AGENCY PRODUCTIVITY LEVELS
by Carol Hammes
Every business needs to evaluate itself against others to gauge its level of success and to identify areas in which it can improve. This document by Carol Hammes is the result of an extensive nationwide survey of insurance agencies. Use it to see how your firm stacks up.
A low national unemployment rate is making it difficult to attract and retain loyal and experienced employees. Many factors contribute to a rewarding work environment, but compensation remains critical. Every two years we conduct a nationwide Agency Compensation Survey to determine how salaries, bonuses, and employee benefits in independent agencies are changing with the times.
Productivity in the average independent agency continues to improve significantly. Although compensation per employee also increased, it didn’t keep pace with increases in revenue productivity. The average agency had more gross income available to pay for other overhead expenses and to contribute to profit. As agencies find better and more effective ways to use automation the productivity figures should continue to improve. We still find that the most productive firms are those with a specialty area or those that handle a large volume of employee benefit business. Such directed sales efforts and the tighter market in Commercial Lines with higher average account size should help improve productivity further. But the harder market might not last very long. It’s important to stay vigilant and keep a disciplined approach to reducing redundancies and streamlining procedures to increase the number of accounts per employee.
This article presents productivity and profitability measurements by size of agency. These measurements are averages — the very best and the very worst performers combined with those in the middle to come up with numbers and percentages. To convert the guidelines to high performing levels, increase the averages by 1.25%. It’s also critical to use a comparable peer group for making the comparisons.
Chart A presents some major characteristics of the compiled composite groups. Generally, larger agencies are more Commercially oriented and have larger accounts. If your agency’s mix of business or average account size differs from that of agencies with comparable revenues, it’s more appropriate to select a peer group that mirrors your type of business. In some cases this peer group should be used with all of the comparisons. For other charts it might be better to switch to the larger agency composite group. Use a common-sense approach to evaluate for your agency.
| Chart A |
| | Group 1 | Group 2 | Group 3 | Group 4 |
| Agency Revenues | $480,784 | $1,174,845 | $3,174,033 | $6,251,081 |
| Comm./Pers. Mix | 45/55 | 58/42 | 61/39 | 72/38 |
| Avg P/C Comm/Acct | $192 | $275 | $386 | $678 |
| # Commercial Lines | 4.9 | 8.4 | 12.8 | 22.1 |
| # Personal Lines | 5.0 | 7.1 | 8.0 | 8.9 |
| Avg Comm. Commercial | 13.4% | 13.2% | 13.2% | 12.3% |
| Avg Comm. Personal | 14.0% | 13.9% | 13.9% | 14.0% |
| Avg Comm. Group | 6.7% | 7.1% | 7.6% | 6.3% |
To obtain the average commission per Property/Casualty account, add all Personal and Commercial Lines accounts and divide this number into the total direct P/C commissions (not including contingents and bonuses). This number might be the best one to focus on in selecting your appropriate peer group since the account size will often dictate the amount of time people spend handling a certain size book of business. CSRs and producers can generally be much more efficient if the average account size is higher.
Chart B presents the most common productivity measurements by size of agency. When comparing your firm’s results with industry statistics use the same definitions. Consultants use a number of guidelines to compile statistics. It’s critical that you know what went into each category so that you can compare apples to apples.
| Chart B |
| Agency Revenues: | Less than $600,000 | $600,000- $1.5 million | $1.5 million- $4 million | More than $4 million |
| Revenue/Employee | $72,846 | $87,250 | $104,803 | $118,647 |
| Compensation/Employee | $41,032 | $48,907 | $63,092 | $72,204 |
| Difference | $31,814 | $38,343 | $41,711 | $46,443 |
| Profit/Employee | $6,702 | $3,220 | $6,914 | $6,524 |
We used these definitions in preparing our ratios and measurements.
- Revenues per employee include all agency revenues (commissions, fees, contingents, investments) divided by the total number of full-time employees in the agency (including owners and salespeople). For the fourth year in a row all four peer groups saw an increase in this measurement.
- Compensation per employee divides the number of employees into total compensation including payroll, sales commissions, payroll taxes, group insurance, retirement contributions, and other employee benefits. This number was up in all four peer groups, with the two largest groups seeing the sharpest increases.
- The difference between revenues and compensation per employee is the remainder after covering all other agency operating expenses and funding profit. The difference was down in all but the third peer group.
- The profit per employee (using the same number of employees and the reported pretax profit) was down in composite groups two and four, but up in the smaller agencies and in the third peer group.
For the past several years the ratio of sales personnel in each agency size group has leveled off at about one-third of total employees — except in smaller agencies that achieved higher productivity by reducing service and administrative personnel, in many cases moving them into production. The percentage of agency employees involved in customer service has remained the same for several years.
Administrative employees as a percentage of agency personnel have increased slightly over the past several years. More firms are taking advantage of upload/download capabilities and transactional filing, and some customer service positions have been turned into data-entry jobs. The increase in administrative personnel reflects this transition, taking routine tasks away from technical insurance personnel and producers and freeing them up to play a more active role in assisting customers.
| Chart C |
| Agency Revenues: | Less than $600,000 | $600,000- $1.5 million | $1.5 million- $4 million | More than $4 million |
| % in Production | 36% | 32% | 31% | 29% |
| Revenue/Producer | $200,327 | $273,220 | $337,663 | $416,739 |
| % in CSR | 46% | 47% | 43% | 49% |
| Revenue/Service | $160,261 | $183,570 | $246,049 | $238,591 |
| % in Admin./Mgmt. | 18% | 21% | 26% | 22% |
| Revenue/Admin. | $400,653 | $419,588 | $396,754 | $543,572 |
In Chart C, Revenues per producer (total agency revenues including contingents and investment income divided by total number of producers) went up in every peer group. Ideally it’s best to have the revenues per producer run about twice the revenues per service person in both Property/Casualty and employee benefits lines. Revenues per service person (for the entire agency, regardless of department) also increased in general while revenues per administrative person were lower in the smaller agencies. This shift reflects the increased emphasis on moving every possible task to the lowest pay level.