Note to Lenders: New estimates please!

Anybody who's purchased a home will tell you that its a frustrating thing to have to come up with more money than expected when its time to close escrow. Although there are many causes for a closing cost estimate to be incorrect, one common issue is an inaccurate estimate for homeowners insurance.

When you get a loan, the lender will typically take the loan amount and multiply by a factor (what I'll now refer to as the 'guestimated insurance factor') ... to give you an estimated insurance cost. It has nothing to do with the house itself. No accounting for the twenty year old wood shake roof, the trampoline in the back, or the custom kitchen you are installing. Just a simple, cookie-cutter mathematical formula.

Lets look at how that might work on a basic deal. Lets say your house needs to be insured for $400,000. It might have a loan on it for $450,000 (your house price) X .002 (the 'guestimated insurance factor' used by the lender) = $900 (the estimate on your homeowners that is calculated in to your closing cost estimate). Let's say for our example's sake that the $900 estimate is spot on.

So here is the thing. From 2000 - 2007, we've seen the loan amounts on California real estate skyrocket ... before now dropping. During the first year of that spike in real estate prices, new clients would be happily surprised to find that their actual insurance costs were significantly less than the estimate. Let's use the same example above with an inflated home price / loan value. The same house would now have a loan for $650,000 X .002 = $1300 as an estimate for insurance, a difference of $400 from the original example. The client would be thrilled to hear that our policy was only $900!

However, lenders soon realized that the figures they were using didn't account for the inflated purchase prices / loan amounts. They want their figures accurate to qualify the borrower for the best / largest loan possible. Leaving $400 on the table annually didn't allow them to do that. SO, they dropped their 'guestimated insurance factor' to get their numbers more accurate. So now, instead of using .002, they changed their calculations to use .00138. The same house above with the same inflated loan amount of $650,000, with just a slight change to the 'guestimated insurance factor' would yield a more accurate rate of $900. $650,000 X .00138 = $900! Viola!

Problem is ... now the values have dropped on homes, resulting in lower loan amounts than before. Now our house that needs to be insured for $400,000 is only selling for $400,000. The mortgage folks are using the same 'guestimated insurance factor' (.00138 in my example), ... and the result? Our client is unpleasantly surprised to discover that his estimate is off. The lender calculated $400,000 (lower loan value here in Q3, 2008) X .00138 = $554. Thats $350 lower than the actual $900 premium ... which makes an unhappy borrower at escrow closing time.

All that to say ... "Lenders, its time to update your insurance estimates."

I thought unemployment was up!

I put a job ad up on Craigslist nearly a week ago. I figured with unemployment on the rise, we'd have a line of candidates waiting out the door. Number of interviews I've ran so far? ONE.

What gives?

In the posting, I put some very simple instructions to obtain an interview. The procedure I've used in the past when hiring is to collect resumes, review them, and call those that seem qualified. This time, I did things a little differently. The instructions are to send in the resume ... and followup with a phone call. I wanted to have the applicants demonstrate some genuine interest and the ability to follow directions.

So far, fifteen resumes have come in, only one called to followup.

Maybe Craigslist doesn't get as much exposure? Maybe people are intimidated to call in?

Strange.

Chapter 2 - The Real Estate Boom!

As I mentioned in my previous post, there have been three major insurance industry phases that have occured over the past ten years that have influenced the bulding of my agency. Today I'll explore the first of those phases ... The Real Estate Boom!

As a new insurance agent, old school sales techniques like cold-calling were taught to me as the sure fire way to be successful. But that marketing method never jived well with my business philosophies. I didn't like getting phone calls at my home during dinner time, regardless of the product being offered. So I wasn't about to do that to other people.

So how was I, a brand new insurance agent, going to meet new customers and sell insurance?

Simple: I marketed my agency to professionals in the real estate industry .... folks like Realtors, Mortgage Brokers, and Title Company Reps. On all real estate deals with conventional financing involved, proof of fire insurance (aka homeowners insurance) is required before the ownership of a property can change hands. My first goal as a new agent was to establish myself as the 'go-to-guy' among local Sacramento real estate professional working on escrow closings. Their clients needed the insurance product. They were going to buy it from somebody. I wanted it to be me.

Back in 1999, the insurance industry was really hurting. Several large carriers had stopped writing homeowners insurance in California. And the companies that stuck around had implement really strict underwriting rules: no wood shake roofs, no prior claims, no houses built over fifty years ago. Lots of people had a tough time finding a carrier that would write them, let alone give them individual attention and a fair price.

Looking back now, I see how the state of affairs in the insurance industry really helped a new agency like mine get started. Here I was, a young and hungry agent, marketing the heck out of local real estate professionals ... just at the time they really needed my services. Combine that with the fact that Sacramento real estate was about to go through one of its largest growth spurts, ... and you have the recipe for success.

