February Cover Story

Protect Your Profitability
Don’t let the recession kill your margins. Keep your agency in the black by focusing on technology, marketing and expense control.

Official accounts say the recession is over, but many independent agents would be hard-pressed to agree. Caught between the continued soft insurance market, an ailing economy and renewal audits that often require them to pay back part of the premiums they collected last year, many agency principals are fighting to keep profits part of their financial equations.

But the battle doesn’t have to be all uphill. Agents maintaining or growing their margins, along with consultants who specialize in agency profitability, say there are numerous ways agencies of all sizes can grow, preserve or restore profitability. And the good news is that many of these dollar-doubling tactics may already be in place at your agency—it’s just a matter of putting them into motion.

Tap into Technology
One way to boost revenues is to implement the technology your agency is already paying for. If your carriers offer Real Time download and you’re not using it, either start or tell the carrier why it doesn’t work for your agency, and ask for adjustments that will make it work. It may be easy for a carrier to stop bundling data in a way that causes problems within your systems.

Implementation is only the first step, however. No long-term efficiencies will happen without training and monitoring employees says Laura Nettles, president of Nettles Consulting Network in Atlanta.

“If you’re not training your people and monitoring their compliance (with all technology you have in place), it’s useless. Technology is a process, not a project; you don’t buy it, implement it and then think you’re done.”

Agencies that use technology effectively have the nability to quantify and monitor productivity, Nettles says. With this information, management can make informed decisions that will affect profitability.

“Agencies without [these productivity measurements] tend to fly by the seat of their pants,” says Nettles. “They hire people when they don’t need them or they reduce staff when it’s inappropriate.”

By quantifying productivity, you can identify CSRs with the lightest workloads and redistribute, potentially preventing the need for an additional hire. By monitoring CSR compliance with new processes and procedures, agencies can ensure their technology is creating as much efficiency as possible.

Less Process, More Service
When workflow decreases, whether due to the economy or to new efficiencies, Nettles advises redeploying account managers and/or CSRs to focus more on value-added services, such as client loss control, agency-client communications and maximizing coverage. Haylor, Freyer & Coon, Inc. (HF&C), in Syracuse, N.Y., has done this with gratifying results. The 11-office,multi-lines agency began taking advantage of Real Time download in personal lines in 2003.

“We saw great gains in productivity,” says Cyndy Smith, vice president of technology at HF&C. “And we began moving people out of technical jobs and into sales and service.” Today 95% of the agency’s personal-lines business, which composes 30% of all business, is downloadable. “We wouldn’t be in personal lines if we didn’t have download,” says Smith.“We’ve built all our procedures around not having to maintain a database. If we [still] had to receive all that paper and process, we wouldn’t be able to make any profit.”

Next, HF&C implemented Real Time download in its small commercial business unit. The agency had tried commercial download before without much success. But this time, Smith and her team committed to setting up new producer/carrier codes for each account in the unit. It took 12 months.

“You have to cancel each policy and get it rewritten,” Smith explains.

In the meantime, though, the agency was able to turn on commercial lines download and do a few transactions at a time. The slow start-up facilitated testing with each carrier, identification of differences between carrier downloads and employee training. Today just one employee–instead of two or three–handles all policy processing for HF&C’s small commercial unit.

“We’ve been able to turn this unit from marginally profitable to getting the return we’d hoped for,” says Smith.

The agency is now moving to implement Real Time download for its large commercial lines. Workers’ compensation policies came first, and it wasn’t long before all workers’ comp business was being downloaded. Next was commercial auto.
 
“Because our targeted lines are pretty standard,” says Smith, “there aren’t a  lot of differences in the coverage.” Now HF&C is working on Real Time download for umbrella policies, and Smith expects this to be more difficult because carriers differ greatly in the way they handle the information.

“From a profitability standpoint, is (Real Time) download impacting our bottom line in our large unit yet? Probably not,” says Smith. But the agency is in position to take advantage of any download its carriers provide, and as each company turns off its paper, HF&C will have the workflows in place to begin realizing immediate efficiencies.

“Overall, we’re growing,” Smith says. “We’ve already closed what we hope will be the worst year of this economy, and we
came up with our head above water.”

Change Up Sales & Marketing
Farley Insurance & Investments in Newton, Ill. has the latest version of its agency management system and communicates with carriers and customers online. But technology isn’t what agency owner Kent Farley credits for doing the most to keep his agency profitable. Instead, the\ owner of the four-producer firm with $7 million in annual premium says increased sales and marketing are keeping his business on track.

“I don’t have any neat tricks,” he says. “I just know that every morning I have to make 25 phone calls to find 10 people who will talk to me, five who will meet with me and two who will buy.”

