80/20: The Golden Rule For Sales Reps

The average “Best Practices” agency generates over 50 percent ofits revenues from commercial property-casualty business, making itthe lifeblood of a majority of these agencies. Of paramountimportance to each agency should be growing and improving theoverall quality and profitability of its commercial p-c book ofbusiness. How do you do that?

By now, were all familiar with the 80/20 principle, which statesthat 80 percent of lifes results generally flow from only 20percent of our efforts. Another way to say this is that 80 percentof what we achieve in our jobs comes from 20 percent of the time wespend.

In observing insurance agencies over the years, this principleseems to hold true. Think about it:

A minority of your producers generate of the large accounts.

Most of your personnel problems result from a small number ofyour employees.

A minority of your accounts generate a majority of theprofits.

A small number of your accounts consume an inordinate percentageof your servicing resources.

How can an awareness of the 80/20 principle help you to grow andimprove the overall quality and profitability of your commercialp-c book of business? Here are some approaches we have observed inmany “Best Practices” agencies that you may want to consider:

Its likely that your agency prides itself on the quality of theservice it delivers (and rightly so). Make sure youre working forclients who recognize (and can afford) the value you deliver.

Have your commercial account executives identify their mosttime-intensive accounts from a servicing standpoint. Then look atthe revenues associated with these “high maintenance” accounts. Ifthe dollars earned do not allow for a reasonable profit afteraccounting for sales and servicing costs, either find a way tobuild fees into the account to get it priced right or, if this isnot possible, move the account to another agency.

When analyzing your book of business to ensure the appropriatebalance of revenues-to-service, dont fall into the trap of assumingthat your large-ticket accounts are necessarily your mostprofitable. A $5,000 commercial account that is touched a coupletimes a year may be much more profitable than a $15,000 accountthat requires constant attention. Look to continually eliminateyour agencys least profitable (or, in many cases, unprofitable)accounts.

Have your commercial producers purge their book of business oncea year of the smallest-dollar accounts (set your own dollarthreshold). Turn these accounts over to the house with no furthercommissions paid on the business. This practice will free upsignificant production and servicing resources better deployedelsewhere.

Without question, both the producer and the agency will benefitfrom this discipline. Assuming your commercial producers aretargeting the right new business opportunities, it is likely thatthese small-dollar accounts will be more than made up with very fewnew accounts.

To discourage the writing of bottom-20 percent business in thefirst place, make sure your commercial producers are paidcommissions only on accounts above a certain dollar threshold.Again, the threshold is up to you, depending on the uniquecharacteristics of your agency and marketing area, but a good placeto start is to simply determine at what dollar amount (aftercommission expenses and servicing requirements are accounted for)an account no longer generates an acceptable profit.

Dont pay your producers for writing business below that amount.Minimum account size guidelines are one of the surest means toimprove the overall quality of your commercial p-c book ofbusiness.

Review your carrier volumes regularly to consolidate businessfrom little-used, unprofitable, or non-strategic carriers withmarkets with which your agency is in partnership for the longhaul.

Develop specific product and service niches and areas ofspecialization, and leverage them extensively. Find specific areasin which your producers can develop a competitive advantage ratherthan defaulting to an “all things to all people” generalistapproach.

Have your producers develop a short list of 15-to-20 targetaccounts to focus on–the “Most Wanted List.” In terms ofpriorities, make sure the Most Wanted List comes before other lessattractive new business opportunities. Once the Most Wanted List isin place, work with each producer to develop a specific strategyfor how to get the business.

One of the most difficult, yet necessary transitions a maturingproducer must make is to discontinue the practice of chasing aftera large number of small accounts to focus on a much smaller numberof larger target accounts.

Have your producers ask each of their 10 best clients to providethe names of three other potential “best” clients who might benefitfrom your agencys services. Even better, have them ask for apersonal introduction. A producer who closes a third of thesereferrals would add 10 new “best” accounts to their book ofbusiness using this tactic.

Encourage your property-casualty and life-benefits producers towork together to cross-sell the agencys existing account base. Muchhas been made of the extraordinary effort necessary to sell a newclient relative to re-selling an existing one. Are you making themost of the clients you already dazzle with your products andservices?

Many producers are still afraid theyll lose accounts byencouraging the cross-sell, only to have another department dropthe ball on the account. In my experience, the opposite is truethemore lines of business you write for an account, the less likelyyou are to lose the business to competition.

A more general application may simply be to identify the effortsin your agency that are not generating significant positive resultsand stop doing them.

A client of mine maintains an agency-wide “stop doing” list forthis sole purposespecifically identifying the activities that makeno sense whatsoever in terms if improving client service or theprofitability of the agency.

Interestingly, he tells me its much easier to develop the “stopdoing” list than it is to convince his employees to actually stopdoing things. Develop and act on your own “stop doing” list andyoull significantly improve your agency operations.

The beauty of the 80/20 principle is that it applies to everyoneand every agency regardless of current levels of performance. Everyagency has a “best” 20 percent to leverage and a “worst” 20 percentto eliminate. A continuing commitment to this process is what theBest Practices initiative is all about.

Tom Doran is a senior vice president and principal of ReaganConsulting Inc., an Atlanta-based management consulting firm thatdeveloped and produces the “Independent Insurance Agents andBrokers of America Best Practices Study.” The Best Practices Studymay be accessed free of charge at Reagan Consultings Web site atwww.reaganconsulting.com. Mr.Doran may be reached at 404-869-2534 or by e-mail at [email protected].

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, February 27, 2004.Copyright 2004 by The National Underwriter Company in the serialpublication. All rights reserved. Copyright in this article as anindependent work may be held by the author.

Returnto NU Online Archive.