When a P&C agency and a benefits agency--or even two such divisions of the same agency--think about exchanging referrals, several factors should be considered to increase the odds the arrangement will work. The success of such efforts is quite low, when measured by the additional business both parties write, so it's all the more important to give them attention. Let's look at eight factors that can have a bearing on how well things turn out.
Physical location: P&C and benefits divisions within a single agency should share the same floor space. That way, communication is enhanced, everyone gets to know one another, and the employees of one division don't feel like second-class citizens. I don't think I've ever seen a cross-selling program work where the divisions did not share the same floor space.
Cross-selling criteria: Establishing cross-selling criteria up front greatly enhances the chances for success. Morale and trust between the divisions grow, because the hit ratio should be higher. For various reasons, some qualified accounts should not be cross-sold. By spelling out the criteria up front, there is a better chance that everyone will accept such exceptions. On the other hand, the desire some producers may have to hold back certain accounts that are good cross-selling candidates will be minimized.
Referrals must be proportionate: A significant cause of cross-selling failure is a lack of balance in referrals. In other words, the P&C division/agency refers considerably more accounts to the benefits division/agency (or vice versa). Even if the P&C people do better with the arrangement than without it, they still can become resentful if the benefits division does not send them a similar number of quality referrals.
Differences in talent and style also can be a problem. If the benefits producers have less talent than the P&C producers, the P&C producers will recognize this, and the cross-selling efforts will crumble. (The reverse also could be true, of course.) Age often plays a role, because benefits producers tend to be younger than P&C producers.
Compensation differences: Benefits producers generally are paid considerably more than P&C producers. If a merger is being considered between a P&C agency and a benefits agency, this difference must be addressed before the merger takes place, and the logic of having two different compensation plans must be convincingly explained.
In other situations, the commission split could be the problem. Will commissions be shared on new business only? Will any split on renewals be different from that on new business? Are commissions paid for referrals realistic? Neither benefits producers nor P&C producers are likely to want to give half of a sale's commissions to whomever provided the referral. Can the agency pay extra commissions, so neither producer has to take as big a commission cut as they would otherwise? Depending on the agency's cost structure, this may or may not be feasible.
Cultural differences: The P&C and benefits cultures are distinct. In fact, they are surprisingly different, considering the similarities of their business. In a merger, these cultural differences must be addressed. Educating each side about how the other does business can help.
These P&C/benefits cultural differences are in addition to the cultural differences all agencies face in mergers and acquisitions. Consider talking to Kolbe regarding testing for different personalities and cultures (www.kolbe.com).
Different locations: I previously mentioned the importance of the P&C and benefits staff sharing floor space. If that is not possible, I am not convinced that sharing the same building is better than working out of different locations. The problem is one of expectations. When the parties are in the same building, expectations for success are about the same as they would be if they shared the same floor. Such expectations are unlikely to be fulfilled. Compared with having the two divisions in the same building, housing them in different locations--as might be the case in a merger--does not seem to materially lower the success rate. But it does reduce expectations, which can improve the relationship between the divisions.
Overhead: Overhead, including amounts spent on clients and office accoutrements, is a component of a firm's culture--one that leads to conflict in cross-selling situations. One side may think the other spends way too much-or too little. A P&C agency that spends liberally on client entertainment will expect the benefits people to do the same for the clients the P&C agency refers. They may also expect the benefits division to do any upgrading necessary to bring the appearance of their work area up to the standards of the P&C division's--and to do so out of their own budget.
If the low-overhead branch or division receives less attention and capital than its counterpart, a downward spiral could well ensue. If the low-spending division also underperforms, confidence in it will erode more than it would in a high-spending division. There the answer to underperformance is simply to cut expenses. When the low-spending division underperforms, its business model is questioned more harshly than that of a high-spending division in the same situation.
Effective management of ALL producers: A common complaint I hear from producers in cross-selling situations is that the other producers "always blow it!" They don't follow up, they make lousy presentations, etc. If a producer truly is not performing, the management is responsible for correcting the problem. This is not a matter of cultural difference or inadequate integration, and the problem will not be resolved by declaring, "Can't you all just get along?" Management must deal with the underperforming producer by helping him or her improve or, if that's not possible, finding a more suitable position for the producer.
It's not easy to make inter-division or inter-agency cross selling work, and many agencies that try it are frustrated by the results. By paying attention to the eight criteria outlined here, however, an agency can buck the odds and boost the bottom line.
