MAKING a profit on small-commercial accounts can seem hard. In our 20 years of consulting in the insurance industry, we've seen many agents and brokers treat small-commercial accounts like the "forgotten stepchild." They are sent to the corner and given little attention by owners and managers, who consider them necessary but unprofitable. Some agencies try to avoid handling small-accounts business at all. Others establish a small-accounts department just to keep the business isolated and out of the way of busy producers.
Many agents have told us they write small-commercial business only because they can't seem to avoid it. Perhaps this is because insurance agencies, by their nature, are community-oriented businesses. They advertise in the Yellow Pages, and their producers are constantly out "on the street," seeking new contacts and getting involved in community activities. When small-accounts prospects call or visit an agency, it's hard to turn down their requests for help. In some instances a large client refers a small account, and an agency handles the small account to keep its large client happy.
Yet our experience has taught us there are plenty of reasons to seek out small-commercial accounts. They can be easy to write, and small businesses are a healthy, growing part of our national economy. You never know when a small account might turn into something larger. One client we've worked with has an account that started out as a small, family-owned business. Today it is a national chain with 4,500 stores.
We've helped many of our clients set up successful small-commercial accounts departments or make existing small-accounts units more profitable. In this article, I'll discuss the difference between the agencies that handle small accounts because they have to and those that write the business because they like the profit.
The right stuff
When agencies decide to establish a small-accounts department, too many of them say, "Let's put in all our accounts earning less than $1,000 in annual commission." Using this approach means setting up a department that is destined to fail. Producers will gladly give up all their problem accounts that meet the commission requirement-the client is difficult to deal with, the account involves too many transactions, it is hard to place with markets, etc. This also prevents the department from accepting larger accounts that fit the small-accounts model.
Efficiency is even more important with small accounts than with larger ones. Only those that can be sold and serviced quickly and easily should be in a small-accounts unit. Many of the accounts might be able to be sold over the phone, for instance. All of them should be able to be placed with standard markets. An agency should never have to go through a wholesaler for small accounts; doing so would only further reduce the already-small commission paid on these accounts and eat into profits. If an account can't be set up for direct bill, it shouldn't be in this unit. An agency doesn't receive enough revenue on these accounts to warrant the amount of work involved in handling the billing.
The "right accounts" should also be placed with the right number of carriers. We have found many agencies we consult with have as many as 10 markets for small-commercial accounts. This is too many. Two to four is an appropriate number. The coverages are often similar enough that it's inefficient to have to work through the product and Web-site differences among many carriers every time a new account comes in.
The benchmark commission size varies by agency. Many agencies use the $1,000 mark (for accounts that fit other criteria as well), but some national brokers include accounts with commissions as high as $5,000. And in major metropolitan areas brokers might include accounts with up to $7,500 in annual commissions.
The right people
Because small-commercial accounts require less technical knowledge to sell than larger accounts do, this department can be a good starting place for talented, sales-oriented new producers who are just beginning to gain technical expertise. That doesn't mean they don't need sales support, however, and it doesn't mean the small-accounts department should become a repository for employees who just aren't working out elsewhere in the agency.
Everyone in the small-accounts unit should be ready to sell and eager to find every possible way to become more efficient. Producers can receive support from dedicated CSRs, but all service staff should be able to handle any account "from soup to nuts"-it would be inefficient to have one person handling only certificates, for instance, and another taking claims information.
Not every small-accounts department has a dedicated producer. If a mid-market producer is also responsible for small accounts, many agencies don't pay the producer any renewal commission on the small accounts. A typical small account might produce $2,000 in premium. If a producer gets 25% to 30% of the renewal commission, there's not much left over for the agency. Such a no-renewal-commission arrangement makes it all the more important that all staff members in the department are sales-oriented. If a producer gets no renewal commission, he or she will have little incentive to have any contact with an account after the sale, and the other staff members in the department must pick up the slack.
In successful agencies in which some producers work exclusively with small accounts, the producers bring in an average of $30,000 a year in new-business commission, and the top performers produce as much as $100,000. CSRs in these units handle books of business averaging $100,000 to $150,000 in commissions, and the top CSRs service books up to $250,000. If CSRs in a small-accounts department are not handling at least $150,000 in business, the agency is doing something wrong.
The right procedures
Even the most dedicated staff needs to be guided by procedures that streamline the handling of small accounts. Using carrier service centers is one example. I recently spoke with a manager who told me her agency "turned off" carrier download for six months. This forced CSRs to transfer clients' calls to a service center.
Another agency we worked with had a small-accounts department that generated $500,000 in revenue on 2,000 accounts. It was staffed by a manager and three CSRs. Producers who brought in small accounts received a percentage of the agency's renewal commission. The agency determined what share of its total expenses the department accounted for, and realized it was making only $28,000 in profit on its book of small commercial accounts.
