by Kevin Stipe, November 2004

National Underwriter

With Eliot Spitzer dominating the headlines, an ominous development has gotten less attention than it deserves - revenue growth rates for insurance agents and brokers are plummeting.  The rising tide of property & casualty pricing that has lifted revenue growth and profits to new heights since late 2000 is now clearly looking like an ebb-tide.

With the publicly traded brokers having reported their 3^rd quarter results over the past couple of weeks, we can now see how dramatic the slow-down in growth has been.  And keep in mind, the Spitzer suit was filed against Marsh on October 14^th - two weeks after the 3^rd quarter ended, meaning its impact is not reflected in the 3^rd quarter numbers.

What does this mean for the typical agent/broker?  It means we are heading back toward an environment of bruising market-share battles, where the winners are those who can grow by taking clients away from their competitors.  The winners will be those who possess an offense-oriented mindset, who have successfully developed a sales culture. 

Does your agency/brokerage have a true sales culture?  In our experience, many agents & brokers would answer "yes" but when pressed for evidence, would come up short.  They could provide extensive evidence supporting the fact that their organizations are highly productive, or profitable, or well-capitalized, and could show all sorts of industry benchmarks to back themselves up.  But how does one measure a sales culture?

In our work with many of the industry's top sales organizations, we have found that they typically monitor their sales culture metrics as carefully as their operational metrics.  Here are some of the most important metrics they follow, on a producer by producer basis.

• New commissions per producer.  Perhaps the grand-daddy of them all is also one of the simplest to track.  Below are the 2004 benchmarks for new commissions by producer for both commercial property and casualty and employee benefits business.  How do your firm's producers compare?

2004 Best Practices Study Benchmarks for New Business Generation

• Client prospect pipeline.  Sales culture agencies require their producers to set new business goals and then monitor their performance toward achieving those goals.  A key measurement in monitoring progress toward a production goal is a prospect pipeline report that tracks prospects by name and by estimated commissions/fees.  Some firms require each producer to have in their pipeline a list of prospects with target commissions/fees equaling 4-6 times their annual goal at all times.

• Producer prospect pipeline.  Sales culture agencies also recognize that they need to continually build their base of producers.  Over the long run, an agency needs to expand its production base by the same growth rate as the agency's target revenue growth rate.  This means, for example, an agency with 10 producers that wishes to grow by 10% per year needs to hire at least one producer each year.

This requires continuous prospecting of production talent.  The best agencies recognize that bird-dogging production talent cannot be effectively done by a single individual.  Instead, the best firms require all producers to be involved in the recruiting effort.  Requiring them to maintain a list of producer prospects is an effective method of sourcing culturally-compatible production talent.

• Average revenue per account.  Sales culture agencies understand that as a producer's talent, experience and relationship network grow, so should the average size of the accounts he/she pursues.  These firms have harnessed the power of the 80/20 rule (80% of the profits are derived from 20% of the customers) by providing their producers with a stratified listing of their customers, along with both carrot and stick to encourage them to increase the average account size.

Many firms have quit paying their producers for accounts that are below a certain minimum threshold.  For example, this year's Best Practices Study indicates that for firms with revenue between $2.5 million and $5.0 million, 40% of firms do not pay producer commissions below an account size averaging $1,733 in commissions.

• Receivables aging.  Sales culture agencies recognize that their producers are salespeople, not bankers.  Extending credit to clients by being loose on collecting premiums is a practice that fewer and fewer agencies are willing to tolerate.  The Best Practices Study indicates that the highest performers have made steady progress in improving collection time and avoiding bad debts by regularly reviewing their receivables and implementing strict collections policies with their producers.

In recent months, storm clouds have been gathering on the horizon of the insurance brokerage business.  Over the past few weeks, with the continued decline in property & casualty pricing and the announcement of the Spitzer lawsuit, the rain has begun falling.  The good news for agencies that have developed a sales culture is that success doesn't depend on the weather.  Rain or shine, they will find a way to continue to build their viability and value.

Kevin Stipe is a senior vice president and principal of Reagan Consulting, Inc., an Atlanta-based management consulting firm that developed and produces the "Independent Insurance Agents and Brokers of America Best Practices Study."  The Best Practices Study may be accessed free of charge at Reagan Consulting's website www.reaganconsulting.com.  Kevin may be reached at (404) 233-5545 or by email at Kevin@reaganconsulting.com