by Shirley Lukens, October 2001

National Underwriter

The annual Best Practices Study, conducted by the Independent Insurance Agents of America (IIAA) and Reagan Consulting, was released to the industry during the IIAA's Hawaii InfoXchange.  The 2001 study differs from the last two annual updates in that it provides a glimpse of how the best agencies in the country are performing, as well as the business practices used by these agencies to achieve their outstanding results. 

After all the data were compiled and results analyzed, the top agencies in each of the study's six revenue size groups were interviewed to learn their business philosophies and practices.  While the participants vary greatly in size and type of business written, a common list of practices emerged.  For those agencies that have looked to previous Best Practices Studies for ideas to enhance performance, the list will seem familiar - a focus on customer satisfaction, continuous revenue growth and strong financial management; a commitment to developing and rewarding outstanding employee performance; the utilization of technology to achieve efficient and effective procedures; and the nurturing of good carrier relationships.  For those who are unfamiliar with Best Practices, this year's study offers a wealth of information for adopting or adapting what the best agencies in the country are doing.

The study also revealed several trends among the top agencies.  Because the group of agencies in the study changes every three years, trends are difficult to identify.  However, the use of insurance company service centers does appear to be growing.  In 1998, when the last prior group of Best Practices Agencies was selected, service centers were being used, but the commissions from the business placed in them were a fairly insignificant percentage of the agencies' net revenues.   The 2001 results reveal real growth in this area.

 Percent of Net Revenues Placed in Insurance Company Service Centers

Another interesting trend is the drop in the average number of total employees in most of the study's revenue groups.  This drop seems to be supported by better utilization of technology.  Most of the agencies interviewed indicated that the biggest payback on their technology investments was the ability to handle significantly more revenues with the same, or fewer, number of people.  Although it is difficult to determine the impact of the hardening market on the revenue per employee figures, this important productivity measure has increased significantly since the 1998 study.
 
Employee Productivity Measures

Technology continues to play an increasingly important role in Best Practices agencies.  The use of agency management systems, email, fax, voice mail, and other technologies such as document management systems is at the core of their efficient procedures and processes.   Technology, and especially the internet, is critical to their ability to communicate effectively with their carriers, clients, and employees.  Interestingly, however, many of the interviewed agencies were rethinking their use of voice mail.  Many admitted that when implemented in the agency, they had not given enough thought to the frustration it could cause customers or to the temptation it created for busy employees to screen calls.  Nevertheless, they all acknowledged its valuable and feel it will continue to be an important communication tool in the agency, albeit better managed. 

For the first time since 1998, the study includes a section on agency technology.  One interesting piece of information to be compiled in this section is the average total IT expense for the agencies in the six revenue categories.  The totals include hardware and software leasing, computer supplies, maintenance and maintenance contracts, training, data communications, website development and maintenance, computer depreciation, and software amortization.  Surprisingly, the total dollars spent, as a percentage of Net Revenues, is similar across all revenue categories. 

Information Technology Expense  

The 2001 Study contains several additional sections that have not been addressed since 1998.  Included in this year's more comprehensive version are data on revenues by line of business and other products and services provided; acquisition activity and what the typical transaction looked like; benefits provided to agency employees; and Internet utilization.