Agency Profitability Audits Lead To Greater Success

Almost two years ago, after 10 years of consulting, I accepted a temporary assignment of managing an independent agency that generated 85% of its income from Property/Casualty Lines and 15% from Life, Health, and financial services products.

The agency had just been terminated by its primary carrier, which accounted for 82% of its income and 7,000 clients. The agency had also just lost the services of its manager for the past 18 years, as well as every Commercial Lines producer. As if that weren't enough, the only people who were trained to use the agency's brand-new computer system left the agency on the system's first live day of operation, before completing the data-conversion process.

Needless to say, this was the greatest challenge of my business life. However, not only did the agency and I survive, but by the end of 1998, income had grown by 10%, while the agency's value increased by more than 20%. How did we accomplish this goal?

Most important to our success were the remaining agency employees, whose dedication I rate higher than any group I've ever worked with. Equally important was the application of what I call the Agency Profitability Audit.

The Agency Profitability Audit consists of five stages:

We applied the audit to virtually all aspects of the agency's operation, including computer data and use, sales and marketing, agency procedures and policies, communications and Internet use, customer service, agency image, advertising, financial analysis and forecasting, and the agency business plan. Many of these aspects were interrelated. Some also led to the auditing of other agency operations. Here's how the process works:

To analyze the agency data, it must first be collected. Some of this can be done through the agency's management system, but that's not always possible. The report features in the computer systems sold to agencies are amazingly weak sometimes. They seem to be developed by people who have never owned or managed agencies. That factor was one of the most difficult challenges to overcome.

If the data can't be obtained from the management system, it must be uncovered the old-fashioned way: by manually counting, asking, and assembling. What kind of data should you obtain? Analyze these areas:

• Production and account data
• Computer data and usage
• Sales strategies and results
• Agency procedures and policies
• Communications
• Customer service
• Agency organization
• Financial position
• Business planning

With a checklist/score card I've developed over the years, we were able to identify and place a score on our current position, and then establish our priorities for what had to be fixed, who was responsible to ensure that the fix was accomplished, and when it needed to be completed. This was no shotgun approach; it was directed and systematized.

Understanding the agency's objectives seems simple enough. Most agency owners have mental pictures of their objectives, which are usually pretty similar: increasing the value of their business and providing themselves with higher income. These are laudable goals. Unfortunately, few agency owners ever attain what they could because they make little or no effort to establish the interim steps to achieve those goals.

The next objective is to determine your agency's assets and course of action. Realistically assess your agency's personnel. On a scale of 1 to 10 (10 being the highest and 1 being the lowest), grade all persons, including the agency owner, on how they currently perform their job. Then grade each person from 1 to 10 on what they could do if they were properly trained or managed. Anyone who falls below a 7 in what they could be should be guided toward a career adjustment. This person might be better at another job in the agency-but you must be prepared to replace a nonperformer.

Employees and owners are not the only agency assets. Other assets may include the agency's location, relationships, customer base, and Internet presence, and all of them should be considered before the agency determines its course of action. This determination, when written, will become the agency's business plan. Business plans are dynamic documents-road maps, if you will-that are continually being updated and changed, but if used properly will ultimately lead the agency to a success far beyond that of other agencies.

Once the course of action is determined, it's time to discuss the changes with all agency personnel and to enjoin the support of your companies. A positive spin should be put on all proposals, and each participant should know what part they play in the re-engineering of your business.

An old adage of business is, If you keep doing what you've done, you'll keep getting what you got.  In fact, one definition of insanity is repeating what you've done in the past and expecting different results. Because change is difficult and must be continually reinforced until new habits develop, you need to reinforce your changes constantly, and talk to employees and company personnel to determine that everyone is still on track.

The final step is to put the new procedures and practices in writing and establish regular follow-up to make certain that everyone is keeping with the program. In other words, it is time to audit the audit. Little change is accomplished without regular follow-up.

Everyone knows that you can't take one golf lesson and then join the PGA. It takes many lessons, practice, and regular coaching to attain that kind of success. The same is true of agency operational changes. There must be regular follow-up and coaching provided by the agency's owners and managers.

By applying the AUDIT process, an agency can change not only its direction, but its culture. With that and a restructured procedure manual, we were also able to reduce our premium. The bottom line: You can boost the productivity of your agency, build its value, and improve customer relations by employing the AUDIT.