Juggling Agency Income, Outgo and Upkeep

Property markets have been the primary driver of the changes we are experiencing today. For several years now, property lines have been written as much by the state (think Citizens Property Insurance Corp.) and the excess and surplus markets as with standard companies. Incomes have shrunk and workloads have gotten heavier; customers are demanding more service and carriers are requiring more underwriting. Departmental profit margin comparisons show that property coverages are often a loss leader. Fortunately, there are ways to supplement this diminished income.

Life, health, accidental death & dismemberment, financial services, and group benefits are all areas of expansion ripe for the taking. Recent statistics show that only about 25 percent of American families are properly covered in these areas. In addition to the added revenue, the product knowledge exhibited during a cross-sell presentation to a client increases the customer's perception of the service and capabilities of an agency. The Independent Insurance Agents & Brokers of America reports that the average American family carries five insurance policies, but the average independent agent only handles 1.7 of those policies.

Florida requires just two weekends, or 40 hours, to get the Life & Health license. Continuing education hours after that are shared between the 2-20 and 2-18, so it is possible to obtain an additional license and start cross-selling. Considering that the average agency owner is 54 years old, it may be that agency owners will prefer to hire someone to do the cross-selling. This has the added industry benefit of encouraging new people to come into the business.

Bonds are a specialty item, and not for everyone. However, it may be beneficial for some agents to consider adding this line to the portfolio as an additional source of income. Trade associations can help you determine if this line is right for your office, and also provide critical information about the best practices of this line of business.

Contingencies have a mixed reputation. When available, they are a major source of income. However, they have been misunderstood by the public and by regulators, and therefore it is prudent to calculate the budget without them. That said, you should plan carefully to maximize the possibilities for new contingency or bonus money. If your carriers are still using this type of reward system, there are a couple of questions to ask: Are your marketing departments aware of the requirements? Do your producers know to chase the business types that bring in the most bonus money?

One proven method to maximize the contingency potential is to share the benefits. In the past, the trend was for owners to keep all the contingency money, rewards and/or trips themselves, and deservedly so. However, it may be worth sharing some portion of those rewards to increase the total gain. Just make certain that everyone knows the requirements, underwrite judiciously, and be sure that all sales and marketing efforts drive that result.

Now is a great time to shore up your office procedures as well. Get some refresher courses in-house to make sure your office is using the newest, latest marketing and service methods (do you Twitter? Facebook?). Perhaps you can pay a little more attention to accountability measures from producers, re-instituting weekly or monthly reports. Ramp up your sales meetings, and think about switching up your regular agenda. Have everyone contribute at different levels. Bring in the CSRs or marketing folks occasionally. Do not allow prima donna behavior: start and end on time, respecting those who are there on time and showing those who are late that you won't accept their disrespect.

This is the time to make some new cross-sell and rounding efforts as well. These do not have to be intrusive to your client. In fact, coverage checkups are often welcome in tough times. You may find you can save a client a few dollars in one policy and at the same time help him understand the need to add a line or increase another coverage, such as life and health.

Many agencies are branching out into completely new areas, like real estate or other industries. If you are considering this, have several in-depth conversations with a friendly competitor who is doing the same thing, and meet with your attorney to be sure you are following all the requirements for the new industry. Join the appropriate associations and access those resources.

Finally, in the area of income, there is the tricky concept of fee-for-service. Florida law is very specific in this area. In current law, agents are not permitted to charge a fee for the simple placement of insurance. We all know that agents rarely just place the insurance; you do much more for your clients than take an application and send it to the carrier. However, for that simple placement, you may only collect the filed and approved premium, which includes your commission, and is the only remuneration permitted for standard or E&S lines.

Fees may be collected for any and all other services provided, such as risk management, claims review, in-depth analysis for safety issues, and the like. The question for each individual agency is whether to offer these services as value-added items for customers to consider, or to charge extra for them. When considering fee-for-service, remember that there are strict guidelines to which you must adhere. You may find the white paper on fees at www.faia.com helpful as you determine how you want to handle this possible additional income source.

Control and Reduce Your Outgo

Expense reduction in tough times is a given. The best place to start is usually at the top. Fancy cars and benefits to owners ought to go first, as these are easier to get back when the economy turns around.

Employees are often willing to buy their own coffee, use both sides of printer paper (or, these days, skip some printing entirely) and forego other types of smaller conveniences that can save money without adversely affecting productivity or morale. If you discuss this with your employees first, generally they will be reasonable about giving up a few things when it is necessary. They know what supplies are being used regularly, and that a 69-cent pen will do just as well as the three-dollar version. You may even find that they have some useful ideas of their own on how to reduce office expenses.

