CENTRALIZING CUSTOMER SERVICE
by Carol Hammes
Time is a precious commodity for almost everyone. Ease and speed often take priority over minor price variations in purchasing anything from groceries to cars. Twenty years ago, many insureds enjoyed visiting their insurance agent and chatting for half an hour about the weather or the football game as they gave the information about their new car. Nowadays, most people, even in rural areas, prefer to call in the information to someone who immediately provides rates, ID cards, and extended coverage. And they certainly don't want to make that call and wait for the agent to get back to them, often after several days of telephone tag.
Catalog/e-mail sales and overnight delivery companies have led to expectations of immediate gratification. To consumers, 'value-added' now means more than providing knowledgeable advice, as in the past; rapid response with a minimal number of mistakes is fast becoming part of that definition. Independent agencies that can't provide quick, efficient service along with professional risk management and coverage analysis will continue to lose even more market share to other agents, direct writers, banks, and the Internet.
In most independent agencies, 80%-90% of the accounts are either Personal Lines or small Commercial risks. These clients are most prone to targeting by more efficient distribution systems. The way the agency handles this business can have a dramatic effect on the level of retention. Several decades ago, many agencies started to separate Personal Lines processing from Commercial Lines. Some agencies have now stripped out the smaller Commercial business, with different people handling those accounts. Others have combined Personal and small Commercial servicing. But in agencies with branch offices, each office tends to have its own separate departments, causing duplication of effort and often confusion, particularly in communications with insurance carriers.
Also, some larger firms that operate on a unit structure still keep both Personal Lines and small Commercial as part of the units. This latter structure is bad for almost everyone involved: the CSRs, who have to be proficient in too many areas; the larger clients, who don't get the risk management attention that they deserve because the support staff is busy making car changes; the smaller clients, because the service reps may be impatient and often uninformed about their problems; the insurance companies, which receive questionable items from agency personnel unaccustomed to handling high volumes of a certain type of business; the producers, who end up having to do more service work because the technical service reps are tied up with routine processing; and the agency principals, who are making lower profit margins because of all the inefficiency inherent in the setup. Only producers whose egos are primarily driven by empire building benefit.
To obtain maximum efficiency, an agency needs to centralize Personal Lines and small Commercial processing and customer service. The more volume in one place, the more staff can specialize in what they do best and the more productive they'll be. The customers will get better service, and insurers will get to deal with fewer people who preferably know more about the company's underwriting rules and policies. Instead of spreading out service reps into branches or units, develop an agency service center with three distinct jobs: customer service agent, customer service rep, and processor. Route your phones through the service center (using a local phone number if necessary), where all of the processing and much of the sales are handled.
In this environment, the customer service agents have direct computer access to policy information. Hard copies are handled in a transactional filing mode. The agency computer system might be linked to the major carriers through upload/download capabilities or the Internet so the transaction is completed in one step. The first available person handles an accounts so customers get immediate service and don't have to wait for an assigned CSR to call back. With all of the account information and recent history at hand, staff can easily help the insured, even without having personally taken care of the prior transactions. And if an insured wants to talk to a specific person, the system can be flexible enough to allow that.
To maximize profitability in agencies with branch offices, the service area should be located in the marketing area of an office with lower salary levels. It needn't be in a metropolitan area where service reps cost more than in an outlying office where personnel costs are lower. Computer and telephone technology will make the location transparent to the customers and the producers, who'll have access to their accounts and the service reps as necessary. If the agency has four offices or units, each with $75,000 in Personal Lines commissions and one service rep, forming one service center will let it operate effectively with 1.5 to 2 people fewer. The savings can be even greater when small Commercial is included.
Centralizing the processing and sometimes also the new business sales can make a lot of sense for most larger agencies, but it may not be right for everyone. Small agencies with only one or two service reps don't have the option to consolidate much (unless they join an administrative cluster). Larger firms with Personal and small Commercial as part of their units may need to create traditional departments with the accounts assigned to producers or divided alphabetically as a transition to a true service center environment. Firms not effectively using automation must do so before setting up a service center. Transactional filing and good interface or e-mail communications with carriers is critical to the center's success.
Good personnel management in hiring and training is also key to centralization. The goal is to give insureds better service than they'd get under the supervision of individual producers. Select customer service agents for their ability to handle multiple types of accounts and coverages and their willingness and ability to respond to clients' varied requests. The CSAs must be outgoing personalities and very efficient, with strong skills in prioritizing and time management. Service center employees also must be well versed in working with multiple companies in regard to underwriting and rating.
Even with all of these elements in place, an agency service center can fail because of a lack of commitment from top management. Every principal must support centralization wholeheartedly and make it clear that the producers won't be allowed to subvert the structure. The producers will learn that centralization can give their Personal Lines and small Commercial clients fast and efficient service, allowing them to spend more time selling new business and cultivating existing relationships with the major accounts. Retention rates will increase, more business will be sold, and the producer will make more money.
INSURANCE COMPANY SERVICE CENTERS
The ultimate in centralization is for hundreds of agencies to use service centers set up by insurance companies. More than 50% of U.S. independent agencies had experience with company service centers during the 1990s, some of which was good, some bad. It's not the hot-button issue it first was, but some agents and association executives see it as a thinly veiled attempt by insurers to weaken the agency's relationship with its customers. To them it looks like just another step toward the eventual elimination of the agent. But a growing number of agency principals believes that widespread use of company service centers is the only way that the Independent Agency System can compete effectively with direct writers, the Internet, banks, and other as yet unidentified marketing forces.
