10 Basic Planning Initiatives That Will Add To Your Bottom Line

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The need for planning has never been greater.
While planning focuses on profitability, growth, and all of the associated areas and generally requires a commitment of money and time, there nevertheless are many small and inexpensive initiatives that can be taken to benefit today's agency.
 

Here are 10 initiatives, in no particular order: 

1. Break down your activity into small, manageable modules and then into steps within the modules. Take the successful ones and make small improvements in the way you do them. 

2. Take an introspective look at the areas in which your agency does not perform well. Then take resources away from unprofitable areas and reinvest them in the successful ones. 

3. Learn everything you can about your automation system. Evaluate results on current reports. 

4. If you have not done employee performance evaluations in the last six months, do so now. First, consider testing your key people by having them complete a personality/skill/interest profile, which can be used as a resource when you do the individual reviews. 

5. List all of your carriers on one or two pages, ranked by written premium and loss ratio. Do this for the last five years, breaking the list down between Commercial and Personal lines. 

6. If you do not generate 15% of revenues from cross-selling Life, Disability, Health, and long-term care products, contact your carriers to find out what kind of assistance they can provide in improving this revenue without increasing your expenses. 

7. Determine which of your carriers have preferred agency contracts, and develop a proactive plan to qualify for every one of them you can. 

8. Measure your producer's overall activity rather than premium written and commissions generated. Enough activity should produce acceptable results. 

9. Determine your agency's renewal retention ratio. If it is not at least 80% overall, determine where you are falling short and why. 

10. Evaluate your prospect database. If you do not have a formal program to keep it updated on an ongoing basis, develop one. 

Now let's take each idea and expand on it. 

Initiative No. 1: 

What you do now, you probably do well, but break down your activity into small, manageable modules and then into steps within the modules. Take the successful ones and make small improvements in the way you do them. 

For example, your receptionist probably greets everyone who comes through the door, directing them to a waiting area while locating the person they want to see. Since client advocacy is the goal of agencies today, your agency must present a friendly and caring environment for its clientele and employees. Everyone in the office can be asked to greet all clients and ask if they've been helped, even those sitting in a waiting area. Coffee or tea should be offered if it is reasonably convenient to do so. 

This tells clients that they are important and that the agency wants to help them. It also makes the client feel good-and starts him or her on the road to being an advocate. 

You may also want to expand your renewal processing to include a "How are we doing?" questionnaire asking the client to rate agency service and communication. The questionnaire should be returned to the agency principal or manager. Have the department providing the service review it as well, and answer any complaints as quickly as possible. 

When processing a renewal 60 to 90 days before it's due, you should have time to respond to a problem. You can also contact the insured to try to cross-sell or further develop the account if the response is favorable. (Don't forget to ask for the name of a friend, relative, or business associate!) 

Most agencies pay a higher commission to a producer for new business and less for renewals, so an improved renewal retention ratio will have a significant impact on your bottom line. 

Initiative No. 2: 

Take an introspective look at the areas in which your agency does not perform well. Then take resources away from unprofitable areas and reinvest them in the successful ones. 

For example, Personal Lines rate levels will fluctuate, and at times you'll be able to write an above-average amount of new business because you enjoy a rate advantage; at other times, you are at a disadvantage. 

When you find yourself at a temporary disadvantage, pull some resources away from new business generation and focus them on account development, cross-selling, and so on. Initiative No. 1 discusses improved renewal retention ratios as a way of adding to the bottom line. 

You might also consider producers who are being financed in some way. If you determine that they are not meeting the agreed-upon standard, discontinue financing and put them on a straight commission basis, setting a time frame within which these producers must improve results or be terminated. 

Look at your non-producer employees the same way. If you have an experienced Personal Lines CSR who is handling a smaller number of clients than handled by the rest of your CSRs, establish a time by which the standard must be met. In the meantime, don't spend a lot of time and money training them. Instead, put it into those who are meeting or exceeding the standard. The low-performing CSR should be able to meet the standard, but if not, you are better off terminating him or her and investing the time and money in someone who can meet the standard. 

This is just one of the reasons why testing is so important. Testing allows you to focus on strengths and take initiatives to overcome weaknesses. If you know in advance that a person you're hiring has good communication skills but needs help with sentence structure in letter writing, make this a training priority. You may even plan to have someone review their letters for a time. 

