Managing Small Accounts

MANAGING SMALL ACCOUNTS

by Carol Hammes

Most independent insurance agencies consistently receive between 15% and 25% of their total revenues from their 10 largest accounts. If you think that your agency is different, add the commissions received from the top 10 accounts last year and divide that number by the total agency income. Unless your firm is heavily specialized or has most of its business in personal lines, this equation's product is around 20%, with a 5% margin of error. Servicing these larger accounts dominates the attention of sales and support personnel, and each usually generates enough income to fund this intensive level of service.

In most agencies, however, the same procedures that take care of the larger accounts are also applied to all the rest of the commercial business. Those firms that have completely evaluated their books of business have found that the vast majority of their accounts simply do not produce enough income to warrant the same attention that is given to the larger risks. Responding to this analysis, some of these agencies have separated the small accounts from the mainstream ones by assigning different CSRs who still use the same procedures that were intended for commercial accounts.

Because they have done little to change the basic way this business is handled instead of solving the overhead problem, they have merely shifted its emphasis. They delude themselves with the fallacy that they are now operating more efficiently because they are using less experienced and presumably cheaper people. But inexperienced people generally need more management attention, taking the principals' time away from sales activities. Producers often have less confidence in the ability of these people to handle the accounts appropriately and do not delegate servicing tasks as aggressively as they should; thereby defeating the original intent of having service representatives: To make money on smaller accounts, an agency has to alter the way it handles this business completely. Many firms fear to change because it jeopardizes the level of service provided to their insureds. They cling to inefficiency in spite of the evidence that making changes will improve the servicing of these accounts. The correct attitude is to give the customers what they need and want, not what the agency assumes they were always content in having.

So what does the average insured want? An agent who will take the time to know what the particular exposures are, who will give advice regarding various options to cut their insurance costs, who will be there to handle auto changes and other endorsements, and who will pay claims quickly and fairly. Most of them do not care if their needs are handled by the agency owner or a high-powered producer. In fact, they would prefer not to have to wait for a response from someone who is not in the office when they first call. As long as they are confident that the person handling their request knows what he or she is doing, they would just as soon deal with a service rep who is immediately accessible and who treats them with concern, respect, and as a top priority. The key is to set up your service procedures to meet the needs of your customer, not the ego needs of the producers and owners who like to believe that their insureds want to deal only with them.

As is the case with so many management issues, there is no preordained way to implement new procedures for small accounts. Many of the decisions will depend upon the amount and category of business. And even the determination of which are the 'small' accounts will vary. The first step in identifying this book is to start thinking in terms of the actual liquid income that the accounts produce for the agency; not the premium dollars that they generate for your insurance companies. The average commercial account in a general lines independent insurance agency produces approximately $1,000 in commissions, and about $200 less than that if the 10 largest accounts in the agency-are removed from the calculation. Agencies located in rural areas will find that the average is lower, while metropolitan agencies will have larger average account sizes.

Divide the total number of commercial accounts into the total commercial commissions for the average account size in your agency. Subtract the commissions produced by the 10 largest accounts and divide the total number of accounts (minus 10) into the revised commission number. Compare the two average account sizes. Once you remove the big ones, the average account size is going to be much lower. Note how much lower it is in your agency, then subtract the commissions paid to producers from that average amount. If your computer system can provide the data for you, remove the next 20 accounts from the account and commission totals and recalculate the averages both before and after producer commissions for the accounts that remain. A picture should now be forming as to how small your average commercial account really is. This image will help you decide which accounts need to be handled with a different approach than the larger ones.

Some agencies can actually determine the break-off point simply by examining a list of accounts in descending order of account size. Notice the point where commissions drop significantly and the type of coverages provided are the 'packaged' variety. Another simple way to make the division initially is to examine the total agency commissions (including personal lines) and amputate the last three numerical positions. For example, an agency with $500,000 in commissions would define small accounts as any with less than $500 in commissions. An agency with $900,000 in commissions would separate out accounts with less than $900 in commissions for special handling. Be flexible with any method you use. Sometimes an account will produce a small amount of income but will be technically complex or be in some way associated with a larger risk. In other situations, an account may dwarf the break-off point but is relatively simple to handle and therefore fits better in the group of smaller accounts.

