Evaluating Producers

EVALUATING PRODUCERS

by Catherine Oak

The more effectively your agency evaluates and manages producers, the better for them — and you.

Who’s responsible for sales management in most agencies? This task often falls to the owner or the top producer. However, this might not be a good idea, because sales management can take time away from the manager’s own sales efforts, and good producers don’t always make good managers.

Sales management, important as it is, doesn’t have to be a full-time job in most agencies. If you set, communicate, and monitor goals properly, hire and develop the right people, and remove unreasonable obstacles to production, producers should essentially manage themselves. They just need to know that you’re monitoring their performance and won’t tolerate poor performance.

PRODUCER PERFORMANCE

An acceptable level of performance for experienced, seasoned producers depends on a number of factors, such as:

• Available producer support
• Sales skills of the producer
• Size and type of accounts in the geographic areas
• The competition
• The local economy
• The markets represented

This article provides some rules of thumb. If you don’t set performance standards for producers, they’ll set their own — which will probably be lower than you expect!

Ideally, you can use the performance of the best producer who has ever worked for the agency as a guideline for top producer performance. The average Property/Casualty commission per producer of firms in the database at Oak & Associates (Mill Valley, CA) ranges from $200,000 to $242,000, depending on agency size. These commissions include “house” accounts and direct-bill commissions, which aren’t necessarily “handled” commissions. Well-run firms have $343,000 to $446,000 in commissions per producer.

In surveys asking owners what size book they would expect experienced producers to handle after three years, the answer is $150,000 to $335,000 in commission. The range depends on the size of the firm. Expectations for new business produced each year in addition to the books handled, ranged from $32,000 to $62,000, based on the agency’s size. The average annual book of new business produced came to about 18%.

For new producers without experience, agency principals expected about $100,000 in commission after three years, with $25,000 to $40,000 in new business commissions. New producers with experience (and without existing books of business) were expected to produce $150,000 to $200,000 in commissions after three years, with $35,000 to $50,000 in new annual commissions.

PRODUCTION GOALS

Involve producers in the goal-setting process by requiring every producer (veterans and rookies alike) to meet a new production requirement — for example, 10% growth, net of attrition.

The producer should then let management know how they plan to achieve this production (that is, the number of quotes and policies that need to be written). Based on the producer’s own hit ratio and size of account written, determine whether this goal is achievable, and then break it down into monthly targets that will make it easier to manage producer performance.

Management needs two sales goals for each producer. The first is the required increase in new business — the number of accounts or commissions handled by the producer. The second goal should specify the type of account and the source of the new business to pursue (such as account development, writing new accounts from referrals, target marketing, direct mail programs, and so on).

SALES MEETINGS

To monitor sales activity properly, hold effective weekly sales meetings. Specific sales activities should include new business, lost business, hit ratio for each producer, prospect activity, referrals obtained from new sales, and so forth.

These meetings should also provide agency principals and non-owner production staff information on markets, sales goals, collection problems, and service backlogs. Producers have egos and need recognition — so these sales meetings offer an excellent opportunity to recognize superior performance, encourage double-teaming, and provide support by coaching and training.

COMPENSATION

Well-designed compensation plans reward above-average performance with bonuses: Of additional commission for increased levels of new production, additional perks, and other incentives. For example, an additional 5% in commissions could be paid per $5,000 in new production after a minimum goal is met. Many agencies today pay more commission for new versus renewal business.

In addition to an effective compensation plan for producers, we recommend compensating CSRs for their production efforts over and above their salaries. Besides, CSRs handling the phone calls, mail, claims, and the renewals often do a good job in developing existing accounts.

Owners realize they can’t afford to pay producers for sales or service work done by CSRs. The key to compensating staff or producers is to base pay on the job performed. This is why many agencies have stopped paying Commercial producers for Personal Lines accounts and often have lowered the amount paid to producers for small Commercial Lines accounts.

We recommend paying the service staff incentives for new business as a percentage of first-year commissions and/or a flat dollar amount per new policy. You can usually easily afford to pay the new commission for CSRs on new business, since the amount is often lower than the commission you would have paid for the same new accounts.

PRODUCER SUPPORT

All producers need time to sell new accounts. Agencies that provide support for good producers enjoy higher productivity and more growth from new production. Producer support can come from three main areas:

• Development of leads and appointments
• Assistance in marketing or placement
• Servicing of accounts written

TARGET MARKETING

To achieve a high level of performance, producers also need to target larger accounts, focus on certain classes of business, and write more lines of coverage for each account. A sales assistant or even a telemarketer can help develop the leads for larger accounts and target particular industries in which the producer has some interest or expertise (perhaps those for which they’ve written at least three accounts of the same type).

A producer’s existing accounts, especially in their area of expertise, provide the best source of new sales referrals. They should seek referrals from new accounts, difficult renewals, and accounts that have experienced excellent claims service.

HIT RATIOS

Another sales-management key is to manage producers’ hit ratios (the number of risks written to the number quoted). Producers can greatly improve their hit ratio on new accounts when they have good marketing and placement support. More agencies today are using a central marketing specialist or department to help write new medium-size or large Commercial accounts.

A hit ratio of 20% to 25% is average for Commercial Lines — although obviously, the closer to 100%, the better. In Personal Lines, the hit ratio is usually 40% to 60%. Hit ratios can be improved greatly when producers spend more time qualifying the prospect initially. Key areas to uncover in the first critical 20- to 30-minute interview include:

• What the prospect considers most important in their insurance program
• What politics, price, and product the producer is competing against
• Whether the producer has built a good rapport after this initial meeting, etc.

The producer should complete survey forms and collect copies of existing policies collected in the second interview, after the prospect has been properly qualified.

The higher the producer’s hit ratio, the lower the agency’s s expenses.

SUMMARY

To keep your agency growing successfully, you need effective management of sales and producer performance. Sales management can be easy if you create and maintain a process that monitors specific sales activity and performance. Effective sales management will not only reward you today and in the future, but help non-owner producers achieve their goals.

Catherine Oak can be reached at Oak & Associates, P.O. Box 2047, Glen Ellen, CA 95442, (707) 935-6565, fax (707) 935-6515, e-mail [email protected], or visit www.oakandassociates.com.