On the other hand, existing employees with poor communication skills and no motivation to improve are not candidates for anything but time-limited probation. If no improvement is forthcoming, they should be terminated. 

Initiative No. 3 

Learn everything you can about your automation system. Evaluate results on current reports. 

Most systems provide financial, production, expiration, book of business, receivables, and other reports. You should be able to get the current month, year to date, comparisons with the previous year or period, and a comparison of actual vs. forecasted results. Doing so makes it relatively easy to determine the problem and opportunity areas. 

It's imperative to USE the data you get, however. To do that, you should know how to access it in a usable format and how to evaluate it. To do any of this, you need to be confident that what goes into the system will come out in a measurable, accurate format. 

For example, most systems can measure activity based on coding that the person working on the system inputs. If code use is not standardized, the system won't work well. On the other hand, if you have a published list of codes and the use of each is specifically described, activity measurement should be consistent. Some people refer to the process as "managing by exception" because you focus on the areas where you are not performing. 

It makes no sense for an agency principal to make a substantial investment in a system and then turn it over to the agency staff or to a person who does not see the big picture. The principal should know exactly what the system is capable of and to set the tone for what goes into and comes out of it. 

If you run an expiration list for the month, at some point you should also be able to run a list of the accounts that were lost as well as renewed. Once you know that, the next step is up to you. You can do nothing-or you can ask yourself some questions: 

1. What is the industry's average renewal retention percentage, and how does our agency compare? 

2. If the agency is below industry average, why? 

3. What can I/we do to improve it? 

If you break this all down a bit more, you can compare individual producers' retention ratios, CSRs' activities, and so on. The information positions you to manage things. Automation systems will organize and provide vast quantities of information; the challenge is to know enough about it to manage effectively. 

Initiative No. 4: 

If you have not done employee performance evaluations in the last six months, do so now. First, consider testing your key people by having them complete a personality/skill/interest profile, which can be used as a resource when you do the individual reviews. 

A review of John Jaques' "Mack Truck Theory" and his "Up or Out Program" in this CD-ROM is in order. It's also prudent to review "Employee Testing." Frequently, agencies haven't evaluated employees in years-and if they've had one, it's been cursory. Why not turn evaluations into a positive experience? Employees can complete their own evaluations, with the supervisor doing one, too. Then the two of them can discuss what is good and not so good about the employee's performance. 

Your automation system should be able to provide activity data to enable you to compare an employee's performance with that of a coworker. Personnel records will provide data about attendance and other areas. The supervisor should be able to provide insight about attitude, reliability, and so forth. 

A meaningful review allows you to help the employee with a personal plan for growth. It's cost effective, and it's a wonderful opportunity to recognize a good employee. 

Remember, though, that a salary review is not necessarily the result of a performance review. For example, if you have a set time of year for all salary reviews, have the performance review three months before that and give the low-performing employee an opportunity to improve. If he or she fails to meet the mark, you have already laid the groundwork for placing them on probation. Another benefit is being able to schedule and budget for training once you review everyone. 

Initiative No. 5: 

List all of your carriers on one or two pages, ranked by written premium and loss ratio. Do this for the last five years, breaking the list down between Commercial and Personal lines. 

You will probably think about or look at this exercise in segments or when you do the inevitable carrier surveys that hit our desks early each year. The key is to summarize and then do something with this information-to get it into a perspective that you can use in planning. 

For example, if over a five-year period you have averaged $750,000 per year in written premium for a particular carrier, incurring a 50% earned loss ratio (and assuming a 60% loss ratio as break even), you have produced 10 points of underwriting profit for that carrier. That amounts to $375,000 in underwriting profit over a five-year period to that carrier. The carrier is probably aware of it, but it's important they know that YOU know it, too; it will provide you with a bargaining chip. 

Most carriers are losing money on underwriting, and when you are able to produce a consistent profit for them, it is an advantage for both of you to consider. What you need to do is make them aware of your value to them. Push hard for preferred agency contracts and for recognition. 

Share your business plan with them and show them where they fit in. Take every opportunity to tell your story to the carrier. Visit the home office at least once a year, and get the local branch or regional office of the company to set up your visit, so that you are able to talk to some important corporate people. Don't assume they know anything about you. 

