Managing Personal Lines

MANAGING PERSONAL LINES

by Carol Hammes

Continuing fierce competition in commercial lines is making the personal lines niche look much more attractive to those agencies searching for viable growth opportunities. Firms that have been successful in tapping this market are realizing profit margins in excess of 30% and growth rates that are in the double digits. We are convinced that any independent insurance agency regardless of location can be profitable in personal lines and that many can increase their overall agency value by developing an effective personal lines marketing program. The key to success lies in top management commitment. If the owners want to create a thriving department badly enough and if they are willing to make the necessary operational changes to support the effort over the long term, it will happen.

A half-hearted attempt to beef up a lackluster personal lines operation, however, will undoubtedly fail. In most cases, it will be necessary to alter the agency's way of doing business completely in personal lines. It may mean getting rid of long-term employees, drastically cutting the compensation of existing producers, changing account assignments, instituting 800 numbers or company service centers, eliminating a number of insurance companies, or contracting with a direct writer. Unless the agency principals are all willing to make whatever changes are indicated and to give the effort a solid three-year commitment, focus on some other means of achieving your growth objectives.

While there are thousands of ways to structure and manage a personal lines department, most of the successful operations have four common characteristics:

In the exceptional firms that have highly profitable personal lines programs, someone at sometime in the not-so-distant past paid serious attention to setting up a system that would maximize the available resources and minimize the negatives associated with the smaller account sizes. The average independent agency, however, has generally allowed the personal lines department to develop without much sales or management direction. Insurance policies are written for people who walk or call in with most of the sales activity revolving around referrals or commercial account spin-off. When new producers are hired, they are expected to sell personal lines for a period of time to get their feet wet, but the promise is to move them into commercial production once they gain experience. Until recently the career path for service reps has been similar, with the ambitious ones wanting to be 'promoted' out of personal lines into commercial as soon as they have paid their dues (since either in perception or reality the personal lines people are treated like second-class citizens in the agency). Whether by design or default, personal lines is merely tolerated as an accommodation to the community or to insurance company requirements.

Certainly the first step in turning things around is to change the negative attitude about the contribution that personal lines can make to the overall success of the agency. This process has to start with the agency principals who must begin to view personal lines as a viable and integral part of the firm's future. Thanks to the depth and longevity of the commercial soft market, this change in attitude is well on its way. In most general lines agencies that have not yet conducted major surgery on small commercial business, an account review will show that the top third of personal lines accounts produce more in commissions than the bottom third of the commercial accounts. A detailed analysis of the origin of profit-sharing dollars will frequently reveal that personal lines has contributed proportionately more to that income than commercial has. And although insurance companies may have reduced commission rates for auto and homeowners during the past 10 years, premiums have been inching upward in these lines rather than crashing downward as they have on most commercial accounts. Many agency principals have begun to realize that if it were not for personal lines, they might not have a business to call their own anymore.

Assuming that attitude and perception can be changed, it is also important to assess opportunity before jumping headlong into a personal lines marketing program. Evaluate your marketing area for sales potential. What kind of growth is possible in personal lines, particularly if individual life and health coverages are included? Check with insurance companies and the Chamber of Commerce in the communities that could be effectively serviced from your location(s) to obtain the following information: the current and projected future number of households; average age of the population; median income; and the available premium potential for individual property, casualty, life and health coverages.

If there are only 1,000 homes in the marketing area and your agency already writes 700 of them, there's no point in hiring a producer and developing an aggressive personal lines marketing plan unless you are willing to expand geographically. If most of the available accounts are upscale with above-average incomes, the type of people you employ, the marketing approach that you use, and the insurance companies you need will be different than if you are located in a blue-collar or farming community. This information is critical to your success, since decisions relating to the structure and staffing of the personal lines department must take into consideration the number and type of accounts that are available for the agency to write.

Assuming that it makes good marketing sense to cultivate a personal lines profit center and sales program, the next step is to make a serious management commitment to developing the systems, producers, and employees that can effectively support the effort. In most cases, it will be necessary to conduct a complete overhaul of the existing department, its procedures, and personnel. People tend to be creatures of habit, and for most of us, making major changes to personnel, organizational structure, and procedures can be difficult because our attention keeps reverting to the existing reality. One of the best ways to set up a fresh, new marketing approach to personal lines is to forget that the agency is already in that business. Pretend that you have the opportunity to start a new insurance agency without any ties to the past. In your 'new' agency, what would be the best way to handle the selling and servicing of personal lines accounts?

Collect data and possible tips from all available sources: talk to other agents; read or listen to recommendations made by industry consultants; pay attention to what your computer vendor says; solicit suggestions and observations from your own employees, especially those who have worked in other agencies. During the information-gathering process, resist the temptation to reject an idea immediately because 'it will not work in our agency and marketing area.' Add it to the list to be considered as the organizational and procedural decisions are made. Remember, even the most harebrained of schemes has been successful for someone.

When designing an entirely new system, you must forget about the traditional roles that have defined insurance agency job positions in the past and instead focus on the smartest and most efficient way to meet the needs of the consumer with the automated tools that are available today. There are literally thousands of different ways to assign functions to job positions and, while some combinations can be dismissed quickly, unless there is only one person in the department, numerous choices must be made. The following are the major personal lines functions that you should list on one side of a piece of paper: obtain prospects and expiration dates; qualify prospects; provide a proposal/quote; sell the coverage; order the policies; check the policies; provide day-to-day account servicing; handle claims; process and file paper or electronic endorsements and renewal data; contact the insured for renewal update; supervise personnel and handle complex problems; audit accounts for quality control; maintain insurance company relationships.

The job positions that can handle one or several of these functions are:

• outside producer;
• inside producer;
• account manager;
• senior CSR;
• CSR;
• assistant CSR;
• processor;
• file clerk;
• data entry clerk;
• claims rep;
• supervisor;
• department manager.

Which of the job positions do you want to have, and how should the functions be divided among them? Place a position title next to each function on your worksheet. Should property-casualty and life-health coverages be handled by the same people? Should the service reps handle new quotes and sales, and should they input data and handle transactional filing duties? Is it better to have separate claims people, or should those duties also rest with the service reps? Many agencies are disbanding their claims department because automation has made the reporting process much less time-consuming and they believe that it is better to have the person handling the servicing of the account take the claim information.

To complicate the decision further, if there is more than one person for any position how should they divide up the workload? Most agencies have assigned accounts to service reps alphabetically, but with the advent of almost total automation, many are now finding that having the service reps take and handle the calls as they come in is much more efficient. If a processor or assistant CSR is to do the routine paperwork and data entry, is it better to assign one to each service rep, one to every two service reps, or to have a processing pool? Remember, you are starting from scratch, so forget the way it is being handled now and try to ignore the capabilities of your current employees (at least temporarily) in developing the new structure and procedures. As the plan is implemented, it may be necessary to adjust the positions to accommodate some good employees, but the ideal should still serve as the plan to guide future hiring decisions.

Once the initial design has been laid out, test it against the four characteristics of a successful personal lines operation to make sure that it meets each of the criteria.