by Shirley Lukens, May 1999

National Underwriter

In the current Best Practices Study, nearly 90% of the agencies with revenues under $1,250,000 and nearly 60% of those with revenues over $1,250,000 reported that personal property and casualty business would play an important role in the future growth and profitability of their agencies.  Even the largest agencies, those with revenues over $5,000,000, showed an increased interest over previous years. 

So why are so many agencies looking at personal lines as an important source of revenues?  According to the IIAA / A.M. Best annual Company Cost Comparison Study released in September, the market continues to offer a huge opportunity.  Independent agencies write less than 1/3 of a $145 billion market that is growing at a rate of five to six percent a year.  More importantly, independent agency companies, which had the largest growth in market share, are getting more efficient in the delivery of the product.

While the opportunity to write personal lines is good, the ability to write it profitably remains a challenge for many agencies.  Here are some tips from some of the Best Practices agencies that can help address the challenge head-on and maximize personal lines profits.

1.  Make the commitment to be in personal lines.  Convey to everyone in the agency that personal lines is an important source of revenue for the agency, not a line of business that must be provided as an accommodation.  Work with your staff to develop a clear vision of success by defining your target markets, sales goals, strategies, and  profit expectations.  As the agency principal, demonstrate your commitment through your personal involvement in planning, allocation of resources, and holding everyone accountable for their part of the vision.  Most importantly, be willing to think long term.  Success will not occur overnight.

2.  Understand what it takes to satisfy your target market. The secret to personal lines profitability is to give the customer everything they want, but nothing more than they are willing to pay for.  Find out what your targeted customers expect of the agency and how they prioritize the importance of each expectation.  You may discover that in your targeted group professional advice ranks higher than lowest price.  Understanding these expectations allows you to effectively determine the proper systems, procedures, products, and personnel needed to support your effort.  An excellent resource to assist you in this effort is the Quality Customer Service Idea Book available from the Independent Insurance Agents of America.  Based on personal and small commercial lines consumer research findings, the book defines the expectations of various customer segments and provides samples surveys, letters, and guidelines to help an agency understand and service its customer base. 

3.  Put the right people in place to do the job.  Train and reward them appropriately.  New sales development can be achieved through a dedicated outside producer, through a designated inside salesperson, or an internal sales process using Customer Service Representatives (CSRs).  Regardless of the method you choose, remember that the person succeeding in a "sales"  role will probably have different aptitudes and characteristics than those fulfilling a "service" role.  This difference will necessitate different approaches to training and rewards.  Generally, the successful sales personality will be competitive, motivated by money, and wants to win.  Utilize third-party screening or testing to find someone with a good fit for the sales role, then establish individual production goals with compensation directly tied to sales.

If you ask customer service representatives to fill the sales role, make sure you provide them with appropriate training.  Detailed instructions or a list of questions to use when interacting with the customer are helpful.  Use role-playing to practice what the person needs to say.  Couch feedback in a non-critical way since the service personality generally has a high need to please.  Team objectives and rewards are better motivators because the customer service person prefers being part of a team.  One advantage to the team approach is that team members tend to push poor performers to do better or force them out.

4.  Streamline systems and procedures with the customer in mind.  Try to make every customer contact as positive and easy for the customer as possible.  Over one or two weeks, have your CSRs record every customer interaction to identify patterns.  (Make it simple.  Just create a list of those interactions that are typical, e.g. change request, billing questions, etc., then have the CSR put a check next to the item each time it occurs.  Add new items to the list as needed.)  Use the tracking record to determine the most numerous type of customer interaction, then look for any non-productive or negative elements associated with the interaction (e.g., calling back to gather additional information).  Develop or redesign any supporting procedures or processes to eliminate these elements and to insert any value-adds the customer would find beneficial.  If you need help in redesigning work flows, the ACORD Power of Change seminar teaches a five step process for doing so.

Because of the great number of variables, no standard or benchmark exists for the number of personal lines accounts a CSR should handle.  However, the agency can establish standards for what it means for a CSR to be "caught up" or current.  For instance, an agency might require all renewals to be processed 60 days prior the expiration date, premium bearing endorsements to be processed the same day received, etc.  To confirm that standards are being met, incoming mail can be date stamped, prioritized (A= important, B=medium, C=low), and sorted by activity into color files as it comes in.  Audit the CSR activity files occasionally to see how current he or she is.  If the date stamps indicate that the CSR is not current by agency standards, perhaps the CSR is being asked to handle too many policies or is not being as productive as possible.  Compare the number of policies (not accounts) being serviced with other CSRs loads to determine what is appropriate.  Often productivity can be improved with additional training, reinforcement of agency procedures, or a clarification of the agency's expectations.  Departmental productivity can be improved by developing processing teams where work is divided between selling transactions (cross selling, upgrades, renewals, and premium bearing endorsements) and processing.  Or consider having all new business transactions booked by one CSR who then hands the account off to someone else for servicing. 

5.  Manage your personal lines carrier relationships.  Start with the careful selection of company partners.  Make sure the company has an appropriate fit with the agency, not just products and pricing that fit the agency's targeted client base, but companies that have similar visions, view the agency as a strategic partner, and will provide the service and support necessary to sustain a win/win partnership.  Use the IIAA's Agency Joint Planning Tool to develop clear performance expectations for the agency and the carrier.  Monitor and expect companies to keep their commitments to the agency, proactively working with the company contacts when this is not the case.  Take on new markets only when the carrier is able to fill an unmet need. 

By limiting the carriers to those that specifically meet a need, you are able to streamline operations, maximize bonus and profit sharing arrangements, gain access to better products and pricing, secure additional help in advertising or other services and support, and qualify for better contracts.  During the joint planning sessions with your personal lines companies find out what it takes to qualify for the best agreements and then negotiate terms for the coming year based on realistic goals for new business growth and retention.  Although you should monitor your production commitments and loss ratios throughout the year, be especially diligent during the last quarter and at year- end.  Make sure submitted business gets booked in time to qualify for profit sharing.  Try to get reserves reduced on larger claims that have been closed if appropriate.

And finally, treat your companies with respect and honesty.  All these steps can lead to more profitable personal lines operations.