On the other side of the coin, if you are unprofitable with a carrier, you need to know why. Analyze and consider those for whom you have produced less than desirable results. The problems may be yours or the carrier's. 

Many carriers have taken a short-term approach to resolve a long-term problem. They develop pricing strategies based on a book of business and apply overall percentage increases to almost all business without regard to an account's profitability to the carrier. This strategy has not worked well in most cases, since the carrier ends up driving most of their good business to the competition and retaining the business that is less desirable. In effect, they see an improvement in loss ratios, but by selecting against themselves, the book actually deteriorates. 

Instead of hiring underwriters and giving them the authority to do their jobs, many carriers impose these short-sighted strategies on their underwriting departments. They should let the underwriters make intelligent judgments, holding them accountable for their own results. Poor judgment on the part of an underwriter will show up in the results, at which point you can deal with specific problems. Many carriers still have too many agencies representing them; in many cases, they do not have agencies that fit their profile. There are still a number of badly managed agencies in business. 

Look at your results by carrier and by line of business, and focus on problem areas with both your good-relationship carriers and the others. If you need to move some accounts, do it; if you need to get rid of some, do that. Have a formal plan to get things back on track and improved to the point of being in a win-win position with the carrier. 

Then tell the carrier what you are doing and what you expect from them "down the road." Make them aware that your goal is a preferred agency contract, so that they can be defining and providing feedback to you as you develop the relationship with them. You will know soon enough whether you have something in common and if the relationship is going in the right direction. 

Another thing carriers look at is activity. They want above-average renewal retention ratios and hit ratios on quoted business. They also want real growth. Many of them want Life as well as Property/Casualty business. Most of them want to be No. 1 or No. 2 in your agency. If you are performing well for them, you should try to get into that position. 

If you have a number of carriers, try to position yourself so that each carrier has about the same volume. If you have five carriers who are all at about $1.5 million in written premium and profitable, they could all be high on the list as long as you continue to take care of them and grow consistently with them. 

Initiative No. 6: 

If you do not generate 15% of revenues from cross-selling Life, Disability, Health, and long-term care products, contact your carriers to find out what kind of assistance they can provide in improving this revenue without increasing your expenses. 

It is no secret that a Property/Casualty agency with a client relationship is in a strong position to write Life, Health, Disability, annuities, or long-term care for its clients. Normally the client trusts the agent and identifies with the agency. By cross-selling the other products, you strengthen the bonding process and make it difficult for a competitor to take the account from you. 

There are two messages here. First, you will provide a service that your clients expect from you. Second, you will strengthen your bond with the carrier. 

Most carriers with Life subsidiaries want to build them and are looking for opportunities to do so. If you have a "ready made" client base that can be accessed for Life products, the carrier will be happy to help you. (Life means Life insurance and all related products.) 

You should be able to produce a prospect list from existing clients broken down in any format you wish. Most carriers are willing to invest some money to help you develop some of the Life business from those accounts. 

Carriers will probably do one or a combination of things: 

    1. They may put a trained Life person on the premises to help you with the process.      
    2. They may set up a direct-mail program that either they or the agency control.      
    3. They may offer some telemarketing services as a vehicle to contact your clients after direct mail has been sent or at the initial contact.   
    4. They may provide some financing for you to set up your own unit utilizing a trained Life person, direct mail, and telemarketing.      
    5. They may devise some other method or combination of methods to help you.      

Any of these methods costs little to set up. In fact, the carrier may finance the entire venture. With very little expense on your part, then, you will add to your bottom line, bond your clients to you, insulate them from the competition, and strengthen you relationship with the carrier. 

All you have to do is provide access and the prospect list. Try to maintain as much control as you can and keep the process on your premises as much as possible, but don't be afraid to let the carrier go with it. 

Some carriers prefer their own sales centers. While I still have a strong aversion to carrier sales centers, that may be the alternative you have. Every study on the subject indicates that clients want to know who they are dealing with, and that they want personal service. Many company proponents argue that they can accomplish the task with company sales centers, but I still feel that the local contact is the most viable one. There's not much difference between Personal Lines or small Commercial Lines centers; in either case, it's likely that you will lose contact with your client. 

However, if you just write customers and forget them-and only TALK about service-you may as well use a company-sponsored sales center. (Some companies call them "service centers.") 