The agency identified $125,000 of small-accounts business that was eligible to be moved to a carrier service center. It accepted less commission on these accounts, eliminated renewal commission for producers on all small-business accounts, and-because of the shift to the service center-moved one CSR to another department (one in which she was sorely needed). As a result, the agency increased its profits in the small-accounts department to $200,000.
With the accounts an agency continues to service, CSRs must avoid duplicating tasks. We've worked with some agencies whose CSRs input policy change requests through a carrier's Web site, then enter the same information into the agency management system, to ensure a record of the request. This is unnecessary. By now, most carriers are able to download change requests directly into agency management systems. If a carrier can't provide download, an agency shouldn't consider that carrier as a small-accounts market. When CSRs process clients' requests through the agency management system, they should enter clear, concise notations of every action they take. Any other employee in the department should be able to pull up any account and easily determine exactly what has been communicated or what has been done.
Some CSRs seem to believe that providing proper service means re-marketing an account at renewal even if the premium has increased just slightly. Agencies should keep their re-marketing efforts for small accounts to a minimum, only re-marketing those that they absolutely must in order to retain.
The right technology
Technology plays a vital role in the success of a small-accounts department. Owning the latest technology is not enough-an agency has to use it correctly. We visited an agency that was proud of the fact its CSRs all had hands-free, cordless headsets for their telephones. They even demonstrated for us how these devices affected their work flow. When customers called with service requests, the CSRs were able to get up from their desks, walk halfway across the agency, and look for information in paper files, with the customer still on the phone.
What they had missed, though, was that CSRs can and should fulfill customer requests while customers are on the phone, through the agency management system. I cringe when I see a busy CSR take a phone call from a client and write information in a notebook. The CSR may forget exactly what the note means, or in the rush of the day may forget to enter the information at all.
Many carriers offer online, automated quoting, in addition to upload and download capabilities. Agencies must take advantage of all such capabilities their carriers offer. They allow the CSR to generate a quick quote and a quick turnaround on policies. Insurance companies that do not have these systems should not be considered for small accounts.
Small-accounts departments must also use the full power of their agency management systems. Proposals and schedules should be generated directly from the system, rather than being created "from scratch" in a word-processing or other program. Imaging technology lets an agency practically do away with paper files and have relevant documents electronically attached to the appropriate client files. Imaging technology keeps getting better. Some systems allow an agency to set up a non-standard form electronically and pull the appropriate data into the form, from the agency management system, rather than having to fill out a form by hand or key the same information twice.
Agency management systems' reporting capabilities can help agencies ensure their small-accounts departments are profitable. We helped one agency use its system to analyze its overall book of business according to such criteria as operating expenses; sales expenses; and revenue by producer, company and CSR. The agency realized that 80% of its accounts were generating less than $1,000 in revenue each and accounted for just 9% of total agency revenue. Knowing how to use a system's reporting feature can help an agency increase profits by identifying the accounts that should be handled differently or eliminated.
Ganging up on the little guys
Making a small-accounts department profitable requires the commitment of everyone in an agency, not just those working in the unit. For instance, we consulted with an agency that devised a sales plan for its small-commercial department. The agency had an existing $500,000 book of small-accounts business, figured they would lose 10% of it, and planned to grow the department by 10%. This meant the agency needed to bring in $100,000 of new business. To help them do so, they hired two new producers for their small-accounts department.
Besides running the department efficiently, the agency plan called for contributions from almost everyone. The agency projected that $5,000 of new business would come from walk-ins and call-ins. The mid-market commercial producers were constantly coming across small-accounts prospects they didn't want to deal with and could refer to the small-accounts department. The agency determined this would lead to an additional $25,000. Referrals from the CSRs in the middle- market department were expected to generate $10,000, and the other departments in the agency (personal lines and group health) were counted on for $10,000 also. Finally, the agency expected the four CSRs within the small-accounts department to generate $12,500 each through cross-selling. This was a much better plan than simply stating a $100,000 growth goal without identifying just where the revenue would come from.
Putting it all together
Whatever an agency's specific revenue goals, the best small-accounts plan is one that understands the differences between small-commercial accounts and other business. Putting the right people in place to sell and service the right accounts, taking advantage of all available technology, and drawing on the efforts of every department can make a small-accounts unit a profit center for any agency. In fact, I'd say it almost makes it look easy.
Sharon Cunningham is president of Business Management Group, a management consulting firm that advises insurance agencies in such areas as strategic planning, management, compensation, automation, and mergers and acquisitions. She is a featured speaker at a variety of national conferences and is a regular columnist for Best's Review. Readers can contact Ms. Cunningham at (800) 772-0202 or by e-mail at scunningham@bmgconsulting.com.
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