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Service Timeline Stewardship and Compliance Auditing
Leveraging Organic Growth Through Value-Added Differentiation Growth and Consolidation Whether public or private, agents, brokers or carriers, growth and consolidation are increasingly shaping strategic initiatives across the insurance distribution system for 2007 and beyond. Growth is important as a vehicle to drive earnings, provide reinvestment capital, diversify product and service offerings, capture market share and ensure long-term sustainability. As agents, brokers and carriers alike seek enhanced growth opportunities, differentiation is the name of the game. Agency/broker organic growth rates continue to decline as both P&C and Benefit premium rate advancement slows. While insurance distributors rode the hard market wave during 2002 to the tune of a 14% increase in net written premium, reality is now hitting home. Average organic growth rates during 2006 for all distribution segments ranged from 4.5% to 6.5%. The good news, however, is that the marketplace has become a more level playing field. Long-term agent/broker relationships with insureds are being broken every day based on service, not just price. It is safe to say that the soft market is not something to be feared, but rather embraced as an opportunity to differentiate and lead organizational revenue and earnings enhancemnet. Those first to embrace a regimented differentiation pitch and process will be well positioned to capture market share.
Over 60% of high-growth agencies are fully disclosing commissions and contingents to insureds through web-sites, proposals, and other communications. Why? Because they are comfortable with the service-to-price value proposition. Transparency and disclosure is no longer a matter of "if" but "when." Public brokers who have sworn off contingents are now questioning prospects as to why the incumbent is still taking contingents. Carriers are increasingly requiring that agents disclose compensation before binding coverage. Agents and brokers are already selling differentiation to justify disclosed compensation. What all this means is that transparency and disclosure is inevitable, whether driven legislatively or by insureds. Selling on Value Each insured has different needs. That is why it is important to facilitate a needs assessment before conducting a needs assessment with each prospect or insured, you can align internal value-added services Producers and Account Executives should not simply provide a client with a list of everything the agency offers. By first conducting a needs assessment with each prospect or insured, you can align internal value-added services Producers and Account Executives should not simply provide a client with a list of everything the agency offers. Doing so limits the value the client perceives in the insured-agency relationship while diminishing the profit potential of the account for the agency. Agents and brokers with the highest quote-to-close ratios employ a needs based consultative approach. Instead of merely selling the prospect insurance, successful producers have instead taken on the trusted advisor role of helping clients buy proper insurance coverages and programs to mitigate risk. They are approaching prospects by offering a needs assessment meeting to determine the risk management added services the agency offers that address those needs. Be cautioned: The presentation to the client should not be centered on what each service you are providing costs your operation. Instead, the presentation to the client should be more focused on how such services can serve to reduce the insured's loss ratio, hidden costs related to claims, the perception of the insured's long-term premium dollars. Remember, most insureds have been trained to buy on price. As such, agents and brokers need to "sell" the value of agency/broker involvement by illustrating how the process reduces "long-term premium" AND "hidden costs absorbed by the insured." To communicate the ability to lower long-term premium, high performing agencies illustrate how certain value-added solutions are aimed toward an insured's past experience, current exposure and market representation process and how such a process will reduce the long-term severity and frequency of claims. Insureds also need to understand how certain value-added services reduce "hidden costs," or expenses of the insured related to areas such as absenteeism, employee morale, business interruption and claims diversion. Once agents and brokers can correlate the services provided to an insured with a reduction in long-term premium AND hidden costs, compensation becomes reality. A value-added service platform also affords agents and brokers the ability help clients reduce current risk exposure and the severity of claims by designing a comprehensive risk prevention program for each insured. When these converge with adequate market representation, insurance agents and brokers are in a position to compete on both price (through lower long-term premium pricing) and service. Competitive advantages are gained through new business production differentiation and increased account retention. Many agents and brokers are laying the positioned to achieve double digit organic growth rates in any rate cycle. The Importance of a Value-Added Service Platform Value-added service timelines and stewardship reports come in many forms. For some, loss control, claims review, fleet safety programs, wellness programs, HR consulting and the like are the value-added services of choice. For others, value-added services can simply represent quarterly phone calls, monthly e-newsletters, invitations to semi-annual presentations and commitments to return phone calls and e-mails within 24 hours. Depending upon internal capabilities and insured account size, the differentiation story varies widely. Many agents and brokers provide a vast array of services to clients, but have no process to consistently and formally communicate this externally. Many agents and brokers already differentiate themselves relative to the competition — but few are communicating it systematically to insureds. Let's take a simple statement and recognize an inherent truth. "Your prospects only need you for what they do not already have." So the question becomes, "What makes you different or better than make your agency different or better, what would or service staff to do the same, would their answers match yours? Quite often, the quick answers to the above questions may sound something like "We are local, we are privately held, our agency has been around for 56 years, we have great people, and we have solid carriers." Now picture sitting in front of a prospect and listing the above. The prospect then responds, "That's great, but my current agent is located down the street, is private, has been around 60 years, and has great people and carriers too. So does the guy coming into my office in 30 minutes to sell me insurance. Thanks for your time." Agents and brokers need to take a step back and truly quantify and identify why their organization is different when viewed from the perspective of an insured. The agency/broker then needs to ensure that everyone in the organization understands and buys into that differentiation message. The four-step process to communicating your differentiation to the marketplace is:
