Buffalo-area agency offers unique blend of skills and services
Well, it’s February and we at Rough Notes want to show that we’ll go to any lengths to find the best agencies around the country. We’ve gone to a suburb of Buffalo this month to the Gernold a Agency in Orchard Park, New York. Okay, so we didn’t actually go there. We phoned.
The Gernold Agency is entering its 60th year of success in this suburb of Buffalo that is best known as the home of the Buffalo Bills and for its brutal winters. The agency, which was started by Leonard Gernold in 1935, is now being led by his son, Richard (Dick) L. Gernold, CPCU, CLU, who is president of Gernold Agency. Prior to starting the agency, Leonard was an office agent for Aetna L&C.
Dick joined the agency after graduate school in 1961 and got his feet wet fast when his father, unfortunately, passed away suddenly. Dick had only been at the agency for three months. “When I joined the agency, it was just my father and two employees. I barely knew how to spell insurance.” What Dick did know was what it took to be successful in any service business–relationships. And that has been translated into regular growth and a loyal clientele. The agency now employs 24 full-time people and boasts a premium volume of about $15 million or approximately $2 million in revenue. And nearly all of that has been generated internally, although “we did purchase a few small agencies over the years.” Peter C. Gernold, CPCU, and Virginia L. Hay are two other key personnel at Gernold Agency. Peter is involved in large account sales and Gini is in charge of all client service.
The agency’s success is the result of a “focus on a system that developed long term relationships,” Dick points out. “We work very hard to develop hands-on, value-added service for our clients and that makes us a little immune from price competition. We tend to develop long-term relations with clients by providing service that can’t be duplicated by other agencies.” Strong evidence of the success of this approach in retaining clients is the fact that of the 10 largest accounts in 1994, six were among the largest 10 accounts in 1984 and five were in the top 10 in 1974.
The agency also is unusual in that it represents only five companies–three of them are used for both personal and commercial lines and the other two are strictly commercial.
“Our approach has never been based on price alone. We won’t get into a situation where the buyer is only looking at price. We’ll walk away from that type of client. It’s just not cost effective,” Dick notes. “That doesn’t mean we won’t deal with a buyer who wants to evaluate his existing program. That’s another story entirely. In fact, we’ll spend anywhere from 50 to 80 hours working on that account. We go way beyond competitive price in preparing a new business proposal. It’s not unusual for the proposal to be 80 pages long.”
The proposal–“what we call GAP (Gernold Agency Plan)” will include a review of the potential client’s financial statements, leases of premises, as well as a suggestions for a lot of hands-on loss control methods. “We strongly believe in risk management and have built around that. You have to be cost competitive, but risk management far exceeds the concept of basing risk transfer financing on price alone.”
The proposal delineates needed coverages as well as filling any gaps in the client’s current program. “We’ve developed our own questionnaire that allows us to prepare a unique and detailed report. We have a highly automated proposal system that helps identify risks, as well as helping generate a report the average person can understand. Most insurance is not easy to understand, but we try to make it easy to understand.
“There’s very little differentiation from company to company concerning product, so we bring a high degree of sophistication to risk transfer by providing risk management services well beyond normal insurance advice. We’ll even make suggestions that cost us commission dollars over the short term, because we’re looking to build a long-term relationship. For example, it’s not uncommon for us to recommend high deductibles. We look over their financials and help the client determine how much they can afford to self insure.”
The Gernold approach to deductibles also is somewhat unusual. Once the amount a client can afford to handle on its own has been established, Gernold structures the entire program around that limit of assumption. The same deductible is carried across every line of business, except for coverages where losses could piggyback like building and contents where one loss probably would affect both areas. “In many cases, we’ll suggest that a client not carry collision coverage or full glass, for example.”
The concept also is carried over to a commercial client’s life and employee benefits. (Life and employee benefits provide about 6% or 7% of Gernold’s revenues.) “Many business people buy group life when they should self-insure it and pocket the premium. It’s really unlikely that a large number of losses will occur in one year. They should be able to fund any benefits out of current operating funds.”
“We do the same thing in personal lines as well. It’s not uncommon for us to recommend $1,000 deductible, which is a lot for the Buffalo area.”