When separating out these procedures and deciding to handle these insureds differently, it is best not to use the term 'small accounts' to define them. From an external public relations point of view as well as for internal morale considerations, you do not want the insureds or employees assigned to this department to get the impression that they are second-class citizens. Using the term 'business accounts' or 'special accounts' is preferable. Having a Business Insurance Division or Special Accounts Department can be a definite plus over a Small Accounts Unit.

If possible, assign commercial service people to handle the special accounts, but this method is practical only for an agency with a minimum of $125,000 in commissions per person, since it has enough work to justify the separation of personnel and spare some room for growth. In highly automated agencies with very good management and efficient service reps, the commissions per person may reach $175,000. But in most cases that goal is beyond reach if you want to provide an appropriate level of service to your customers. In agencies producing less than $125,000 in commissions in the smaller commercial business, it may be possible to combine it with personal lines (or at least with the VIP personal lines to be able to achieve the necessary break-even threshold).

At the very least, even in situations where there is inadequate volume to warrant separation of personnel, agencies should remember that the service approach and procedures can (and should) be different for these accounts even if the people handling them are less flexible. Identify one commercial support person who will be responsible for this business on a part-time basis and make sure that this person understands which accounts are to be handled with which set of procedures.

There are four key elements to managing the smaller accounts effectively and profitably: selection, training, compensation, and motivation of the right kind of service personnel; a fixed set of scripted and hopefully automated procedures; a low level of commercial producer/owner involvement in the sales and servicing of these accounts; and a select group of 'user friendly' insurance companies with competitive rates and packaged policies. We will address each of these factors in the balance of this newsletter.

The ideal person to staff a small accounts unit is a good personal lines CSR who also has technical experience in commercial accounts. A 'take charge' personality with a strong sales orientation is important, as is an ability to handle the detailed work involved in rating and policy checking. Several years of both Personal and Commercial lines experience would be beneficial, and the position could provide a promotional opportunity for ambitious CSRs in either department. The job will have more responsibility for handling insureds from start to finish than the average commercial CSR position has, so it must be titled, staffed, and compensated accordingly. This is an Account Executive or Account Manager role more than it is a CSR position. Assigning a junior level commercial person to the lead role in the department could turn out to be disastrous.

Set up a job description for the Account Manager position with specific qualifications, the various job responsibilities, and an indication of where the position fits into the overall management structure. Then determine an appropriate salary range. In most cases this will be equivalent to what you would pay a commercial CSR with seven or more years of experience. You might also want to build in a predetermined bonus potential based upon total account retention. If the agency expects the person to handle new sales of this business category in addition to the servicing of existing accounts, provide an incentive for the employee to emphasize these responsibilities. One option would be to set a salary at the low end of the range to cover servicing and expansion activities in existing accounts and then pay $100 per totally new account written, first year only. If sales will represent an important part of the job, make sure that reasonable goals are set and that the person's manager or the Sales Manager monitors progress monthly or quarterly.

Once the job description has been completed, find out if any existing employees want to apply. Test these candidates (as well as any from outside the agency) to make sure that they have the necessary personality traits and experience qualifications. Once hired (or promoted), set up a training schedule to make sure that the level of technical expertise is kept up and that the specific procedures for these accounts are well understood. If the agency is new at separating this business from the mainstream, the first account manager may actually be instrumental in setting up the separate procedures and helping to train others.

