would have needed to wade through all their carriers to get quotes, an impossible task for any stand-alone agency.. With RAIS, the agent winds up with the two or three carriers from the entire marketplace that can provide the best combination of price coverages and services for their insureds, literally leaving no stone unturned in the process.
We spend a lot of time and resources providing agents with tools, techniques, capabilities to enable them to grow. Agencies joining the Renaissance Alliance need to have a burning desire to grow. I tell agents looking to join Renaissance Alliance, “If you do not want to grow, don’t join.”
What does the Renaissance Alliance charge its member independent insurance agencies?
We charge a small amount per month to our agencies, and we retain a small percentage of the profit-sharing. Our agents receive on average 250% more in profit-sharing through RAIS than what they would receive as a standalone agent.
Based on Renaissance Alliance’s involvement with independent insurance agencies, what are your thoughts about the current state of the independent agency system?
The independent agency system is at a crossroads. It is caught in the horns of a dilemma between what has made agencies a success up until now, and what will make independent agencies a success going forward.
First, you have an aging agency population. The average age of agency principals is somewhere around 58 years old. A lot of them are doing business the same way they were doing business twenty, or even thirty years ago. Many are reluctant to make the long-term investments needed in their agencies because they are close to retirement.
The system also has aging workforce. Many of those staff are not skilled in the digital world. Then comes the challenge of attracting new talent who have capabilities in the new digital world. The younger generation accepts a rapid-fire pace of change where my generation grew up with the old slow pace of change. Now things in the industry are happening in a revolutionary not evolutionarily way.
The bad news is the experts say forty-five percent of the insurance industry workforce will retire in the next five years. The good news is forty-five percent of the industry workforce will retire in the next five years. There exist both a need to retool the workforce and a means to effect that turnover. The huge challenge is how that transition will occur. How will we cope with retirements and how will we replace that productivity. We believe it will be a combination of human capital with vastly upgraded skill sets and technology. But, where do we start and how do we manage our way through what appears to be a very perilous process?
That is the real-world dilemma facing most agencies today, but those who can make the transition will be the ones who will be successful long into the future.
You say “retool” the industry. What do you mean by that?
The biggest challenge in the agency space right now is transitioning from a transaction based paradigm to a consultative paradigm. By that, I mean agents get bogged down eighty percent of the time on processes.
Independent agents can deliver the personalized, empathetic, consultative service that GEICO, Progressive or any of the other big box boys cannot provide. However, we are bogged down in a transaction paradigm. Twenty-five years ago the transaction was valuable because consumers had no other way to access this thing called insurance than through a transaction. They had to get it through an agent.
That has all changed with the Internet and the digital economies. The consumer can get the transaction from a myriad of sources, many right at their fingertips. The real differentiator for independent agents is our ability to deliver personalized consultative service targeting the specific individualized risk management needs of our clients. When I talk about helping our agents to transition into the future, we are talking about enabling them to cast off all those non-revenue producing transactions and processes and focus on a customer-facing consultative business model. And, technology will be a big piece in enabling agents to make that transition. That is where the future success of independent agents will come from.
How do you see Insurtech affecting the independent agency system? Beyond what you just said about the necessity to change to a consultative method of doing business.
The explosion of Insurtech in the insurance industry is a good thing. Just like in the dot-com boom in the late 1990s, you have hundreds of Insurtech startups swarming into the industry because this is where the opportunity lies. The vast majority of these ventures will fail, for one reason or another, but each insurtech learning will lead to more learning that will help shape the independent agent systems of the future. And, it won’t just be one system, but a collaboration of expert systems working together to enable agency success.
How do you see independent agencies coping with digital marketing by carriers seeking alternative distribution channels?
Digital marketing is not a challenge right now to independent agents. Digitally generated or general website generated leads has had up to now two basic flaws. They tend to produce high loss ratios and low retention: a very bad combination in our business.
This digital world of generating leads is not very different from the “spray and pray” type of advertisement we used to deploy when we put ads in newspapers or telephone directories.