These proponents understand that the total company expense ratio (including agent commissions) must be kept down so the companies can offer competitive rates. If a service center can help reduce duplication and errors, and if agents can restructure their own operations so they can operate on lower commission percentages, the overall expense ratio will go down. Of course, company service center personnel must be capable of handling the insureds' needs appropriately, and the agent must be kept in the loop. Advances in communication techonology make it easier than ever to keep the agency informed of account activity. This can also make the location and employment relationship of the processing team a nonissue for insureds. Often clients don't even have to dial an 800 number - they call their local agent and are seamlessly transferred to the center.
Insurance agencies are unique, so don't assume they should all use company service centers. Centralized processing isn't right for everyone. Some firms don't have the type of business that will fit well in a service center. For example, all of an agency's Personal Lines and small Commercial accounts might be VIPs tied to larger Commercial risks. Some can't restructure the agency to make up for reduced commission levels. For others, turning over the processing to their companies varies from their management philosophy.
The types of organizations that have adapted well to this kind of change include:
- Start-up agencies with no service personnel
- Small agencies with little or no automation
- Large, mainly Commercial agencies with less than $100,000 in Personal Lines commissions
- Agencies that almost exclusively write Personal Lines and/or small Commercial
- Agencies already using transactional filing and interfacing with the service center companies
Unfortunately, some companies take a cookie-cutter approach and try to force the utilization of centers on their agents. Companies initially use this kind of arm-twisting on their agencies with loss problems or very small amounts of premium, but now at least one national carrier requires all agencies that place less than $1 million in premium with it to use the centers. Possibly the idea behind such a move is that overall expense savings are worth a potential loss of market share. Insurance companies that offer agents a menu of services from which to choose are more likely to get willing participants.
An agency can do at least three major things to make using a company service center a more positive arrangement for itself, the company, and the insured:
- The principals must determine whether the economics make sense. If the company doesn't reduce commissions or charge a fee, this isn't much of an issue, but most will want at least two points of the commissions back. On a $1 million premium book that previously generated $140,000 (14%) in commissions, the agency will be giving up $20,000. Will the workload reduction save you one-half to three-quarters of one CSR to lower expenses by that amount? Can you transfer that extra staff time to sales and so increase your commissions by producing new business? Assuming $125 in commissions per account, this would mean writing 160 new accounts. Remember, a $20,000 reduction in profit could reduce the value of the agency by as much as $120,000.
- Be discriminating about which insurance company service centers to use. A company that gives the agent lousy service won't do much better when dealing directly with the insured. If the service center personnel can't provide faster, better customer service, why sacrifice your direct contact with the insureds and commission income? Do some due diligence, and make an informed decision.
- Talk with other agents that have used the same center before signing the agreement.
- Choose a company that has made a long-term commitment to the program and agrees to provide consistent products and reasonable pricing. Those that will reduce premiums for service center accounts might be particularly attractive.
- Make sure the written agreement clearly describes the agency's and the company's procedures, rights, and duties.
- The company must agree in writing that the agency retains ownership of renewals.
- The company must agree to use the agency's name in all oral as well as written communications. The initial announcement of the change to the insureds should come from the agent. Don't give the company a chance to tell your clients they no longer need to call you.
- The company should give the agent complete customer information, preferably through download or e-mail.
- There should be a telephone patch in both directions to allow the agent to maintain quality contact with existing insureds.
- The agency should receive commission on all new lines written by the service center for the agency's accounts.
- The company should indemnify and hold the agency harmless for E&O problems. It might be a good idea for the agent to clear the agreement with their E&O carrier.
- Agencies should get at least 180 days notice of termination.
- The agency must set up an annual or semiannual insured contact program to review exposures and keep in touch about how well the service center processing is working. Using a service center doesn't mean losing customer contact. In fact, it should actually give agency personnel the opportunity to make more sales and risk management contacts during the year. Producers and support staff who've been doing such things as taking claims, processing endorsements, and following up with companies now should have ample time to develop more substantive client relationships. An effectively run service center increases the potential of 'value-added' time for agency personnel and clients alike. It's agency management's responsibility to make sure this happens.
The nature of the Independent Agency System has made efficiency an elusive goal. To reduce the duplication of work in the distribution system, either insurance companies must take on more duties traditionally handled by agencies or agencies must do more of the companies' work. Centralization is the key; principals need to decide their most advantageous way to achieve this.
Carefully analyze agency production, service, and support personnel expenses. Evaluate the capabilities of agency automation and how well it can be upgraded to maintain communication with insurance companies and insureds. Would it be more cost effective and agreeable to the principals for the insurance companies to do more of the processing and servicing, or should your agency take on part of the companies' traditional role in underwriting and policy issuance? The bottom line is that the distribution system can't afford to continue its duplicative, inefficient, error-ridden and time-consuming practices - consumers won't tolerate that and will find other ways to buy insurance.
The late Carol Hammes, principal of The Middleton Group, was one of the Independent Agency System’s most widely respected management consultants. She will be sorely missed.