How Process Improvement Drives Agency Profitability

To boost their profitability, agencies make investments all the time in people and technology, as well as in other businesses through acquisitions. But Dan Epstein, CEO of ReSourcePro, says there is another often overlooked source of improved profitability buried in agencies.

“The process is really the treasure in the backyard that is being ignored,” he says. “If you think of an organization as consisting of people, process and technology, there’s a lot of focus on people, hiring the right people, investing in sales training and there’s a lot of focus on technology, but there’s actually relatively little focus on the process side of it.”

His New York-based firm specializes in helping agencies improve their internal insurance processes so that they become a real competitive advantage and avenue for revenue growth.

“Process can drive profitability,” Epstein insists. “When we look at what’s the most efficient way to drive $100,000 to the bottom line or $1 million to the bottom line, the most efficient way for most organizations is through process efficiency. Process improvement — it also happens to be the most neglected way, in many cases.”

In a podcast interview with Insurance Journal, Epstein defines process as “all of the activities that go into delivering value to the client.” This includes policy checking, loss runs, bill reconciliation and other back office functions that the client doesn’t see but that are necessary.

One of the obvious questions that come up when agencies are reviewing processes is whether their producers are spending too much time servicing accounts and not enough time selling.

Research by Marsh Berry and Reagan Consulting has shown that even top producers spend as much as 50 percent of their time on routine servicing of accounts rather than on selling, according to Epstein.

Similarly, Epstein says, customer service representatives (CSRs) spend more than 50 percent of their time on reactive, behind-the-scenes work that clients don’t see or value.

Epstein says it would be more valuable for CSRs to be spending time answering the phone within the first three rings, developing stewardship reports, cross selling, rounding out accounts, or providing information to clients when they need it or proactively.

Once the tasks that do not drive value to the customer are identified, they can be given to other employees or outsourced to a service provider like ReSourcePro, thus freeing up more of a producer’s or CSR’s time for more valuable tasks. ReSourcePro is headquartered in New York and has trained insurance support staff located in offices in China.

“There’s an opportunity that if you could push down work from people who could be delivering value to the client, then they could be writing more business,” the ReSourcePro executive says.

He calculates that a service person generating $400,000 a year in commissions brings in about $248 an hour. If an agency could free up 20 percent of this employee’s time, or about 329 hours, the result could be $81,000 in additional commissions.

It’s reasonable to find at least 15 percent efficiency gains, or a 2.5 percent improvement in profitability, according to Epstein.

There are a number of process improvements agencies might consider. They include improving the workflow, eliminating errors from poor quality, and standardizing processes so that when different people do the task they aren’t reinventing the wheel each time.

Also, profitable agencies segment their accounts to identify their most valuable clients so that they can then provide them a higher level of service than they give smaller revenue or less profitable accounts.

“What we say is that by looking at the process and streamlining the process in the many ways that you can do that, you can free up their time and then you can manage people and people can set up new targets for rising growth, much of which will hit the bottom line because you’re not having to hire new people or add overhead,” says Epstein. “You can write more business, improve your service levels, maybe push your retention up a point or two and free up the producers to be spending more time on the road. That’s the biggest opportunity that we’ve seen of business that is largely a missed by many management teams. ”

Epstein is quick to add that he is not against investing in people or technology.

“I’m not suggesting process improvement at the expense of other initiatives, such as hiring producers or investing in sales training or investing in technology,” he says. “What I am saying is that those other things are often thought of as drivers of revenue growth or as drivers of cost savings. But in terms of the return on investment and in terms of the speed of the return on investment, they are much less efficient than focusing on process improvement.”

There can be major costs transitioning to new technology, which requires evaluating a system, planning the switch from old to new systems, training all users, not to mention the cost of the actual software. Payback can take five or six years and the results may fall short of expectations, according to Epstein.

“Very often what you see is that, if you baked the bad old processes into the new system, the return on investment doesn’t materialize or at nowhere near where it was expected to,” argues Epstein. “Whereas with process improvement, you can identify very quickly, within a few days, inefficiencies in the current workflows.”

Epstein’s pitch is not about just writing more accounts; it’s about writing accounts profitably:

“Getting everybody in the organization focused on what they do best for the client is what this is about. That means that allowing the producers to spend more time in the field is important. Allowing service people to spend more time working directly with clients, working directly with their markets, rounding out accounts, being proactive in servicing. These are the things that will drive profitable growth.

“The ultimate goal here is driving profitable growth to business. It’s not just driving growth and it’s not just driving profit, it’s driving profitable growth. To drive profitable growth, you have to write accounts profitably. To write accounts profitably, you have to service profitably.”

An agency needs to know which accounts are profitable, what the break-even cost of an account is, before it can figure out what, if anything, can be done to turn an unprofitable account into a profitable one.

For one recent client Epstein discovered that 40 percent of its accounts were unprofitable; the break-even was $5,000.

By streamlining the workflows, standardizing processes, reducing errors and delegating work, ReSourcePro got the agency’s break-even cost down to about $3,500.

Then for those accounts that are still unprofitable, the options may include creating a lower service level for them, eliminating them, or charging a service fee.

“Then you can have different discussions about how to manage them. Or if you feel that they’re still important accounts because maybe they lead to other business, then you can do that knowledgeably,” says Epstein.

While sometimes efficiencies are due to having the wrong people in the job, Epstein says that is rarely the case. Rather, he says, more often agencies find that the process inhibits people from fulfilling what they can contribute to the organization.

“We always start with the assumption that the people are valued and valuable, important. Even though we’re a business process outsourcing company, our clients are not looking to let go of their people. They’re looking to maximize the contribution of their people, allow their people to increase their full potential within the organization,” he says. “And so our starting assumption is that people are as good as the process.”

Or as he likes to put it, “You can have a great cyclist but you put them on a bicycle with a faulty gear system and they’re going to be ineffective. ”

Also, fixing the process just may reveal hidden gems among employees.

“We see that often, that people are trapped into a role or trapped into doing particular processes that, perhaps, their managers are not aware that they could do more of,” he maintains. “In some cases, they haven’t been asked what else they’d like to do or what they feel they could contribute more to the organization and create more opportunities for their career that would be more fulfilling.”

Listen as ReSourcePro CEO Dan Epstein discusses how process improvement drives profitability in an interview with Insurance Journal’s Andy Simpson.