Whatever method you choose, the benefit to you is an increase in your revenue without much of an investment on your part. This is certainly an answer to reducing your acquisition costs for new business. Existing clients may be the best prospects. They will listen to you and be receptive to what you have to tell them. Who tells them doesn't matter, as long as this person is identified with your agency, representing it responsibly and professionally. 

Initiative No. 7: 

Determine which of your carriers have preferred agency contracts, and develop a proactive plan to qualify for every one of them you can. 

Preferred agency contracts provide a number of benefits to the agency, ranging from commission enhancements to improved profit-sharing. Most include aid with sales promotion, agency management services, and other benefits. 

While the contracts vary from company to company-as do the services and concessions-they nevertheless benefit the agency. Some are based on premium volume levels and a requirement to produce an underwriting profit for the company; others tie in renewal retention ratios and other retention ratios; still others factor Life insurance production into the equation. We even see some carriers having more than one contract-that is, one for Personal Lines and another for Commercial Lines. The point is that you should proactively plan to qualify for every contract possible. 

Imagine the impact a preferred agency contract would have on a million dollars in premium volume if you could enhance commission and profit sharing five points ($50,000). While contracts all work differently, the message is obvious. This money is like "found money" that goes directly to your bottom line. 

A proactive plan involves, but is not limited to, the following: 

    1. Building the company's volume in the agency      
    2. Regular review of agency loss ratios with the company      
    3. Meeting or exceeding stated company measurement criteria with respect to renewal retention ratios, quote "hit ratios", etc.      

This all involves a commitment to include the company in your planning efforts. You will probably have to discuss your plan with company people, making them aware that you want to qualify for the preferred agency contract and to prepare a plan jointly and formally to lead to realization of the contract. Then you need to include the planning agenda in your written business plan and set up regular monitoring. 

If you are on target and growing with the carrier, it will see progress and start treating you like a preferred agency before you become one. Once you get into that mode, you will be able to ask for concessions and exceptions that you might otherwise not be able to get from them. 

By all means, meet regularly with your local or regional office company people to review progress and determine where any problems are developing, so you can respond quickly to troubling situations. If, after nine months or so, you're on target, start asking the carrier to prepare the paperwork and get the process going. Most carriers are notoriously slow about processing paper, so you want to get the ball rolling as soon as possible. 

Initiative No. 8:

Measure your producer's overall activity rather than premium written and commissions generated. Enough activity should produce acceptable results.
 

Traditionally, we look at the obvious when reviewing production with producers. Sale of new business and renewals translates into written premium and commissions. 

You might want to consider activity based measurements instead of premium and commission. For example, if a producer has 30 renewals in a designated month and renews only 25, the renewal retention ratio for that month is 83%. If your agency planning goal is 90% and you have two or three producers who are falling behind, you need to determine the problem. 

By talking to the producer each month, reviewing the goal and the actual results, reviewing lost accounts, and so forth, you may be able to determine whether you have a producer, company, or agency problem. The trend may signal a negative change in the company, and may require a response or adjustment. 

"Lost Business Questionnaires" are recommended in such cases. They ask the client why he or she changed agencies and whether the agency may re-prospect them on the next renewal. Mail them to the insured with a return envelope. If you determine that the problems are service-related, you can respond in house; if they're company-related, you can take other action. 

The producer's sales activity is another area that can be measured. The sales process involves a number of steps. You start with suspects, who will need to be turned into prospects. You make appointments with the prospects, providing insurance quotations to a certain number of them. You should be able to write a certain percentage of the ones you quote. Insurance sales is a game of numbers, pure and simple. The producer needs only to decide how and where to find the suspects. 

The chain might look like the following: 

  • Start with 1000 suspects      
  • Will produce 800 prospects      
  • Will produce 600 appointments      
  • Will produce 400 quotes      
  • Will produce 200 written clients      

If a producer's goal is to write 10 new accounts each month, by working backwards, the producer must be achieving at least the following numbers: 

Monthly

 

Activity:

 

Annually

 

50

 

Suspects

 

600

 

40

 

Prospects

 

480

 

30

 

Appointments

 

360

 

20

 

Quotes

 

240

 

10

 

Written clients

 

120

 

The agency's sales manager should sit down with the producer at each month's end to review the producer's results. If the volume of activities is not producing the desired result, the manager and producer together should be able to identify the problem and deal with it. 

