THE NEXT GENERATION OF INSURANCE AGENCIES
by Bill Schoeffler
The common thread in all the advice given in today's business and management books is that we're going through a period of change. This is especially true for the insurance industry.
'It was the best of times, it was the worst of times. It was the age of wisdom, it was the age of foolishness.' These first lines from Charles Dickens' A Tale of Two Cities could come from any of the numerous management books today.
We now need to consider chaos the norm. Commission rate changes, carriers withdrawing from various areas, alternative marketing strategies, and legislative changes are a few of the many challenges facing agents every day. We need to learn how to excel in this turmoil.
The service industry, of which insurance is a part, should take a look at the manufacturing industry and learn from their hard-earned lessons. The companies that survived and thrived pay attention to quality and customer service. Today, these are the same thing.
Quality is not just theory anymore. It's necessary for survival. If we improve quality, we'll lower costs and improve productivity. We can then lower our prices, which will increase our market potential, allowing us to stay in business and give everyone a return on their investment.
OLD WAY VS. NEW WAY
Fredrick W. Taylor was the driving force behind the movement known as Scientific Management. This is the foundation for today's managerial practice of separating planning from execution. Assuming that the workers lacked the necessary educational base, planning became the province of managers and engineers. The workers executed plans that management developed.
This concept was widely adopted and is a major reason for the United States becoming a world leader in productivity. This culture is still well entrenched in today's society-despite the global competition and information explosion that has made this model obsolete. A paradigm shift must occur to allow businesses to move to the next level and respond to the current trends in consumer needs and demands.
The old way focuses on pleasing the managers and controlling the work force; the customers are taken for granted. The new way focuses on pleasing the customer by improving the system processes that deliver goods and services to the customer.
When we practice the new way, management becomes secondary. The new way requires us first to understand our customers. Then we can work backward to understand our systems and redesign them to improve our service to customers.
THE NEW CONSUMERS
The sophistication of the consumer has greatly expanded. The typical insurance customer is demanding higher quality for less. Does this mean it's the worst of times for agencies? It depends. If proactive management is practiced, it will be the best of times. The Chinese character for crisis is the same character for opportunity. We must learn to turn crisis into opportunity. The U.S. auto industry was faced with being almost closed down by the Japanese competition. Instead, their profits have grown each year since this 'crisis.' Agency owners will find that focusing on quality is the road to opportunity.
Due to the costs of producing and servicing an account, the average firm needs to retain an account for three to four years before they earn a profit. Firms with great customer service have account renewal virtually guaranteed. Find out not only what the customers need but also what they want.
The U.S. inventor of the fax machine considered it to be useless because it didn't fit into any existing category. The Japanese company that bought the rights did not limit its thinking; it let the consumers decide. Agency management should survey their clients annually for feedback on customer service and suggestions.
QUALITY AND THE END RESULT
The incorporation of quality techniques into the service industry lags behind a similar movement in the manufacturing industry, perhaps because the concept is confusing. Theories tend to be too simple, failing to allow for the complexity of dealing with real-time subordinates, changing needs, and conflicting demands. Other theories are so complex that only an armchair academic could love them.
Faced with declining profits and competition from new sources, agency owners are discovering the advantage of quality. But even when the commitment to quality is made, the question remains, 'How do we translate our goal of quality to results?'
Quality is not just the process of checking policy forms for errors or documenting feverously to avoid Errors & Omissions claims. Quality is a thought process that everyone must develop. It requires focusing on the end result. Everything we do can have many different purposes. By keeping the end result in mind as we perform a task, we'll open our mind for more innovative approaches to any process. The end result that insurance agencies must focus on is satisfaction of existing clients and attraction of new customers. The decisions and actions made every day must be made with this result in mind.
How does this all fit into an insurance agency? Very simple: Chuck out all your old beliefs and tear down the current system-but first finish reading this article! In the old way, managers used deductive thinking (define the problem, then seek the solution). In the new way, managers will think inductively (recognize solutions first then seek out problems to solve).
WHO ARE YOUR CUSTOMERS?
Let's explore how quality and customer service translate to practical information. At this point, we now need to expand the definition of a customer. A customer is anyone who receives the firm's product. In the case of a CSR, customers include the person purchasing the policy as well as the underwriter who is sent the application. Producers should treat prospects, underwriters, claims people, and CSRs as their customers.