The insureds these companies are getting are the ones who are shopping for a reason. We envision a point in the not-too-distant future when agents will have at their fingertips the metrics that will produce the precise profile of the risk that will deliver insurer profit, meaning they can concentrate on those prospects with the highest probabilities of success and drive agency hit ratios into the 80-90% range.
Are there any particular competitive challenges you see facing independent agent networks like the Renaissance Alliance?
The biggest challenge for the Renaissance Alliance is agent apathy. In talking to agents about joining, we tell them about the changes that need to take place for agents to compete going forward. Some listen, and others look at us, and say, “Why should I change what has made me a success up to now?” The simple answer is that what has made us a success up to now will not make us successful going forward.
Those agent groups that do nothing beyond sharing markets and profit-sharing, in my estimation, are providing agents with a false sense of security. These agents may receive temporary instant gratification from slightly increased revenue, but no help in adapting for the future. To us, that’s a huge wasted opportunity.
What are the differences between networks, aggregators, and clusters?
Rather than categorize those terms, I would say there are multiple types of groups of agencies. There are agency groups out there that are focused on very small agents. A lot of their members come from former producers for direct writers who now want to become independent agents. In my opinion, they serve a useful purpose in the marketplace for the agency starting out with no markets at all. Then you have organizations that cater toward the middle of the market. They may have some startups with more mid-size agencies, but no larger agencies.
Then are groups that cater only to larger agencies. What agency groups provide to their members runs the full gamut from those who provide access to markets to more complex services. Renaissance Alliance sits on the far end of the complex services end of the spectrum. We have access to and knowledge of just about every agency grouping in the country, so I can state without equivocation that no other agency grouping is delivering the breadth and depth of services to its member agencies as is RAIS.
What are your biggest fears for independent agents and the independent agency system going forward?
My biggest fears for independent agents is their transaction versus consultative bent. Unfortunately, we have too many agents who sell on price. The second part is the inability of agents to keep up with increasing consumer expectations. They may think they have great relationships with their insureds now. However, if they are not providing that ease of access and ease of doing business that we all expect now from anyone providing services, they are going to see consumers begin to step away to other alternatives.[pullquote]I am very bullish on the future of independent agencies… [s]tudy after study has revealed that 80% of the insurance buying public want to do business with those with whom they share values, human values.[/pullquote]
The same thing holds true for attracting talent. Agents need to create forward-looking and progressive work environments if they are going to attract younger people to work for their organizations. Agents need these younger people, who have grown up in the digital world to help lead their agencies into the digital way of doing business.
We have been insulated, until the last few years, from the huge changes going on in the rest of the financial services world. Now change is cascading down around us. Agents who can adapt to those changes will survive just like in any difficult times. Those who cannot adapt will sell out and hopefully, be successful in their retirement.
Do you have any particular thoughts on the current state and the future of the Massachusetts insurance industry in particular?
Massachusetts has unique challenges because we are still reeling in this state from the vestiges of the old “fix and establish” law for setting automobile insurance rates. The 2008 reform may have changed that to a certain extent, but we are years away from a complete transition to the fully open competition world that exists all around us.
We see a world of difference between Massachusetts agents and Connecticut agents. The bottom line is that Massachusetts is still very much in the dark ages as it relates to getting up to speed with what is happening in the rest of the country.
What are the factors an agency should consider in joining Renaissance Alliance or any other group?
First of all, sharing markets and profit-sharing are merely table stakes these days, without which joining any such group makes no sense. Then the question is what do I get beyond just sharing markets and profit-sharing? Can this group help me adapt to a very rapidly changing business and insurance environment or will I get lulled into a false sense of security and get blind-sided when I realize it’s too late for me?
Where do you see independent insurance agencies going forward?
I am very bullish on the future of independent agencies, who add the human elements of empathy, compassion and personal connectivity. Study after study has revealed that 80% of the insurance buying public want to do business with those with whom they share values, human values. I think it all comes down to a simple understanding that we’re not selling insurance. We’re delivering a comprehensive, personalized and consultancy-based protection service. Anyone can sell. Independent agents are and can be so much more. It’s all about delivering real and lasting VALUE!
Thank you for those insights and for speaking with Agency Checklists.
I appreciate the opportunity. Thank you for this enthralling discussion.