80/20: The Golden Rule For Sales Reps

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

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

In observing insurance agencies over the years, this principle seems 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 of your employees.

A minority of your accounts generate a majority of the profits.

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

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

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

Have your commercial account executives identify their most time-intensive accounts from a servicing standpoint. Then look at the revenues associated with these “high maintenance” accounts. If the dollars earned do not allow for a reasonable profit after accounting for sales and servicing costs, either find a way to build fees into the account to get it priced right or, if this is not possible, move the account to another agency.

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

Have your commercial producers purge their book of business once a year of the smallest-dollar accounts (set your own dollar threshold). Turn these accounts over to the house with no further commissions paid on the business. This practice will free up significant production and servicing resources better deployed elsewhere.

Without question, both the producer and the agency will benefit from this discipline. Assuming your commercial producers are targeting the right new business opportunities, it is likely that these small-dollar accounts will be more than made up with very few new accounts.

To discourage the writing of bottom-20 percent business in the first place, make sure your commercial producers are paid commissions only on accounts above a certain dollar threshold. Again, the threshold is up to you, depending on the unique characteristics of your agency and marketing area, but a good place to start is to simply determine at what dollar amount (after commission 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 to improve the overall quality of your commercial p-c book of business.

Review your carrier volumes regularly to consolidate business from little-used, unprofitable, or non-strategic carriers with markets with which your agency is in partnership for the long haul.

Develop specific product and service niches and areas of specialization, and leverage them extensively. Find specific areas in which your producers can develop a competitive advantage rather than defaulting to an “all things to all people” generalist approach.

Have your producers develop a short list of 15-to-20 target accounts to focus on–the “Most Wanted List.” In terms of priorities, make sure the Most Wanted List comes before other less attractive new business opportunities. Once the Most Wanted List is in place, work with each producer to develop a specific strategy for how to get the business.

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

Have your producers ask each of their 10 best clients to provide the names of three other potential “best” clients who might benefit from your agencys services. Even better, have them ask for a personal introduction. A producer who closes a third of these referrals would add 10 new “best” accounts to their book of business using this tactic.

Encourage your property-casualty and life-benefits producers to work together to cross-sell the agencys existing account base. Much has been made of the extraordinary effort necessary to sell a new client relative to re-selling an existing one. Are you making the most of the clients you already dazzle with your products and services?

Many producers are still afraid theyll lose accounts by encouraging the cross-sell, only to have another department drop the ball on the account. In my experience, the opposite is truethe more lines of business you write for an account, the less likely you are to lose the business to competition.

A more general application may simply be to identify the efforts in your agency that are not generating significant positive results and stop doing them.

A client of mine maintains an agency-wide “stop doing” list for this sole purposespecifically identifying the activities that make no sense whatsoever in terms if improving client service or the profitability of the agency.

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

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

Tom Doran is a senior vice president and principal of Reagan Consulting Inc., an Atlanta-based management consulting firm that developed and produces the “Independent Insurance Agents and Brokers of America Best Practices Study.” The Best Practices Study may be accessed free of charge at Reagan Consultings Web site at www.reaganconsulting.com. Mr. Doran may be reached at 404-869-2534 or by e-mail at tom@reaganconsulting.com.

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

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