My marketing efforts were pretty unsophisticated. I made excel spreadsheets of local offices, visited each office twice per month, traded business cards with the professionals I'd meet, and followed up with phone calls, emails, and hand-written notes asking for the opportunity to show them what I could do for their clients. I marketed myself as the guy who could insurance anything. As a matter of fact, the first marketing piece I ever did was a flyer with a picture of the parthenon, with a slogan "WE INSURE FIXERS." right smack dab in the middle. It was a great conversation starter with the people I was marketing, and clearly communicated what I could offer for them and their clients. Oooh... a quick look in the Styrsky Insurance archives finds me this ... not the original, this was a redone version, but you get the idea.

I hadn't planned it this way, but a trend developed. A Realtor would call me for help on some horrible deal they had going, something that required my immediate attention, took a lot of my time, and made me practically zero money, ... and I would take the time to help them. I'd fix the problem at hand. The Realtors were so grateful and impressed that they soon started to send me the good, clean, profitable deals too! Within six months, I wasn't just working on the place that had three prior claims built in 1920 ... I also had calls from clients who were moving in from San Francisco, buying a beautiful home in midtown and wanted a local agent to help. Over the course of the next three years, the core of my agency was grown by referrals from some of Sacramento's most succesful Realtors, Mortgage Brokers, and Title Reps.

I have to say that I am very proud of the way I grew my business back in the early stages of my career. Since the client came in as a referral from somebody they already trusted, ... I had instant credibility. I avoided being put in the position of the pushy, arm-twisting salesman who had to kick down the door to make a sale. Instead, a professional relationship was established right from the get go that allowed me to ditch that old school sales junk, and just get right down to the business of providing proper insurance for the clients I met with. Truly a win-win. I avoided the slimy underbelly of sales, and my clients got the very best advice around without having to worry about if I was taking them for a ride.

Chapter 1 - Getting Started

All the paperwork went through in January, 1999. "Congratulations," they told me, "You are now a Farmers Insurance Agent!"

I started from scratch. The agent I had worked for before was kind enough to allow me to take a few of my family's policies out of his agency and in to mine, ... maybe fifteen policies or so. But the transfer would take some time to go through. On Day 1, I had zero policies in force. I was young and ambitious. And very naive about how difficult a road was in front of me.

You have to understand a little bit about the insurance industry to appreciate how difficult it is to start an agency from the ground up. Unlike high dollar sales like real estate, cars, or mortgages, ... insurance guys get paid very little up front. A new home policy might cost the client $650 or so. First year commission for me? $97.50. ... And then, I had expenses to pay. Phone bills, business cards, E&O Insurance, ... all that good stuff. Take a look at this. My first paycheck in all its glory. A full month of marketing and sales resulted in this.

At one point, I was connected with a really old school, hard core sales manager. This guy was such a character ... straight out of a comic book ... he was the type of guy who had three martinis at lunch, smoked like a chimney, and cussed like a sailor. He used a no holds barred method to tear us up emotionally trying to get us motivated to sell. My wife met him once after hearing some horror stories from me. She commented, "Thats so weird. He seems like the nicest guy. Like my grandpa or something." The thing was, he WAS a nice guy. As long as it wasn't during business hours. He genuinely wanted success for all of us new agents. Its just that he was from an older era. He had been trained under an iron fist, and he had succeeded training others that way in the past, and so thats how he continued training right up until the day he died.

My manager's over the top angry sales manager antics never really worked too well with me. We butted heads on more than one occasion over everything from marketing to sales methods to dress code. He ultimately won the dress code battle with me by giving me free rent in exchange for a promise to wear a tie and shave my goatee. A free place to hang my hat and build a business? Deal. But we couldn't agree on marketing and sales methods. He wanted me in early in the morning and late at night hammering the area with cold calls. And in my free time, knocking on doors. That just wasn't (and still isn't!) my style. He wanted me to bring out the big guns of Fear and Guilt to sell insurance policies. I didn't (and still don't!) feel comfortable doing that.

And so, I was left to find my own way for the most part. Various trainers helped me here and there, but the way I wanted to build my business was so different than what they envisioned, they really didn't have a whole lot of input or advice to share with me. They were all trained in the tried and true old school marketing method of 'cold calls and X-dating', which I had already decided were not going to be the building blocks of my business.

Somehow, ... I made it. And more than that, I built an agency that even my old sales manager would be impressed with.

In my next entry, I'll highlight the first of three major insurance industry phases that have occured over the past ten years that have influenced the bulding of my agency.