For Farley, profitability is a numbers game that requires more time and attention now. Each week, his agency sends out 300 to 500 direct-mail pieces, and producers follow up each one with a phone call.

“The mailings make the telemarketing  easier, because they give you a conversation opener,” he says. After asking if the prospect received the mailer and receiving an answer, Farley and his producers swing right into giving information about what they are selling. “We jump any time one of our companies comes out with something that’s kind of new or unique to the industry,” he says. Farley himself creates a marketing message and then sends it out via lead generation services. He also advertises on the radio and in the local newspaper.

Then comes the follow-up calls. “We get response,” he says, “but not enough to keep four producers busy.”

Newton is a town of 2,500 in a county of 10,000. To widen the agency’s circle of prospects, producers travel 100 miles in all directions. The ratio of business written to prospect efforts is not as high this far away from home, but Farley says it’s high enough to compensate for premiums that are shrinking or disappearing altogether, due to the economy.

“Are we growing? Absolutely,” he says, “and we’re not noticing any downturn in profitability.” Instead, profits are remaining level as Farley awaits better days.

The Starr Group in Greenfield, Wisc. Is also seeing dollar signs by making sales and marketing a top priority. With marketing essential to its success, the agency is focused on being more proactive about sales calls in order to generate new business and meet sales goals, according to Mary Starr, vice president of The Starr Group. As part of this effort, the agency has enacted a stewardship reporting system, providing reports to customers with reminders of what the agency is doing for them.

“It shows promises we said we’d do and shows the ones we did complete,” says Starr. “(It’s) tough if you lose a customer because they didn’t know you were doing something.”

While many agencies are choosing to boost their marketing and sales efforts in order to keep profits flowing, John Timm, president of the 11-employee Timmco Insurance, Inc. in Portland, Ore., is adopting the converse strategy. Timm has stopped paying for sales lead lists and began focusing on retention and referrals as a way to preserve profits. Referring customers are rewarded with gift cards for coffee or gasoline, which are enclosed in hand-written thank-you notes.

“We don’t mind paying for good leads and our customers seem to appreciate it,” he says.

Small Reductions, Big Results
Selling—and servicing—enough new business to make up for diminishing profits is not an easy proposition, says Dan Menzer, senior consultant at OPTIS Partners, LLC, in Chicago. “New business costs more to write,” he says. “So you’re still faced with the challenge of eliminating some expenses.” Not only that, more business means more service, and unless you are literally writing one new policy for each one lost, you may need additional employees. “You must write new business, because even with 95% retention, you’re still losing accounts.”

“Proactive management of expenses is one of the hard realities of today’s economics,” says Menzer, “and it’s better to save on these expenses than to eliminate a good employee.”

Whether you’re able to reduce headcount, save processing hours that allow CSRs to do more selling and service or earn more contingency pay, the changes you make can go straight to your bottom line. Timm has also recently made several cost-cutting decisions he thinks will benefit his agency in the long-term. The agency has switched postage-meter vendors to save about 25% in annual fees, and now only purchases office supplies from Office Depot, where Timm receives a discount. Timm also stopped buying sporting events tickets that used to be given as gifts to carrier representatives, which saved $6,000 last year. He is also waiting to trade-in the company’s cars, but says he won’t know until next year whether vehicle maintenance expenses will cancel out the savings. Menzer also suggests building a capital as soon as possible in order to combat the next downturn.

“Now is probably not the time to build a base,” he emphasizes, given the economic environment. But accessing capital in difficult times can prevent principals from making tough choices that can inhibit future growth. “It’s bad to have to make long-term decisions because of short-term issues,” he says. 

Hodges (hodgeswrites@aol.com) is IA senior writer.


Enhance Your Profitability —Now

Preserving profitability is a top priority for most independent agencies; however, generating enough new business to stay in the black can be tricky given the current soft market and tough economic
conditions. Agencies shouldn’t be discouraged though, according to Dan Menzer, senior consultant at OPTIS Partners, LLC, in Chicago. Menzer offers these cost-cutting and
profit-enhancing techniques:

• Review your insurance markets for consolidation potential. Would having fewer carriers reduce your agency’s processing load and improve relationships with the remaining markets, and possibly
enhance your commissions or contingent commission arrangements?

• Leverage the capabilities of your agency management system and support systems, including phone
applications.

• Prohibit top producers from touching small accounts.

• Re-evaluate using carrier service centers. As the cost of employee benefits and salaries rise, service centers may be more feasible today than a few years ago.

• Trim sales-expense reimbursements and reduce matching 401(k) contributions.

• Re-shop all agency consumables,from Web site hosting to printer ink.

—S.H.