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 center
o Marketing through “word of mouth” and reciprocal arrangements with real estate agents, mortgage brokers and trusted advisors
o Using CSRs and account managers for sales and compensating them with bonuses on new business rather than a commission structure
o Focusing on volume and scale, particularly for mid-level personal lines business
o Cross-selling, upselling and account rounding from the personal lines business base
o High retention levels based on good customer service.
Bob Loiselle, principal,
Loiselle Insurance Agency, Pawtucket, R.I.
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“It's our opinion that the larger client base and smaller average premium size of personal lines provides the agency with a more stable number of clients and a more consistent income stream,” said Bob Loiselle, whose third-generation agency's split is 70 percent personal lines. “Growing a personal lines book traditionally takes longer than growing a commercial lines book, but we believe a personal lines concentration reduces the income volatility that many agencies with a commercial lines concentration experience.”
Loiselle's father started the business in 1943, “heavily weighted” in personal lines. And although there was carrier pressure in the 1970s and '80s to write more commercial lines, the agency stayed focused on personal lines. Today, with Loiselle and his two daughters at the helm, the 25-employee agency still makes a conscious effort to retain that focus. Most clients are “Main Street, middle-America type of folks,” and referrals come primarily from word of mouth. However, the agency also advertises in print, on local cable and network television, and through direct mail, Internet, Yellow Pages and at trade shows.
The agency represents about 20 insurance carriers, with most personal lines business being placed with about 10 of these, including Progressive, Safeco, Quincy Mutual, Providence Mutual and Travelers. What these insurers have in common is “a consistent appetite to write the business, and the systems to support it,” Loiselle said.
Because personal lines is a transaction-based coverage, insurers need to provide technological capabilities such as data upload/download and online access, as well as profitability and growth incentives, he said.
Loiselle's service staff for sales and processing is divided into three separate categories: a commercial lines service unit with a team leader, divided into an alpha split; a personal lines service unit for all standard accounts, alphabetically split; and a special auto service unit for nonstandard auto business, primarily monoline or auto with poor credit or loss history.
An indirect benefit to personal lines sales is that quality personal lines employees are less expensive to hire, train and retain than commercial lines employees, Loiselle added. “One small drawback is that some people in the business consider personal lines agents as less professional or sophisticated. While this may be true in some cases, especially for smaller agencies, it certainly is not true for many of those firms that have made a conscious commitment to a personal lines business model.”
When asked what advice he'd give to agencies looking to get into personal lines sales, Loiselle said, “Maintain a separate department and separate employees, perhaps even separate company appointments, and be patient.”
Dan Wolfgram, vice president of personal lines sales,
R&R Insurance Services Inc., Waukesha, Wis.
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R&R comes to its personal lines focus naturally: The firm was founded in 1976 by three former direct writers for Allstate and three commercial lines agents who wanted to write larger commercial lines accounts and an opportunity to own their own agency, Wolfgram said. Today, the agency has six locations, $22 million in revenue, and about 170 employees.
Although personal lines business comprises only 15 percent of its book of business, R&R firmly has been committed to personal lines growth since 1986, when the firm acquired a personal lines operation that happened to belong to Wolfgram's father. The younger Wolfgram was hired in 1987 as the firm's first personal lines producer.
R&R operates three distinct profit centers for personal lines, commercial lines and financial services with three different sales managers. Five full-time producers sell personal lines business, with another in training for group sales, a business segment that R&R is hoping to grow in 2009.
The agency's top personal lines carriers are Travelers, Progressive, Met Life and Wisconsin-based regional insurers West Bend Mutual (West Bend), Acuity (Sheboygan) and Secura (Appleton).
Unlike many other agencies that focus on high-end personal lines business, “We cut our teeth on Joe Lunchbucket–mostly middle-market America,” Wolfgram said. “We have lots of customers with per-relationship revenue at around $200 for personal lines. We're not writing the person with 18 homes, although one of our customers owns four or five.”
Referrals are the lifeblood of personal lines growth, and R&R is committed to it. One example is its “lunch and learn” programs, presented to the agency's current commercial lines customers with at least 10 employees. An R&R representative gives a 15-minute presentation on subjects like identity theft or home inventories and provides lunch, then encourages employees to work with their HR manager to bring in the dec sheet of their current homeowners policy so R&R can quote on it.
Servicing personal lines business can be labor intensive. Almost all of R&R's accounts are serviced by its own CSAs. R&R does utilize the Travelers service center. However, this is something the agency typically tries to avoid, Wolfgram said. The staff has assigned customers by alpha split, with about 1,000 customers each; for 24-hour claims emergency service, the agency uses a customer call center.
