STAFFING SMART
by Roy Phillips
Agency profitability can start with well-trained, well-compensated customer service reps who know their jobs.
Reasonable expense ratios can be the difference between a profitable agency and an unprofitable one. A big category to study in the budget is the group called Administrative Expenses, and the biggest subcategory under administration is salaries.
Your leader enables you to allocate all expense items in their particular code or sub-division. It is very important that you use proper allocations in order to determine accuracy of ratios of expense to revenue. For example, some ledger forms will allocate a code for Executive Salary, but if you were computing the ratio of labor to expense with a goal of 20 percent salaries to revenues, you would not want to include the Executive Salary, only the clerical salaries.
Let's assume that an agency's annualized premium is $2 million and the average commission in the agency is 15 percent. The agency is evenly divided into 50 percent personal lines and 50 percent commercial. The annualized property and casualty revenues would be $300,000. The 20 percent goal of office salaries to gross revenue then would be $60,000. This would include the payment of all benefits and taxes for office staff. Many agencies operate at much higher ratios, depending on their location (urban v. rural).
Next comes the proper ratio of revenue per customer service representative. We must first define the CSR as any office employee of the agency who is not an owner and not an outside nonowner producer. This ratio can range from a low point of 17 percent (Mom and Pop shops) to a high of 32 percent (overstaffing in action). If our example agency has four CSRs, we can see that the revenue per CSR is $75,000, which is an average. Agencies with higher revenues per CSR are likely to have some or all of the following characteristics:
1. High degree of automation, with all work stations fully networked. Full customer retrievable database. Insurance company interface for personal lines, including policy changes and issuance of new policies.
2. Account development given top priority. Licensed CSRs commissioned on categories of business being sought by the agency, on a time basis only.
3. CSRs well-trained in coverages and general questions from customers. Able to handle each transaction quickly and accurately.
4. CSRs well-compensated and rewarded on performance basis related to retention and development.
In our original example, it would not be unusual to find that the CSRs are not compensated on performance. The discretionary raises and bonus awards are not directly related to something tangible and are received with less enthusiasm than the owner might think.
How many files (or clients) can an individual CSR service? It is common in a $2 million agency for CSRs to have 1,100 to 1,800 personal lines files and 240 to 600 commercial files. But the efficiency is not in a certain number of files, but in the revenue generated for the average file.
You will recall that our example agency has $2 million in annual premium, evenly divided, with 15 percent average commission. This relates to $150,000 in commission revenue for each line.
The personal lines count of 1,100 when related to the $150,000 in personal lines commissions is $136.36 per file, compared to the lesser $83.33 for 1,800 files. Correspondingly, commercial lines produces $630 v. $250 respectively. The larger the revenue yield, the greater number of various type policies for each customer file.
How do you get there? It begins with a certain expectation of the CSR staff and an understanding on their part of the benchmarks. Your location will control the labor cost to an extent, but CSRs should be compensated on ability to meet the agency needs in these areas:
1. Absorb additional new business and growing revenue from existing business.
2. Develop an account to seek out as much revenue as potential.
3. Retain accounts with good client relationships.
4. Develop good 'money handling' habits and have a low accounts receivable track.
5. Work well with the company underwriters and claims staff.
6. Keep abreast of suspense and maintain adequate time frames for account renewal.
7. Continually educate themselves in the product and the customers' needs.
8. Work well with others in the agency.
9. Recognize that producers have a considerable number of bad habits and take care of them in spite of themselves.
10. Have the type of personality and professional decorum you can respect.
Whether you pay your CSR staff 19 percent of gross or 28 percent, the above traits are fair benchmarks in deciding who will share in the lion's share of the overall percentage raise each pay adjustment period. You may consider each of the 10 assets as equal value, and therefore the person who scores 100 points gets the maximum percentage pay raise. One CSR may get the full 20 percent, if that is your ceiling, while another may receive only four percent for lesser performance.
The single greatest complaint of CSR personnel is related to compensation.
One very professional woman probably summed it up best when she commented:
'I just want to know what the salary increase yardstick is.' You're always safe rewarding superior performance.
Reprinted with permission from Texas Insuror.