Introduction - Pre-Insurance Days

My sales career had an illustrious start at RadioShack, Arden Fair Mall ... this was back in the early days of the free mobile phone giveaway programs (an outrageous, Purple Cow concept at the time). My sales manager told me to grab a clipboard and stand at the front of the store, right next to door, so that I could greet every person that walked in with an offer for a free mobile phone. We sold some phones, that's for sure. Led the nation at one point. I was pretty happy, feeling like I was makin' Big Bucks at $2,000 per month as a recently married full-time college student, but I didn't like the work on nights and weekends. I moved over to The Sharper Image (going bankrupt now), where the schedule was great, but the pay was horrible. Retail sales, with its pay based on evening, weekend, and holiday sales was not a good fit for me.

I figured that following the footsteps of my successful Real Estate Agent father would be a good way to go, so I asked him about it (little did I know that Realtors work plenty of evenings and weekends too!). "Son, nobody is going to buy a house from a twenty-year old rookie. It's a huge financial decision and people want to feel confident with their Realtor." Ah. He had a point. And so, I took my naive self down another path. Surely I can sell cars! (As if car salespeople don't work nights and weekends!) "They will hire just about anybody on a car lot, right? At least they'll give me a chance," I thought. Three interviews later, no job. Sheesh.

Back to Dad for some advice. "My boy ... have you thought about the insurance business? I have a guy that I refer to every time I sell a house and he seems to do pretty well. Let me see if he might have a position for you, ok?" The next week, I was working in the back office of a local Farmers Insurance agent's office where I experienced my walking-in-the-snow-uphill-both-ways introduction to the industry. My first task as an employee? Filing and mailing paperwork eight hours a day. I'm talking strenuous work here folks. Sore legs from filing-cabinet-crouches, paper cuts on my hands every day, ... TOUGH WORK.

My wife, Janice, dug out this photo of me from back in my days as an employee. Look at that cheesy smile! Just over a year after I had been hired, I had obtained my insurance licenses, been promoted out from the back room, and become armed with some experience and insight in to how the insurance industry operated. In December of 1998, I decided to strike out on my own.

Mistake Number One

Two months ago, I read "Naked Conversations: How Blogs are Changing the Way Businesses Talk with Customers" by Robert Scoble & Shel Israel. So excited about the ideas and concepts in the book, I called up my web design company and asked them to make it happen. They listened to my request: "I want a blog, right smack dab in the middle of the home page!" ... and they made it happen. Using the Blogger.com format, they used a quick and easy frame setup to accomplish the goal.

Here I am on post three and I realize my current web design needs to be completely revamped. Although the page looks sharp enough, the integration of the blog is sorely lacking. Because the blog appears inside of a frame, its not 100% integrated with the teamsia.com domain. And with that being the case, the blog simply can't be linked in to the blogosphere the way it should be. No links from other blogs. No search engine benefits. None of that good stuff.

I need to find a web design company with some experience in business blogging to put together something new for me. Anybody out there interested in tackling the project?

My Purple Cow

It must have been six months ago when it dawned on me.

What I realized then, ... that I now know that I want, what I absolutely need ... is a Purple Cow.





I was sitting amongst an intimate group of colleagues, sharing ideas about how to grow our respective businesses when a new concept began to stir around in my brain. The topic of referrals had come up and around the table we went discussing the various methods by which one could generate referrals. "Just ask for them directly! At the end of your meeting, just pull out a pen and paper, look them in the eye, and ask for names and phone numbers and get ready to write!" ... Regurgitated old school Sales 101 stuff like that.

All the ideas shared that day are not new to any seasoned salesperson. And they work well enough for some I'm sure. But as I sat listening to my colleagues, I began to realize something. Not only are all these method simply recycled marketing efforts from early generations of salespeople, their days are numbered. The clients that I am interested in developing relationships with are simply too sophisticated for that type of old-school marketing. And more than that, it just doesn't sit right with me on some level. I'm not content to spend my life figuring out creative ways to squeeze clients for names of their friends for me to pander my wares to. I want something more than that.

What if there was a better way to grow my business? What if I didn't have to ASK for referrals? What if my product was just so dang good that clients couldn't help but telling their friends about it? ... Yes, thats what I want. I want my product to be worth referring. I want my product to be so impressive that it demands to be referred.

Fast forward to today. Just eBay'd the book, "Purple Cow," by Seth Godin. One paragraph from the first chapter sum up the book's subject, remarkable businesses: "Something remarkable is worth talking about. Worth noticing. Exceptional. New. Interesting. Its a Purple Cow. Boring stuff is invisible. It's a brown cow."

Can an insurance agency be made to be remarkable? I believe so.

Join me this week, this month, this year ... as I expose the ins and outs of my company in an effort to build something worth talking about, worth noticing, exceptional, new and interesting.

Help me grow a Purple Cow for all of us to enjoy.