Retentions are good and consistent at about 94 percent–”very good since industry standards are around 89 percent if you're doing a great job,” he said.
Wolfgram “loves” competing against direct writers, especially American Family, which has a strong regional presence. “Rate is never an issue because what we sell is the advantage of working with an independent agency: choice of markets, flexible underwriting and developing a relationship for life.”
He stresses the importance of management commitment to personal lines to realize success. “You can't just stick your toe in the water,” he said. “Some agencies look at personal lines as a second thought. You must commit to having a separate personal lines department with dedicated associates.”
Ron Assise, president, personal insurance division,
The Horton Insurance Group, Orland Park, Ill.
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With only 8 percent of its annual revenues attributable to personal lines, Horton Group would seem to be less of a personal lines success story. However, this $46 million revenue, privately held agency is committed to a strong balance between commercial, personal and employee benefits (the last category comprises more than 33 percent of its revenues).
Like our other sources, Assise emphasized the need for agencies to prioritize and specialize in personal lines. Personal lines is “vastly different” from commercial in just about every way: the way rates are filed, the lack of debits and credits, and the high number of transactions.
“It's not just a sideline,” he said. “If you're going to make it a core line, you have to have somebody who knows personal lines, is passionate about it, and has the relationships and expertise to do it right.”
Horton's personal lines division, which runs out of the agency's Orland Park, Ill., and Schererville, Ind., offices, features a call center and a team of dedicated producers.
In all, 27 staffers work in the division. The division is separated into four units: new business, service team (each client has a CSR with backups), a dedicated remarketing team (a services/sales hybrid), and an affluent unit (any client with AIG Private Client, Chubb or Fireman's Fund, with an average premium account size of about $15,000). Average account size for the “mainstream” personal lines customer is between $1,600 and $2,000.
The agency's core personal lines carriers are Travelers and Met, with regional mutuals Acuity, Grange and Central Mutual capturing much of the new business, Assise said.
He noted that servicing personal lines accounts is the most labor intensive and transactional part of the business–”the most difficult thing about doing it profitably and with enough 'touch' to retain clients,” he said.
“We're lucky that we have the scale to have the automation we have (using Applied Systems TAM), which allows us to be completely paperless,” Assise said. “If a customer has a question about their account, the answer is just a few clicks away. We strive for giving people the kind of service they're used to from a smaller agency but with the advantages of a large agency through our technology and the companies we represent.”
However, this relationship is a delicate balancing act. “Our biggest challenge is avoiding the customer perception that we're getting too big for them, which is more of a perception that a reality,” Assise said.
“We add the personal touch from the basics like handwritten thank-you cards, having calls answered by a real person from 8 a.m. to 5 p.m., try to avoid voice mail, and giving each personal lines client their own personal service rep.”
Personal lines sales are “highly transactional, which is why most banks trying to get into it have failed,” he said. “You actually have to service people. When you cater to your clients, your referral base goes up and so does your retention.”
Cary Hager, personal risk manager,
USI Midwest, New Albany, Ohio
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“We service approximately 8,000 clients and our niche is affluent and high-net-worth clients,” said Cary Hager of USI Midwest. Parent company USI, part of the Goldman Sachs Capital Partners Co., is the largest privately held brokerage in the U.S., with 67 offices in 18 states. USI Midwest has 10 percent of its business focused on personal lines.
“We're not just taking general existing policies and duplicating them. We're looking at risk in depth to determine what products our customers need,” Hager said. Primary insurers for personal lines business at USI Midwest include Chubb, Firemans' Fund, AIG Private Client Group, Encompass and Westfield.
One mistake some agencies make with personal lines producers is to treat them as second-class citizens. “Don't use personal lines as a training ground for commercial producers,” Hager said. “A much better model is to find someone who enjoys personal lines contact and service level, and groom and promote them to be more important to your organization in personal lines rather than moving them to commercial.”
The brokerage's VIP service group contacts clients regularly for reviews and followups–essential for successful personal lines sales. “It's easy to ignore the quiet client, so it's important to keep up with their life changes,” Hager said. The baseline is an annual account review and if a product of interest comes up in the meantime, to contact the client with an update.
Personal lines can be a hedge against the swings that commercial markets can take. “You don't have the scare of losing a large commercial client affecting your book; if you do it correctly, you can help cement the relationship on commercial if you're giving VIP service and use it defensively,” Hager said. “You also get to know your commercial clients better when you know who's driving their cars and what types of collections they have. It gives a true full-service approach to an agency.”
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