MOVING more and more to direct-bill payments over the past 10 years, our agency had almost eliminated the processing of premium payments. In 2002, however, we acquired another agency and discovered that they had a substantial number of customers who remitted direct-bill payments to the agency office. We saw processing these payments as a nonproductive use of our time that provided no value to the customers.
It had been so long since we had addressed this issue that we had to start from the beginning to design a plan to eliminate the processing. Since we had just purchased the agency and knew there was no chance of having the former owner continue in any management role, we were reluctant to make too many quick operational changes. We ultimately broke the process down into three phases, to be executed over two years.
The first phase was to identify and quantify the volume of direct-bill payments. The second phase was educating customers about why it was in their best interest to pay their premiums directly to the carriers, while we continued to provide additional services. The final phase was designing and implementing a phase-out time-table and establishing a final cutoff date. I will discuss the first phase in this column and the subsequent phases in the next two columns.
We began by determining the size of the problem, in terms of both time and potential lost premium. We looked at the previous six months' worth of hand-written receipts that the former owner's staff had issued and created a spreadsheet to analyze the information. We counted approximately 450 entries from the receipt book for that six-month period.
We added new entries to this spread- sheet for customers who continued to visit the agency during the first six months of our ownership. When these customers came in, we asked them if they were aware that the carrier's billing system allowed them to send their payments directly to the carrier. Most of the customers responded that they had always paid their premiums at the agency and would continue to do so.
It was fairly easy to begin figuring how much time this process was costing us. We measured the average time to process a direct-bill payment at about seven minutes. This took into account not just the EFT transaction we performed (three minutes), but the length of the entire process with the walk-in customer. This included many transactions that took considerably longer. Many customers came in without a bill, and we either had to make an inquiry to the carrier via its Web site or phone to confirm current balances, installment amounts due and due dates. We spent time issuing receipts for cash payments, making bank deposits and issuing agency checks to carriers. We also factored in the time of reconciling the "pass-through" checking account. We arrived at a total of 105 employee hours spent on this process annually.
We asked the agency's previous owner why he had never made the move to direct bill. He told us he had always believed that having customers come to the office fostered close relationships and created account-rounding opportunities. He did admit, however, that as the agency grew and became busier, he realized that the walk-in payment seldom resulted in extended conversations about clients' coverage.
The second reason cited by the former owner (and the clients) was convenience. The former agency office was immediately next door to the village coffee shop. It was not only convenient to stop in with a payment while going to and from the coffee shop, but also saved the 37-cent postage cost. We were told that we would lose customers who paid their bills in person if we stopped accepting walk-in payments.
We certainly didn't want to encourage our newly acquired clients to leave. We turned again to our spreadsheet analysis of premium payments. It seemed to me that I had seen many of the same faces more than once in observing payments of direct-bill premiums during the first few months. We learned that only about 50 customers were consistently paying their premiums in person, and that they were making multiple installment payments for multiple policies. One customer, with three policies, had brought installment payments to the office nine times during a seven-month period.
We determined that the total premium volume of these accounts represented just 3% of agency's overall premium volume. We were spending too much time on those accounts just to fulfill a function that added no value to our clients. We could indeed afford to lose their business and not suffer a major consequence.
The next phase was to design a plan to terminate as much of this activity as possible, which will be the topic for next month's column.
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