Establishing A Marketing Department - And Who Should Run It

Agencies that establish an effective centralized marketing department as part of an overall strategic plan will experience a significant edge over their competitors who don't have such a department. This is because a centralized marketing department streamlines operations, allowing an agency to strengthen sales through a focused marketing and selling effort.

A marketing department is not the answer for everyone. Agencies that probably would not benefit from one include smaller agencies -- those with fewer than 10 employees and three producers -- and agencies that sell mostly Personal Lines, BOPs, or small Commercial Lines accounts.

Even large agencies that sell mainly large Commercial Lines accounts might not have the right culture for a marketing department to flourish. For example, producers or CSRs may feel that they're the only ones who can properly market their large accounts. This attitude, if not changed, will doom any centralized marketing plan to failure.

A centralized marketing department will work only in agencies that are interested in growth and have new sales as their primary goal. The owners must be proactive and willing to spend money to make money. Producers must be able to expand their current book of business rather than being 'maxed out.' Continual coordination with the sales manager or department is key to its success.

A central marketing department may be needed when more than one of the following is true:

• The agency has a number of producers submitting new business regularly.
• CSRs have little or no time to assist the producers with new business submissions.
• Producer/company relations are strained and need attention.
• Company volume commitments have been promised.
• In-house underwriting authority exists.
• The agency can afford to separate this function.

The primary goal of a centralized marketing department is to free up producers to sell and CSRs to service existing accounts. It's a way of refining responsibilities -- differentiating the selling of new business from the maintenance of existing clients.

Typically, a centralized marketing department handles all the marketing of new business for medium-size to large accounts and only the renewal of large accounts. Sometimes on renewal, the marketer will need only to provide advice to the CSR and producer, since they know the account so well. It's important to avoid duplicating efforts.

HOW IT WORKS

The process starts when a producer generates a new prospect and creates an application to be marketed. The application is then forwarded to the marketing department, where it's reviewed for accuracy. The prospect also needs to fit into the agency's predetermined guidelines for business that they will accept. Performing a screening process will limit the number of quotes and prospects the agency handles; however, it will improve the hit ratio and overall productivity.

It's important for the producer and marketing person to sit down and discuss the risk, so that all the issues are understood. For very large accounts, the marketing person should even visit the risk with the producer. The goal is to transfer the marketing responsibility from the producer to the marketing department. This allows the producer to focus on new sales rather then handle the details of marketing a piece of business, especially the administrative responsibilities of obtaining the quote.

Centralization should streamline the marketing process for an agency. Since the contact with the underwriters will be limited to just a few people, a good rapport can be developed. Consistency with the applications and better hit ratios will also win respect from the insurance companies, which favor the use of centralized marketing.

Producers who do their own marketing frequently block as many markets as possible and request quotes from companies that aren't interested or not competitive in that class of business. This action creates unnecessary paperwork for both the agencies and the carriers and diminishes productivity for all involved.

A centralized marketing department operating properly will limit the blocking of markets and unnecessary quoting by accepting only risks that the agency has a chance of writing. The goal is to sell insurance -- not to practice quoting. Improving the firm's hit ratio can greatly improve profitability.

DEPARTMENT RESPONSIBILITY

The marketing department is the agency's ambassador to the insurance companies. Each agency will have its own limit on what the marketing department can or can't do. Basic authority should include daily contact with underwriters and company marketing representatives. Also, the marketer needs to control what business the agency will accept and which markets it will use.

The marketing department should also collect, evaluate, and disseminate the latest product information. The marketers should become experts who train the sales staff about the strengths and weakness of the products they're selling, any new coverages available, and which markets are competitive with certain types of risks. It should be responsible for seeing that the company's volume goals are achieved, directing the placement of business to maximize profitability, and in some cases, even negotiating contracts with the carriers.

Each agency should evaluate its culture so it can establish what authority and responsibility the marketing department should have. Extensive authority will create a backlash if the owners and producers dislike delegating. Minimal authority will limit the usefulness of the department.

PROFILE OF A MARKETER

Who should an agency look for to staff its marketing department? It's imperative for the person to possess many basic skills already, so that he or she can hit the ground running. An agency can't afford the time and money to allow a person to grow into the position through on-the-job training.

Good marketing people are highly technical. They understand the underwriting issues affecting numerous types of risks. They must be able to determine quickly the information needed to underwrite the risk properly -- and know how to obtain that information.

Equally important is the ability to say, 'No.' A marketing person must be strong enough to tell producers and agency owners that a particular risk doesn't meet agency guidelines or should be marketed only to certain companies. Saying 'no' will keep an agency focused on its own rules and creates discipline and consistency within the ranks.

Sales and negotiating skills are also required. The marketing person must be able to work with all parties (clients, producers, CSRs, and underwriters) to ensure a win-win situation for everyone. The marketer should develop a good relationship with the CSRs to make sure that they don't feel threatened or demoted if their marketing responsibilities are taken away.

Monitoring and tracking skills will be put to the test. This position calls for a versatile, talented person who is detailed oriented and well organized.

WHERE TO LOOK

So who is this person who can act as a traffic cop to maintain internal controls, can diplomatically negotiate with underwriters to get the best quote, and possesses the wisdom and knowledge of a well-seasoned expert? The best place to look first is within your own staff.

In many agencies, there's at least one long-term, loyal, and knowledgeable CSR who can fill the role. The only rub is that this person tends to be the right arm of an agency owner or key producer. Often, that owner (or producer) may resist giving this person up for the new position. Owners need to have a strong vision of the future and appreciate the long-term benefits of promoting a great CSR rather than react to any short-term discomfort they may experience personally.

Managers can also tap some excellent outside sources. Company people such as underwriters may qualify for the role. Hiring an experienced person from another agency or national broker will certainly meet an agency's needs.

Whoever fills the marketing person role should be compensated properly according to his or her responsibility and the gains the agency receives because of these efforts. A good compensation plan would include both a flat salary and a performance bonus.

The bonus program should be based on new business production, account retention, improved hit ratio, and possibly contingent commissions earned by the agency. A compensation structure set up in this manner will provide financial security as well as incentives for high performance.

For example, let's say that before using a marketer, an agency generated an average of $50,000 in new commissions annually. Due to the marketer's efforts, new sales jumped to $150,000. A sample bonus program could pay the marketer 1% to 5% for all new business over the original $50,000 threshold. A multiplying factor on that earned bonus could be used when targeted hit ratios and account retention is reached.

The agency may choose to pay 3% on the $100,000 increase in new sales, or $3,000. If the targeted hit ratio is reached, the bonus could double -- and if the targeted account retention level is reached, the bonus could double again. This bonus would be an addition to a reasonable flat salary. Review the cost of compensation for the marketer in conjunction with adjusting producer compensation, since the producers are the beneficiaries of the marketer's efforts.

ONE LAST THOUGHT

Don't attempt a half-hearted venture down the marketing department path. The process, staffing, and structure should be well thought out and must be accepted by everyone -- otherwise it won't work.

A centralized marketing department is not for everyone, but those who effectively implement it will experience an increase in new sales and efficiency. Once it's incorporated, company relationships, client retention, and hit ratios should all improve. The effort and risk of creating a marketing department will be vastly overshadowed by the long-term benefits. Be willing to step up to the plate!

Catherine Oak and Bill Schoeffler 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].