IMPROVING PRODUCTIVITY TO INCREASE NEW SALES
by Carol Hammes
When setting your agency's production goals for the coming year, don't rely on help from the marketplace. In fact, it might be prudent to project further cutbacks at renewal on those accounts that have been experiencing the most competition. For instance, assume normal attrition and the continuing effects of the soft market causes existing agency commissions to decrease by 10%. To break even with the previous year's revenues, new commissions equivalent to 10% of the existing book will have to be added. To achieve a 10% net growth rate, producers will have to increase last year's total commissions by at least 20%. Our statistics show that the average commercial producer is currently servicing commissions of $275,000. New commissions of $27,500 will therefore have to be produced in 1996 if that book of commissions is to remain even at the $275,000 level by the end of the year. To achieve a net increase of 10% (with a book of commissions of $302,500 by the end of the year), a producer would have to add new accounts with commissions of $55,000 and premiums of close to $450,000 during the next 12 months!
When setting growth objectives for the agency as a whole, or for individual departments and producers, agency principals must make sure that the goals have a reasonable chance of being accomplished. In the soft market commercial lines environment a 35% hit ratio of sales to quotes is pretty good. To write $55,000 in new commissions, a producer would therefore have to quote on accounts producing close to $160,000 in commissions. Assuming that the agency's geographic marketing area indeed has this much in potential business to be written, the first question you have to ask is whether your producers are capable of this level of sales activity. The second immediate question is whether the agency organization can support that kind of commitment to new sales while continuing to provide adequate service for the existing accounts.
A group of service and support personnel that's running at full capacity to accomplish their present workload does not have the time, energy, or motivation to respond with the sense of urgency that most new business proposals demand. If asked to handle more work than they can reasonably process under the current workflow system the quality of output from these people will suffer and morale will deteriorate, making it next to impossible for the agency and its producers to meet the aggressive but necessary sales goals.
Many agency managers have tried to solve this problem by 'staffing for growth,' adding more people in anticipation of the increase in revenues that had been projected. Overstaffing then often occurs when the expected growth did not materialize and the 'extra' number of service employees was not reduced accordingly. Almost miraculously, the workload stretches to fill in the time and procedures become less efficient. The general perception is that everyone is working as hard as they can. But are they really productive? And are they positioned to respond to the increased demands of the aggressive sales oriented environment that is necessary to be successful in the coming year?
The insurance agency of the future will be staffed appropriately with the type of people who are motivated through compensation and management direction to work smarter. Improving productivity levels in every facet of the operation must be a primary thrust of the planning process. Thanks in part to automation as well as to a more educated and motivated work force average revenues per employee, the standard measurement of productivity in insurance agencies, has more than doubled in the last fifteen years. The staff in the average agency is much more productive than it used to be but the variance in revenues per employee between the worst and the best is still from $30,000 to $200,000 per person. An agency with $1,000,000 in revenues could therefore have anywhere from five to 30 employees with the average head count for an agency of this size around 13.
The first step in comprehending the relative productivity levels of the people in your agency is to determine where you stand with respect to the averages. Once you have decided whether the overall number of employees in the agency is appropriate, the next step is to take a look at the individual departments to figure out whether there might be overstaffing in one area and a shortage of personnel in another.
Sales vs. Service/Support Personnel
It is instructive to analyze the current productivity of an agency by focusing on the efficiency of the producers versus the office staff. The average agency has from one-fourth to one-third of its employees in production positions with smaller agencies having a higher percentage of sales personnel in the overall head count. Generally, the agency revenues per producer will increase as an agency grows and will exceed the revenues per staff personnel by at least twofold, often more than that as the agency enlarges. This is due to the increased delegation of tasks by the producers to the technical personnel who often perform more of the account servicing and marketing activities in the organizations that are large enough to be able to hire people for specialized positions. The revenues per inside staff person and the corresponding difference are generally stable despite the size of the agency.
| Agency Revenues | Less than $600,000 | $600,000 - $1,500,000 | $1,500,000 - $3,000,000 | Over $3,000,000 |
| % Employees in Sales | 35% | 32.90% | 30.90% | 25% |
| Revenue/Producer | 190,671 | 265,118 | 294,905 | 433,299 |
| Revenue/Administration. | 100,944 | 124,376 | 132,074 | 144,433 |
For purposes of comparison with the above averages, determine the number of producers by counting all sales personnel including owners and treat the remainder of the personnel as administrative. Allocate portions of people to sales and administrative where owners or producers also spend a significant amount of time on management functions. Use total agency revenues including contingents and investment income for this evaluation. Note that the agency size groups are shown in revenues and not premiums.
Department Productivity Measurements
Another way of evaluating the overall productivity of an independent insurance agency is to relate the accounts and commissions handled per person to the averages of the peer group. The next chart presents the commercial lines, personal lines, and group health/life averages by size of agency. To compare apples to apples in this chart you must decide how many people to allocate to each department. Our measurements include all of the service and support people in the department, not just the service representatives. Managers, supervisors, marketing personnel, dedicated data entry or clerical personnel who work in the department should be included in the head count. In smaller agencies where people wear a number of hats, it may be necessary to determine how much of each person to allocate to each department. Use commissions, not premiums, and note that these measurements are per account, not per policy.
As with any general guidelines, it is important to carefully analyze the applicability of the numbers to your agency situation. These are averages comprised of all the best and the worst agencies around the country. To compare yourself with the above-average agencies, multiply the measurements by 1.25. If the claims function in your agency is handled by a separate department, increase the average guidelines on the chart by 1.15. If the agency is highly automated with most companies downloading and some uploading, increase the guidelines by 1.15 as well. If the average account size in your agency is much larger than the size shown for your peer group composite, you might want to compare your results to the agency size that most closely corresponds to the account size written in your organization.
PAST YEAR AVERAGE AGENCY PRODUCTIVITY MEASUREMENTS
| Agency Revenues | Less than $600,000 | $600,000 - $1,500,000 | $1,500,000 - $3,000,000 | Over $3,000,000 |
| Commercial Lines: | | | | |
| Commissions/account | 393 | 555 | 1,121 | 2,583 |
| Commissions/service person | 131,647 | 166,929 | 177,055 | 205,196 |
| Accounts/service person | 335 | 239 | 158 | 79 |
| | | | |
| Personal Lines: | | | | |
| Commissions/account | $114 | $132 | $151 | $192 |
| Commissions/service person | $90,752 | $114,969 | $116,541 | $115,246 |
| Accounts/service person | 796 | 866 | 770 | 600 |
| | | | |
| Group Health/Life: | | | | |
| Commissions/account | $813 | $1,125 | $1,504 | $1,665 |
| Commissions/service person | $146,320 | $165,943 | $215,560 | $239,760 |
| Accounts/service person | 180 | 147 | 143 | 144 |
Ownership Return
The agency composite ratios that were published last month showed reported profit margins ranging from 5.1% to 7.3% of revenues depending upon agency size. Because these firms are privately held corporations or partnerships, much of the profit potential is masked by owner compensation and perks that might be taken out of potential profits before income taxes are calculated. A slightly more accurate way of comparing agency profitability from one firm to another is to add together the owner compensation to revenues ratio and the profit margin to determine an ownership return margin. The following table presents key ownership data by size of agency for this past year. Remember, the better agencies returned at least 25% more to the owners than is indicated by these averages and a number of principals in the larger agencies individually took out more than $500,000 last year.
| Agency Revenues | Less than $600,000 | $600,000 - $1,500,000 | $1,500,000 - $3,000,000 | Over $3,000,000 |
| Number of Owners |
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