How to Improve Productivity in a New Economy
The economy is in the tank and so is the stock market. Thousands are unemployed and many people do not know where to turn. No one is setting up charities for insurance agents just yet, but the industry is at the end of the economic wave. Even within the ranks of the agents there is a sliding scale of growth, profitability and future potential. Those that focus in certain niches, like construction are reeling and it seems that the smaller the agency, the tighter the financial squeeze.
The long-term soft market has wreaked havoc for the typical agency owner. Commission dollars earned to sell and service accounts have dropped. The problem is the client and the companies expect more and more out of the agents for less and less.
Typical agency profitability levels have dropped from 25 percent of revenue or more 20 years ago, to today’s typical profit margin range of just 15 percent to 25 percent. The growth in expenses has outpaced the growth in revenue.
Personnel, the biggest single agency expense, typically costs 52 percent to 73 percent of revenue. In general, owner and producer compensation costs between 25 percent and 35 percent of revenue, while office staff compensation ranges from 20 percent to 28 percent of revenue, and benefits and taxes cost 7 percent to 10 percent of revenue.
Automation did not turn out to be the productivity panacea that was expected. How many agencies have cut staffing after they bought a new computer system? Sometimes staff was increased to add on an automation person or data entry person. Besides, automation expenses did not exist 30 years ago.
Other expenses are going up as well. Office rent has shot through the roof in many areas. Advertising, office supplies, travel and automobile expenses all have gone up.
How to Help
So can anything be done to help the typical agency owner stop the erosion of profits? The answer is yes. Plugging the financial leaks in an agency can add up to sizable savings. Performing an efficiency study is the first step to understanding where these leaks exist.
The place to start is with the people doing the work. Employees know what works and what does not work. Management’s role is to determine which is the most cost effective solution, if any. To start, management should ask employees the following question: What three things can be done to make your job more efficient?
Bring the staff together to discuss the suggestions. Brainstorm on the issues. Map out workflow on a wall chart. See if there are any roadblocks to getting the job done.
Is the staff double entering data? Is the agency paperless?
Is the layout of the office efficient? Does the staff have to go long distances or are they impeded when retrieving commonly used files, copy or fax machines, etc. Is the office too small?
Does the agency have enough properly functioning and up-to-date office equipment? Sometimes one extra fax machine or printer can make a big difference in productivity. Is the telephone system efficient?
Delegate some of the problem solving to the staff and have follow-up meetings. The best suggestion should win a reward, perhaps $100 or more depending upon the savings. This process should be repeated annually.
Other Areas to Review
Next, the owners and management should explore other areas that might be causing financial leaks.
Compare the agency’s productivity to peer groups using one of the published benchmark studies. Is the agency overstaffed or understaffed? If overstaffing exists, why and what can be done? Get rid of under-performing employees and reward the high performers.
Has management provided the employees with a clear direction for the agency? Employees need to be pointed in the right direction and told what their purpose is. Having a purpose will prevent employees from getting bogged down in the minutia.
How is employee morale? Any number of things can cause poor morale. Often it is related to perceived unequal treatment. Make sure all employees are expected to meet the same high standards. Be consistent with your relationship. The annual performance review is the time to clearly communicate performance expectations and past results.
Is the staff properly trained? On the job training is convenient, but it perpetuates the same old inefficient ways of working. When possible, it is better to send the employees outside the agency for new ideas. Have the employee inform the rest of the staff on what they learned after they return from trainings.
Does the agency cross-sell on its accounts? Relationships are strengthened when an agency sells more than one coverage to its clients. Efficiencies are gained by earning more commission per account and spending less time generating the sale since they are already familiar with the firm.
Does the agency have any program business? Selling a unique product that is slot rated can be an incredible income generator. Usually these sales require less work to sell and service. The similarity of the book of business can create high productivity.
Do the producers pre-screen their prospects? Pre-screening will help eliminate business that the firm cannot write or should not write. Know the price, product and politics needed to close the sale as soon as possible. It is best to find out the quality of the prospect in the phone call before the visit, than to find out during the marketing process.
Summary
Starting this process will take a commitment on the part of all owners, managers and employees. Keep in mind the first step is the hardest. Sometimes it helps to bring in an outside partner to get the process started. Oak & Associates can assist an agency in performing a Management & Organizational Efficiency study.
Small gains when compounded over time result in enormous savings. The goal is to work smarter not harder. Implementing the ideas that are laid out in this article will take some time, but will change the way you do business forever.