“Once potential clients see our proposal, they quickly realize that they won’t get that kind of input from other agencies. They recognize the value of our service.”
Dick goes on to point out another distinctive aspect of the agency–its reliance on education. “We have six CPCUs and two CLUs and at least 10 other people involved in CPCU programs. We pay the full cost for the courses and give a bonus for completion of the course. We also pay up to $1,500 to go to convention to get the designation.”
Dick points out that the focus on education is an obvious extension of the agency’s goal to provide unique value-added service to its clients. In fact, the importance of the designations is emphasized to clients. “We talk about our focus on education in our written proposals to clients and why it is an advantage–because it shows that they are dealing with true insurance professionals. We even go so far as to suggest that they ask other agencies how many people they have with the designations.
“When we hire people, they know they will be part of that environment. Educational designations are on our business cards and we talk a lot about the value of education. We believe it gives us a competitive advantage.”
This unique approach that emphasizes service over sales in order to maintain long-term relationships is defined in the agency’s mission statement: “Gernold Agency helps protect client assets by providing superior service, innovative risk management advice and competitive insurance products.” That statement was adopted four years ago and “gave us a focus that was instrumental. All of our managers can recite it. It’s really been very helpful.” Dick goes on to explain the care with which each word was chosen for inclusion in the mission statement. “The word ‘helps’ is key,” he points out. “Clients that think we can do it all are not for us. We help them to help themselves at protecting their assets.
“‘Innovative risk management advice’ is an important phrase. We’re always looking for new ways to handle problems. And a lot of times, the answer is not insurance. Even though that may take commission dollars out of our pocket, we still go ahead with what’s best for the client. It has long-term benefits in that clients stay with us. And that focus is re-emphasized regularly. The mission statement is on the back of all our business cards and on every employee’s desk. There’s also a copy in the entrance to the building. Each year, a new copy is signed by everyone at the agency, framed and placed there where our clients can see it.”
The agency is highly automated, enhancing productivity. “We use The Agency Manager from Applied Systems and are the first large agency to be 100% in the Windows environment.
Everyone at the agency has a PC on the desk and uses it. We do a lot of in-house training on spread sheet and word processing software and have a part-time trainer on staff.
“We also spend a lot of money on people so we can hire educated people who are best able to take advantage of the automated environment and can present themselves in a professional manner to our clients. In fact, 20 of our employees have four-year degrees.”
The key is to find people who can deal with rapid change, Dick notes, and that usually involves unique people. “We made a number of reorganizations in order to get a better focus and that tends to create a lot of unrest. Currently, we’re evolving as generalists rather than specialists. For a long time, we were segmenting everything. But we don’t do that anymore. Insurance isn’t rocket science and an educated person can understand most of it. The emphasis now is on developing people who can help any of our clients when they call and who can be involved in perpetuating the agency.
“We do have one specialty, however–architects and engineers professional liability. Our advantage here is that we have a person in the office who knows more about the field than anyone in upstate New York. We get a lot of business just from referrals because Jim Maxson knows so much about the field. We started calling on architects and engineers when we had three in the late 1980s. We now have 72 clients and we’re growing. In addition to Jim, Karen Childs is concentrating in sales in this area. We are expanding our geographic base to other areas of New York state.
In addition to being extremely active in the agency, this grandfather also has his hands full with a new child. He and his wife, Linda, adopted an infant son from Bogota, Columbia, three years ago. “It was a second marriage for both of us. Linda never had any children. She’d had a successful career and wanted to have children. We found out about an orphanage in Colombia and went through the adoption process. It was very difficult. But it’s given real meaning to everything. I feel closer to my own kids. It’s been a great experience. It’s a neat feeling that you can be so attached to someone you’re not related to by blood and can bring him out of an existence that really was nothing. There are so many homeless kids down there. It’s a tragic commentary.”
In addition to his new son, Matthew, Dick has four other children, two of whom are active in the business. Amy is agency administration team leader and Andy is a commercial lines risk management adviser. His oldest, Becky, is a mother living in Washington, D.C. Rachel is a guidance counselor in a nearby school system.
Copyright Rough Notes Co., Inc. Feb 1995
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