Look at where the suspects are coming from-and for that matter, where all potential clients come from. Agencies' sources for leads run a gamut: 

Sophisticated ones may have sales centers or telemarketing units, while others may buy leads or association programs that provide lead lists. Some agencies work strictly on referrals from other clients; still others generate all new business from cold calls. Some methods are more costly than others, and some require a much higher number of suspects to achieve the desired results. 

Do whatever seems to work best for your agency, and then, by tracking activity, determine your "hit ratio" and set some goals. That done, you can focus your sales planning by regular monitoring, and get the results you want. 

Initiative No. 9: 

Determine your agency's renewal retention ratio. If it is not at least 80% overall, determine where you are falling short and why. 

This point was touched upon in No. 8. Renewal retention is vital to an agency. Studies have been completed by many companies and organizations about why agencies lose customers. Usually the main reason is that they were customers and not clients. On IMMS' CD ROM, an "Advocacy Ladder" lays out the steps in the client relationship. The ladder covers the progress of the relationship, starting with the suspect, to prospect, customer, client, and finally advocate. This relationship development begins at the new sale; the rest develops later. 

Too many agencies spend too much time and money developing the sale, which is one of the reasons acquisition costs are so high. Once the sale is made, the account usually does not receive much attention. 

Advocacy comes with time. Advocates provide referrals to an agency and even help to lower acquisition costs, because when someone contacts you or the agency, the sale is well on the way to being made. 

Consider the following scenario: 

An agency's written premium is at $10 million, with an average commission of 12.5%, developing gross commission income of $1.25 million. 

The agency has a renewal retention ratio of 80%, meaning that it will renew $8 million of the $10 million in written premium. That develops commission income at 12.5% of $1 million, or a loss of $250,000. 

If the agency's goal is to grow by 10% in the next year, it must actually write $3 million in new business premium at a cost of $2.57 per $1 of commission income. ($2 million of the $3 million goes to replace the lost renewal business.) 

However, if the agency sets a goal of increasing the renewal retention goal to 90%, it would need only $2 million in new business to replace the lost business and meet the overall growth percentage of 10%. 

In simple terms, by increasing the agency's retention to 90%, the gross commission income generated increases from $1 million to $1.125 million at a servicing expense rate of $.40 per $1 of commission, rather than the acquisition cost of $2.57 per $1 for new business. You don't have to be a rocket scientist to figure out the benefits to renewal retention improvement. 

Next, consider what is needed to improve the retention ratio. All the experts tell us that communicating with clients is our most important task. That means saying thank-you for their business, keeping them updated on claim progress, regularly surveying their needs by mail, phone, and in person, and solving their problems as quickly as possible. The client has to believe that the person working with them has only one focus: the client. 

This takes honesty: admitting when you make a mistake and then correcting it by going beyond what is expected. It also means providing clients information to keep their insurance costs down while adequately protecting them. Communication requires you to make it your agency's mission to pay attention to the customer. 

Initiative No. 10: 

Evaluate your prospect database. If you do not have a formal program to keep it updated on an ongoing basis, develop one. 

Advocacy leads to referrals, which lead to prospects who are already more or less sold on doing business with you. A good deal of activity, however, will not take place until some time in the future. Expiration dates of current coverage might not come till later; the prospect might still be satisfied with the old agency and not quite ready to make a chance. Prospects are always conflicted about making a change. 

The key is to keep them ready until the circumstances are right for everyone. 

Eventually you will have their business. The same applies to a lost account. Staying in touch moves suspects into a prospect position. When they are going to make a change, you have to keep them thinking only of you or your agency. 

Keep your database up to date, so that anyone who looks at the prospect file will know what is going on with that prospect. You can keep prospects on your newsletter list, send them birthday cards and congratulatory letters, "diary" your file to call on them on a regular basis, and in general do whatever it takes to stay in touch. 

In all this talk of the prospect database, let's not leave out your existing client database, which is separate and distinct. 

Another method of improving renewal retention, generating new business from existing accounts, and cross-selling other lines of insurance is to be sure your client database is always up to date with telephone numbers, names, addresses, locations, and so forth. 

These 10 initiatives will benefit your agency. They don't cost a lot to implement, and the benefits are real. You can affect your bottom line and carrier/client relationships to your advantage-this year!
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