by Shirley Lukens, May 2007

National Underwriter

Through the years personal lines has been the backbone of the smaller agency.  Larger, commercial dominant agencies, however, have had little respect for the line.  If written, it was provided as an accommodation to key clients, and the personal lines department was viewed as a "red-headed stepchild."   Resources were allocated to maintaining the book of business, but few were allocated to grow or improve its productivity and profitability.     

(See Chart -- % of Best Practices Agencies that Consider PL Important to Future Revenues)

 

Total Agency Revenues	<$500K	$500K-1.25M	$1.25M – 2.5M	$2.5M-5M	$5M -10M	$10M-25M	>$25M
%	86.7%	90.5%	69.2%	71.0%	61.8%	51.7%	23.5$
Total PL Revenues	$180,984	$300,540	$529,542	$791,809	$1,198,809	$1,737,255	$3,272,829

 

% of Best Practices Agencies that Consider Personal Lines an Important Future Revenue Source.

That seems to be changing according to the most recent Agency Universe Study conducted by the Independent Insurance Agent & Brokers of America (IIABA).  The study noted that "some Large and Jumbo agencies are placing new emphasis on personal lines business."  In fact, a few of these jumbo agencies (i.e. > $10 million in revenues) are buying enough personal lines business to be personal lines dominant.  Suddenly, personal lines is desirable. 

This doesn't come as a big surprise to those agencies that have known for years that personal lines can be very profitable if managed correctly.  Many of the Best Practices Agencies have profit margins of 35% or higher in their personal lines areas.  They are able to achieve these margins because they are partnering with a limited number of carriers that are easy to do business with; focusing on total account development (upgrading, account-rounding, and cross-selling); putting business that can't be developed into customer service centers or "firing" the client; and are moving away from paying renewal commissions on personal lines policies. 

These agencies are actively soliciting new business.  A major focus is soliciting referrals by building strategic alliances with realtors, mortgage companies, title companies, etc.   But an equally strong emphasis is put on internal referrals between the Commercial, Employee Benefits, and Personal lines departments.  They know that the more product lines sold per account, the better the retention and the more profitable the account.  And, since they are able to meet all of an account's insurance needs, cross-selling limits the access that another agency might have to an important account.  As one agent put it, "We want to build a wall around our accounts.  Why leave any openings for another agency to get in?"

Creating this type of sales culture takes time, however.  After several attempts to establish a cross-department referral system , one Best Practices Agency told me he first had to "get the attention" of his commercial producers.  There just wasn't a big incentive for them to provide referrals.  His solution?  He doesn't offer a split of the personal lines commissions but makes providing a certain number of referrals a key factor in the producer's year-end bonus.

His next step was to assure that the commercial producers had confidence that the personal lines department would respond adequately to the referrals. He created a dedicated personal lines producer position.  All referrals are given to her so nothing falls through the cracks.  Now she is regularly invited on new account calls with the commercial producers to explain how the agency can be of service in personal lines.   It also helps that the personal lines producer has provided several referrals to the commercial producers!

Another agency focuses on cross-selling personal lines and employee benefits.  The principal prints a list of new accounts each month and shares the list with the personal lines manager.  The manager contacts each producer to discuss which new accounts should receive follow-up communications regarding the agency's personal lines products and services. To reinforce the effort, someone from the Personal lines department accompanies the employee benefits team to open enrollment meetings for new clients and is available to discuss personal lines.   

In addition to working referrals, Best Practices agencies also work aggressively to provide great customer service and to build strong relationships with existing clients.  Automation has allowed most agencies to achieve both of these goals in a more profitable way.  It has also provided more time to add personal touches, and it is in these areas that independent agents can outshine the direct writers.   

Recently a Best Practices agency personal lines manager told me that when they lose an account to a direct writer because of pricing, the client usually comes back after a year or two because they miss the "personal touches."   For example, CSRs are encouraged to take a few minutes everyday to "touch" clients outside of the annual review by sending hand written notes congratulating a client on the new house or car, or taking a extra minute at the end of a phone call to ask the client to suggest one thing that the agency could do to make doing business easier. 

Another personal touch has resulted in new business. At the beginning of the summer before clients start to take vacations, the CSRs send key rings on which the agency's contact info is printed.  The accompanying letter suggests that if a friend or neighbor is asked to watch the client's house, provide the house key on the key ring.  That way the person will know how to reach the agency should an emergency involving the house occur under his or her watch.   

Regardless of how the agencies manage and develop their personal lines efforts, one thing is consistent.  The agencies' top management teams want to be in personal lines.  They understand that the line can contribute significantly to the overall value of the agency.  Even if the book is growing at only a slow pace, if properly managed, it can provide a steady stream of income that the agency can rely on in slow times. 

* Source - 2006 Best Practices Study