Are You Ready to Put the Life Back into Your Agency’
Traditional p/c agencies may consider a life department for increasing profits, retention
Insured households carry more coverage than ever before, but at the same time, the insurance industry is reaching fewer U.S. households. On average, households own twice as much agent-sold life insurance than ever before, according to the Life Insurance Marketing and Research Association (LIMRA).
That’s a startling revelation for those property/casualty agencies that do not maintain a life department or have a life department that’s not regularly contacting customers. This means that their customers, who are qualified life buyers, might be sold these products by someone else, leaving an opportunity for a true multi-line organization to replace existing business.
Adding a life department or cultivating an existing department could not only increase retention, but add profits. This concept has been met with some skepticism due to a few poor experiences. However, it’s not hard to establish or further cultivate such a department when armed with a formula for success.
There are four major considerations in establishing a life department:
• Determining if the agency can successfully support a life department by conducting an agency strength assessment.
• Establishing a consistent lead generation process, administrative support and compensation arrangement.
• Recruiting the right life producer.
• Maintaining relationships and holding the life producer accountable.
Agency strength assessment
A quick analysis of a P&C agency, for example, with 2,000 personal lines accounts and 500 commercial lines accounts, or 2,500 accounts in total, provides some idea of what a P&C agency can expect.
Assume that 70 percent of those 2,500 accounts are qualified buyers of the non-P&C products mentioned earlier, which in this case would be 1,750 accounts. Our experience indicates that approximately 20 percent of those accounts will purchase non-P&C products, potentially resulting in 350 non-P&C sales made by the life producer of this model agency each year. And, if the average revenue is conservatively calculated to be $1,000 per sale, then this one-person life-producing department could generate $350,000 in annual revenue.
To be more precise in your approach, it is recommended that a select sample of the customer base be taken and each profiled account be compared by line of coverage against qualified buyer criteria, specifically including:
P&C Line of Coverage
• Head of household age 25 to 65
• Dependents-spouse and/or children
• Homeowner
• Lives within 25 miles of agency
• No known personal problems, such as health and occupation, by the agency-a low percentage of sub-standard business
Commercial Line of Coverage
• More than one business owner
• More than three employees
• Sales volume in excess of $1 million
• Located within 50 miles of the agency
Ninety percent of commercial lines accounts generally qualify for some non-P&C form of protection and, as stated earlier, 70 percent of personal lines accounts are qualified life insurance prospects. Given that 20 percent of the qualified life prospects buy something each year, you can begin to see the potential of a life department in your agency.
In anticipation of the question of what happens in the second year, keep in mind that 20 percent of the qualified buyers buy each year; therefore, each subsequent year the life producer simply goes through his or her prospects again. If there is a large enough customer base, the producer can also add call-in referrals to the prospect mix.
The right arrangement
There are a variety of arrangements that can be established when launching a life department and when bringing in a full-time life producer to cross-sell life insurance and related products to the P&C customer base. Some agencies will want to be a broker for a life insurance company and create an employee arrangement complemented by compensation, based on a sales draw for the life producer. Others will create a straight commission arrangement for the life producer. And still others will want the life producer to be a career agent of the life company.
If commissions and override payments are paid to the P&C agency, with subsequent commissions distributed to the life producer, greater control of the business rests within the P&C agency. Of course, in this scenario, the agency is responsible for all the financial and other aspects of the arrangement, which can be labor-intensive and create supervisory responsibilities.
On the other hand, if the P&C agency opts to have the life producer be a career agent of a life insurance company, the commission splits with the life producer can be submitted on the application. This allows the P&C agency to easily track the volume of policies written and prospects referred by the P&C agency, but there is no labor or cost in tracking and paying the life producer’s commissions. If the P&C agency establishes this type of arrangement, when an application is submitted, the split is identified on the application. The compensation is then paid to both the career agent life producer and the P&C agency.
Splits are the easiest form of life producer compensation and range from a 50/50 split for an employee/P&C agency to a 70/30 split for an independent contractor/P&C agency. This arrangement is especially attractive to the producer who wants to obtain the maximum Million Dollar Round Table (MDRT) credits for each sale.
A rule of thumb when creating a split arrangement is to conduct a pre-tax profit analysis and look at all the hard dollar expenses. For an employee, expenses may be as high as 30 percent. For an independent contractor, expenses can be between 10 and 15 percent.
The key to an effective life producer arrangement is to create one that draws the right candidate to your organization. You’ll want to attract a life producer looking for an opportunity rather than security.
Recruiting the right candidate
Before you begin recruiting a life producer to your agency, there are several questions that need to be asked:
• Is your agency large enough to support a life producer based upon the agency strength assessment?
• Will your P&C producers be comfortable in the cross-selling of life and related products to their personal and commercial lines accounts? What kind of candidate will they be comfortable with?
• How will the life producer be paid?
• What kind of life producer are you looking for? Ideally, a candidate should have two to seven years of life and related product-selling experience. If the producer has more group and health insurance sales experience, realize that this will be the business he or she will gravitate towards, to the exclusion of life insurance sales.
• What has been his or her track record? How many cases did he or she submit to underwriting in the last 12 months? What is his or her record of written and paid business for that period of time?
• Are you going to require the candidate to write a business plan? A business plan helps insure the success of the candidate and should include activity levels of paid and submitted business, as well as a 90-day fast start strategy.
Once you’ve answered these questions, you should have a clear idea of the type of candidate you want and can begin your search. These questions will also assist you in your interview process. If the candidate’s answers match yours, you probably have a match.
The right relationship
The most effective and productive relationship a P&C agency can have with a life producer includes the following elements:
• A consistent lead flow.
• A business plan that the life producer is held accountable to achieve.
• A life producer closely supervised the first 90 days through frequency of meetings and control forms.
• A part-time committed and coached administrative staff support provided by the P&C agency to the life producer.
The P&C agency must commit to creating a consistent lead flow to the producer. The life producer commits to contacting those prospects and cross-selling the customers as outlined in the business plan. The producer also promises to create an effective business plan and to work it to the agreed-upon expectation levels.
In my experience, 25 qualified endorsed personal lines life prospects in the hands of the life producer each week will yield 100 paid cases per year for approximately $75,000 of revenue minimum. Five to six qualified endorsed commercial lines business life prospects, along with two personal endorsements per week will yield $125,000 to $250,000 of annual revenue.
Establishing a life development program for a P&C agency represents an enormous opportunity for most P&C agencies. It is simple, and the formula for success has been tried and runs true. But it takes a commitment to success to make it work.
Bruce Golden is assistant managing director of The MONY Group’s Austin, Texas, office. Golden, who holds a Bachelors of Arts degree in Business Administration from the University of Texas, is an active member of the Austin Chapter of the National Association of Life Underwriters (NALU) and a qualifying member of Million Dollar Round Table (MDRT). Golden can be reached by phone at 800-437-6669 or 512-345-7850, or by e-mail at Bruce_Golden@mony.com.