Transactions on accounts that do not produce much in commissions must be handled efficiently: that is, with a limited number of people involved in the process but without duplication of procedures. But for account retention and Errors and Omissions considerations, it is important that the quality of service not be jeopardized. The best way to accomplish a streamlined process that covers all the bases efficiently is to define carefully all the steps that must be followed. Agencies that are handling smaller accounts effectively have a series of detailed checklists and questionnaires that the Account Manager uses to gather information, give advice, check policies, and update accounts. For certain kinds of accounts, perhaps those that are being mass marketed or in which the agency specializes, the checklists may be specifically set up for that type of business. To the greatest degree possible, automate the spreadsheets with software, such as PS/4 and other versatile programs. Encourage interaction with each other and help them develop a working policy file maintenance system.

At initial contact, the prospect should be asked a series of questions on the various exposures that the executive might encounter in an account. This Business Account Review Checklist has two purposes: (1) to help determine whether the risk is one that the agency should pursue further and (2) to make sure that the prospect and the Account Manager agree on what the agency is to provide. This document should have questions grouped according to type of exposure: Liability (General, Professional, Workers Comp); buildings (all exposures including Earthquake and Flood); Personal Property (including Marine); Boiler and Machinery; loss of income (Direct/Contingent); Employee Protection; human failure (Crime/Dishonesty); management protection (Life, D&O); etc. The Account Manager must place a mark beside each item indicating one of following responses and the checklist should be signed by the prospect/insured and then maintained as part of the agency's records:

__ Account does not need this coverage

__ Recommended/we will be including in the quote

__ Written elsewhere (with details and X-dates)

__ Recommended and refused

A second spreadsheet or checklist should be used to gather the specific information on limits, descriptions of property, earnings, payroll, inventory, etc. and should include all of the information that will be required on the ACORD or company applications. Obtaining all the information at the first contact will not only save the agency valuable time, but impress the prospect with your level of preparedness. It is definitely unprofessional to call them back several times and ask for a missing piece of information. If this checklist is automated, the data can be transferred directly to the applications. If data entry must be done manually, a clerical back-up person could be used for the transfer. When policies are ordered, another checklist should direct the Account Manager to include all the necessary items, including the MVRs, in the submission.

A fourth list should be used to check the policies when they are received from the insurance company and to make sure that all necessary letters and other documents are sent to the insured and other parties. A set of form letters should be included in the word-processing system to cover 95% of the situations that arise in handling these accounts. Letters should be sent only in situations where they are necessary, such as with new policies or after changes in coverage. When a customer orders a transaction, such as certificates or changes to the Business Auto policy, do not send a letter explaining that the document is enclosed.

About eight or nine months into the policy, the Account Manager should contact the insured customer to complete an Account Review to find out how the agency's service has been and if there are any changes in exposure. At that time, the insured should be informed that the renewal will be issued with updated information at the appropriate time. Many agencies use checklists for this contact as well.

One of the keys to handling smaller Commercial accounts profitably is to keep the producers away from them. The agency cannot afford to pay salespeople the same level of new and renewal commissions on this business that they earn for larger accounts. And it cannot afford to have the producers getting involved in the middle of a transaction, derailing the benefits of using the new set of procedures. Pay producers a finders' fee of 40% of the first year's commissions and nothing (or very little) on renewal. Erase any incentive to meddle after the initial sales contact.

It may not always be possible to keep them from filling out the application and making the new sale, but the agency should try hard to encourage the Account Manager to handle the account from the start. The producer can easily bring the Account Manager into the situation by introducing him or her as the agency's expert for business accounts. Most agencies are now handling Personal lines leads this way and, although the transition was painful at first, they have found that it works exceedingly well-as long as the department is staffed with competent people.

Maintaining an efficient small accounts department is difficult especially if it uses more than three or four insurance companies for this business. The agency needs two dedicated companies with a broad blend of packaged products and competitive rates that will fit most circumstances. Policies should be available on a direct-billed basis. Ratings should be quick and easy, applications and endorsement requests standardized, and underwriting requirements clear-cut. An agency will also benefit from a direct 800-number reporting line. Ideally, the company should be interfaced with the agency, at least during downloading procedures.