The traditional growth model for “serious” property-casualty agencies and brokerages typically has centered on commercial lines business. Agencies that sold personal lines coverage did so more as an accommodation for the CEOs of their top commercial accounts than selling personal lines as a freestanding profit center. The thinking held that because the profit margins were so narrow, it made more sense to leave the personal lines business to the cavemen and the geckos. But whiplash market cycles, fierce pricing competition and rate declines have turned the commercial market into more of a roller coaster ride than a steady income stream for many producers. That’s why more agencies are growing personal lines businesses.

Since last September, AA&B has featured a “Getting Personal” department on agencies succeeding with auto and homeowners sales, and many of our “Agency Success Stories” revolve around agencies that are finding success through dedicated personal lines sales profit centers.Our word-of-mouth findings about personal lines are reflected in recent industry statistics. According to the IIABA’s 2008 Agency Universe Study, more small to midsize retail agencies are making a go of personal lines sales, said Madelyn Flannagan, IIABA vice president, education and research. On average, independent agencies of all sizes represent 6.2 carriers for personal lines, up from 5.4 in 2006, and personal lines commissions remain the largest single source of revenue (45 percent versus 44 percent in 2006), according to the study. Agency satisfaction with personal lines carriers stood at 72 percent, up from 65 percent in 2006.The reason for this trend is probably twofold: Agencies are recognizing the potential for personal lines growth while personal lines carriers are coming into agencies and helping them understand that if they need to pump up sales, personal lines can be a good support system for growth, Flannagan said.Some of the top personal lines carriers for independent agencies include Foremost, Safeco, Hartford, Encompass, Met Life Auto and Home, Liberty Mutual Cos., Auto Owners, Chubb and Travelers, she said. Personal lines growth among independent agencies is no fluke, agreed Timothy J. Cunningham, owner of OPTIS Partners LLC, a Chicago-based consulting firm. “Personal lines sales provide a higher profit margin because you don’t have the same producer compensation at renewal as with a commercial or employee benefits book,” he said. “And although they have a tendency to get some rate increase through inflation due to increased home values and auto costs, the personal lines market swings are not as extreme as commercial lines.” Even in a tough market, this type of “replacement bump” averages only 2 or 3 percent, he said.And although direct-writer competition may seem to put agencies into a David-and-Goliath scenario, taking away business from them is easier than you might expect. “Geico and Progressive are here to stay, but auto and homeowners are still products that can be confusing,” Cunningham said. “With more options, people need someone to consult with about their best coverage choice. Although more people will buy coverage on the Web, there will always be a segment that wants to deal with an agent.”And the direct writers have their own problems. “Geico’s first-year retentions are awful, which proves that even though a segment of the population sees insurance as a commodity and buys on price, they’ll shop it at renewal time,” Cunningham said. “And while the direct writers may not have a big producer compensation cost, they do have huge marketing budgets.”On the other hand, personal lines retentions at independent agencies are “incredibly high,” he said. “For homeowners business, there’s a 30-day window once a year to move the business; for auto, a 30-day window twice a year. The average person only has a claim every eight years or so, and it’s too much trouble to move the coverage.”AA&B spoke with a number of agencies specializing in personal lines. While each has a unique approach, some commonalities include:o Maintaining personal lines sales as a separate cost and profit centero Marketing through “word of mouth” and reciprocal arrangements with real estate agents, mortgage brokers and trusted advisorso Using CSRs and account managers for sales and compensating them with bonuses on new business rather than a commission structureo Focusing on volume and scale, particularly for mid-level personal lines businesso Cross-selling, upselling and account rounding from the personal lines business baseo High retention levels based on good customer service.

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