The entrance of a new competitor or rebirth of an existing one can have an enormous impact on an industry in a very short time period. They can have even greater impact on established businesses when their presence or new tactics are completely unexpected.

Think about how heavily many big-name companies have been hit by competition. MySpace® was the first social media site to entice teens and young adults, but Facebook® and Twitte®r prevail today amongst all age groups. With warm bookstores offering comfy chairs and gourmet coffee, Borders® was the popular source for books —until Amazon® offered a new alternative. Formerly the phone of choice for accessing email on-the-go, Blackberry® was blindsided by Apple’s iPhone. And Kmart®, which was a household brand in the 1970s and 1980s was pushed aside by the likes of Walmart® and Target®.

Once the leaders of their industries, these companies dramatically declined because of intense, disruptive competition. Before fading into the background, however, they fought financial battles to maintain their positions. The changes occurring in insurance are just as notable. Of all the industries that spend billions each year on advertising, the insurance industry consistently ranks among the top three. And to help ensure returns on their advertising investments, insurance companies develop big budgets so their marketing strategies, sales forces, online tools, customer service systems, and other functions can adequately manage the resulting business. What’s more, the introduction of direct-to-consumer selling through online channels promoted via every type of media available has certainly changed insurance as we knew it even five years ago. In addition, private equity backed roll-ups and agency clusters that can share resources and benefit from increased size and economies of scale are quickly growing.

Independent agents face great challenges if they want to remain independent. More so now than ever before, companies with deep pockets make it difficult to capture and maintain valuable customers. To respond appropriately, you have to achieve a delicate balance between sustaining your business according to your vision and long term plans and taking action to counteract market changes. It’s a tricky disposition in which to be because it’s not wise to allow competitive moves to be the primary influences of your strategies, but they present real threats that can’t be ignored.

So how do independent insurance agencies face competitors without blowing their budgets, especially those with enormous resources? It’s important to discover ways to effectively fight your battles without financially damaging or crippling your business. Here are some considerations to make as you develop strategies to manage competition while managing your cash flow.

It’s unrealistic to believe you can copy your competitors’ tactics, and you don’t need to. While independent agencies are in a serious fight, view your challenges as smaller battles. If you try to go head-to-head with big competitors and their big resources, you’re likely to lose. Insurance ads, for example are developed with great creativity and fanfare than they were a decade ago. They’ve even become part of pop culture. What’s more, carriers have succeeded so much with imaginative, expense ads, more companies are following the same pattern by developing their own brand of humorous ads with fictional company spokespersons and animal characters.

This creativity and spending extends to websites, billboards, magazines, email and direct mail. It’s impossible for independent insurance agents to engage in advertising battles to these magnitudes. Agents, however, shouldn’t throw in the towel and assume that all is lost. In general, all insurance advertising can be used to the advantage of agents who are doing the right things. Many insurance ads today —especially property and casualty ads — prompt consumers to think about insurance when they otherwise might not consider it. When insurance agents stay in front of their clients, the agents can find themselves on the receiving end when these same consumers are moved to review their policies.

Independent agents can offer a strong differentiator – deep, personal relationships and customized service. So while the commercials are designed to help the advertising carrier, agents who have built and maintained strong relationships can also benefit. If they are viewed as a trusted resource for insurance information, they may be top-of-mind for people as they have questions or doubts about adequate insurance coverage. Instead of draining your budget to do local advertising, simply keeping in touch with your customers and their needs via phone, email or face-to-face appoints, can allow you to counteract the big advertising dollars in a way that’s unique to your business. In essence, you’re identifying the weaknesses of your competitors and making them your strengths.

Properly responding to big competition means attaining a healthy balance between sustaining your business and counteracting market changes. If you want to succeed in the face of competition and today’s fast paced changes, you can’t completely stay the way you are. Yet change almost always comes at some expense. There’s usually no way to avoid spending some of your budget on measures that will bring about change and growth in your independent agency. So how much money is reasonable to dedicate to these efforts? Can you spend less money for marketing but, instead, spend more time developing relationships? Are there some kinds of investments that might be better than others? Successful businesses have proven it’s extremely difficult to impossible to keep up with the current times or to grow without investing some money. So while you can’t ignore competition and hope it will go away or have little effect on your business, you must look at what types of investment can have positive impacts on your business without draining your cash flows.

Technology, for example, has proven to dramatically help improve operating efficiencies, generate leads, increase profitability and more. Competitors typically have an arsenal of technological innovations to aid their businesses. It’s difficult to successfully manage the sales and prospecting process without a good CRM system. Winning customers is a lot easier if you can provide people with access to online information and quoting.  And keeping in touch with thousands of customers and prospects can be more cost effective with email broadcasting subscriptions. These are all ways in which technology is pretty standard for agencies to simply function and exist today. Thus, spending the dollars on such expenses makes sense and is necessary.

When making growth investments, agents should be careful about their expectations for how much revenue strategies may generate — how they will affect cash flow. Software can cost tens of thousands of dollars while subscriptions to online services can run between a few hundred to a few thousand dollars per month. You have to know, with great detail and certainty, how technology will be used, how it will fit into an overall plan and how it will translate into a return on investment. This rule applies for all investments in the agency, especially when they’re aimed at competition. Before you decide to increase your budget and copy the tactics of big competitors or choose a conservative approach and in ‘business-as-usual’ mode, consider the impact potential changes will have on the financial health of your business.

About Oak Street Funding

The materials in this paper are for informational purposes only.

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