This concept does not need to be complicated. Just list the people who receive any of the firm's end products; they're the customers. Service them well and they'll stay satisfied. Employees must believe that they work for their customers, not their bosses.
KEEP IT SIMPLE
Every firm has five major functions: sales, marketing/placement, service, accounting, and administration. Every procedure and process in each function must be redesigned with the end result in mind: quality customer service and attracting new customers.
In the old way, jobs and tasks were to be kept simple. This led to very complex processes and many layers. Today, the goal is to make the processes simple and to combine several jobs into one. The payoff in integrating all processes will be more production and fewer errors-reducing or eliminating the need for reconciliation.
For the output to be improved, the system must be improved. To make this successful, address several concepts, including:
- Development of conditions to allow workers to exercise self-control and inspection
- Empowerment of employees to handle a wider variety of tasks
- Development of a team approach to service clients.
Communication and training are fundamental to improving systems. Steps in any process should be in a natural rather than linear order. To generalize, the individual tasks for any job can be performed either in parallel or in sequence. The more tasks being performed in parallel (with fewer people), the simpler the process. The interaction of these systems results in quality. All steps within the systems are ultimately interdependent.
TEAM UP TO SUCCEED
With personnel handling a wider variety of tasks and the use of teams, processes become simplified. In the old way, bosses designed and allocated tasks. Now, teams assume these responsibilities. Quality is a result of teamwork, not individual effort. Teams break down the artificial separation of departmentalization.
The organization will succeed only if all employees do their job and share joint responsibility for the end result. Firms that utilize teams need less management. Producer units can be the nucleus of a team. Still, pay attention to ensure the producer units do not become firms within a firm. A CSR's reluctance to help another producer when someone is out sick will destroy team spirit.
The new model for an agency is 'a complex job for smart people.' Continued education over the lifetime of a job is now the norm. Producers need to work as if they're underwriters. CSRs need to understand the claims process. Bookkeepers need to think like owners. Everyone must be sales oriented.
This doesn't mean that the producers should be doing the filing. Tasks like that should be performed by the least-paid qualified person. Employees however, must be well trained and should know what information is needed to service the client best, even if that information doesn't fall within the scope of their job.
Beware of misusing technology to reinforce bad habits. Employees who don't use the computer system fully will actually be less efficient than those using a manual system. The proper use of technology is paramount to success and should be used to create new ways of working. A shared database can compress any process into parallel tasks-for example, when a CSR calculates a client's premium while the producer checks the client's record.
The use of expert systems will allow semiskilled workers to operate at a nearly expert level. It may allow anyone to cross-sell or round accounts. With today's wireless technology, sales people can collect and send information from anywhere, including their car, an airplane, or the prospect's office.
EMPLOYEE MOTIVATION
Understanding what motivates each employee is crucial. The effective use of bonuses means more than promotions. Don't give out Christmas bonuses unless they've been earned. The criteria for evaluating employees are now contribution to the firm and customer-service performance. Develop compensation plans based on an employee's efforts to increase profitability. Institute a CSR incentive program. Give a paid day off to the employee of the month. Take top producers and their spouses to dinner. Everyone wants to be recognized for doing an excellent job; management's job is to find out what forms of recognition employees appreciate most.
In Oak & Associates' consultations with hundreds of insurance industry firms across the United States and abroad, we've noticed certain patterns common to high-performing firms: tremendous energy, synergy, and commitment among everyone in the agency. This is more important than the leader doing everything by the book. The group acts as a cohesive team, going beyond just having all-stars. We also notice healthy competition among the employees, especially among the producers and CSRs. Finally, management believes in the abilities and intentions of employees, and creates new opportunities for top performers to advance.
SUMMARY
Everyone in your agency needs to share the same vision. Employees that understand, at least in a general sense, your firm's operations and goals will tend to act more like owners. They'll be more responsive to clients, leading to improved customer service. If quality is poor, everyone should feel shame.
Agency owners should be creative in how they relate to employees. Firms that allow employees to act as entrepreneurs will generate creative thinking, and the staff will know that their efforts will allow them to share in the firm's success and profits. Today, you need wisdom, not foolishness. This may be the worst of times, but you can make them the best of times.
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].