Robert Townsend, the former chairman and president of Avis Rent-A-Car, wrote in his book, "Further Up the Organization," that unnecessary, cumbersome procedures left in place at Avis after a downturn and subsequent recovery were costing tens of thousands of dollars in employee time. Learn from his experience. Take the time now to re-evaluate how your office operates. In the agency system, regular workflow review is critical for both E&O prevention and expense control. Do you have procedures in place that are cumbersome, outdated or just plain duplicative? Are you getting the most out of your agency management system or are your employees doing everything twice, once on paper and then again electronically?

Agency owners typically avoid laying off personnel at all costs. However, if that becomes necessary, a careful review of job descriptions, workflows, inherent talents of staff, and long-term projections is critical to avoid legal and operational issues. You may find it useful to get some help to maintain objectivity. Re-engineering workflow and staffing assignments can feel very personal and emotions can run high, making it difficult to be logical. Avoid corporate anorexia by looking at the long-term impact of personnel decisions. If business started rolling in again tomorrow, consider how long you would need to ramp up staff again. Remember that for every minute you spend training new staff, you could be out selling insurance.

Evaluate work sharing, telecommuting, and reduction of leased space as alternatives to massive layoffs. For decades our industry has trekked into the office every day because that was where the work was located. Now, working from home is a solution for many, and it can reduce overhead expenses. Allowing this requires the right management and careful decisions about which staff members have the necessary self discipline. Study your employees and offices and see if you can replace bricks with clicks, at least partially.

It is tempting to cut out training and education when business is bad, but this is a short-term decision. Courses that build on professional skills that make customers happier are still important today, maybe more so. When competition is at its fiercest, sharp, educated employees can show your clients why they should stay with your agency, even if the offered policy is not the cheapest on the block. Employees are an investment, as is their training. Get the highest quality education you can afford, but do it in the smartest venue. Quality webinars are available practically every day. These can often be viewed in a conference room as a group to foster discussion among staff.

Try to maintain your valid networking memberships. Carefully evaluate which meetings make you money. Your image in the community can be highly influential to some clients, so take that into consideration, also. You may not have measurable ROI on all of your memberships, but it is a calculation you should be doing for every membership.

Devise an Upkeep Plan

Taking the time to stop and think about your long-term strategy will ensure survival and help pull you out of this difficult time. An added bonus: The very act of planning is incredibly motivating to staff. The mental exercise and positive thinking required to build a strategic plan will spark creativity and build camaraderie, and the very act of planning is a self-fulfilling prophesy.

We are fortunate to sell products that can be a source of steady, bread-and-butter income. However, when you have to re-market every other policy, it can grind on your productivity. Again, check workflows. Maximizing the use of your agency management system will increase efficiencies. Now is a good time to re-evaluate your system and make sure that every component is being maximized. Look at reporting options to see which renewals are single-policy accounts. Find out who does not have an umbrella policy. Standardize, standardize, standardize. In addition to increasing revenue, this will help reduce your exposure to E&O claims.

Involve your entire staff in the marketing process. Legend has it that CSR do not want to sell. However, cross-selling to another department provides better service to their clients, and that is a strong motivator to most CSRs. Give them a script, or devise small, limited promotions to help them stay on track. Make January the month to concentrate on insuring jewelry, designate February for fine arts, March for motor homes; plan special promotions throughout the year.

Company relationships need to be nurtured carefully as part of your upkeep plan, as well. When cutting back on travel, do not neglect the occasional visit to carrier offices. Close partnerships are critical, and most carriers welcome the chance to be involved in agency long-term planning. Some even assist with consulting help or have reimbursement programs for such assistance. Underwrite risks carefully, remembering that carriers have their own challenges, and will appreciate agencies that do not waste their time asking for quotes on marginal risks.

Finally, upkeep in the agency means keeping up with what is going on, and that includes continuing to support industry advocates, including the PACs. It is hard to write the check sometimes, but close attention must be paid to the actions of our government. They could eliminate our livelihood with the stroke of a pen. In this area, agents must be ever vigilant and stay the course.

Lisa H. Harrington, CPCU, CAE, AAM, AAI, AIAM, AIP is the owner and chief education officer of Sapphire Enterprises LLC, a management consulting practice based near Dallas, Texas. Company information is available at www.bluerockworks.com.