This leads us to the importance of a value-added service timeline and stewardship reporting system:
Capability Inventory The first step in developing a value-added service program is identifying those services your agency is capable of providing. Services offered may apply to all clients or to that all insureds be offered monthly industry newsletters or invitations to semi-annual presentations. An agent or broker may also mandate that all voice mails and emails be returned within 24 hours. While these may not necessarily be viewed as value-added services by many agents and brokers, they can indeed provide a consistent "touch" process while delivering superior service relative to competitors. More comprehensive value-added services should be categorized by specialty (energy, trucking, or construction) or by line of business (P&C or Group medical). Some examples of value-added services could include:
The first goal is to define all service-related activities that the agency can provide as part of an overall servicing relationship. Cost-Based Option List Identifying cost/time of services Aligning client profitability with the cost of services provided
Establishing a point system can ensure that all services provided to an individual client are below the designated "available point" threshold. It will also enable leadership to overall commissions received. Commitment Writers Note: Please note that staff titles are different by geography and agency. In the following, when we refer to "account executive," we are referring to a staff position filled by a relationship driven, technical professional who is external and manages accounts on behalf of producers with large books. The account executive also serves as the liaison between the customer and the internal customer service representatives. This individual manages service timelines, engages the team responsible for delivering the risk mitigation consulting services and preps the producer prior to each meeting where the producer is present. For high production producers, we often see a four-tiered team of professionals (producer, account executive (AE), CSR and internal tech support). The individual roles can be found later in the article under the "Career Pathing" section. The most critical step in successfully executing a value-added service timeline is securing a commitment by both the internal organization and the client to participate in such a program. Internally, agents and brokers must be committed to expending the resources necessary to fully leverage a value-added service timeline. Such resources include buying or building the technology to administer such initiatives, training agency personnel, overseeing the process, and holding people accountable. Agencies must be committed to allowing the account executives to have responsibility over managing the client service process. Often producers spend so much time servicing their book of business that there is limited time to generate new business, thus hindering agency growth. With a value-added services platform, agents and brokers must empower quality service personnel to manage and "own" the process. This proactive service position (Account Executive) is ideal for agency personnel who are solid technicians and relationship driven, but may not be great hunters or closers. Such people are of-ten current account executives, high-level CSRs, or even existing producers who are no longer generating new business. Agency owners often focus exclusively on producers with respect to organic growth. With a value-added service timeline, however, the service staff is critical to internal growth initiatives. As AEs assume much of the control over the service process (not necessarily over the entire client relationship), producers have more time to prospect new accounts. In order for this to work, the AE's must be given the responsibility and authority to execute the service timeline process. In summary, agent/broker commitment must include:
At the same time, securing insured commitment is essential in implementing such a program. All too often, agency/broker executives believe a value-added service timeline is being executed for certain clients. The harsh reality is that the process is often broken from the start because the insureds themselves have not committed to participating in the program. Typically, insureds have not participated for one main reason: agency personnel have never properly "sold" the value of a value-added service timeline. Many insurance distributors surmise that their best clients would not participate in such a program due to time constraints. Others become too comfortable relative to the perceived stickiness of a long-term existing relationship. By taking such relationships for granted, agency and broker personnel need to ask themselves the following two questions:
These questions can be addressed by ensuring that insureds are:
Compliance With the services, costs/time, and pitch identified, your organization can now maintain a united front in your prospecting. It is essential that your producers and service personnel approach this program consistently. There should not be different services or point values assigned to different producers nor should each person create their own personalized structure for standard services. That said, each timeline should be customized for each insured based on needs and governed within the cost/time/point parameters. Management should mandate that the service timeline delivery process is well defined, properly communicated internally and externally, conforms to corporate standards before delivery, and is periodically reviewed for corporate consistency. Many agents and brokers have implemented a value-added service program, but haven't seen the expected benefits through increased production or enhanced retention. Quite often, services are pitched or promised, but not delivered. The key to retaining these accounts is delivering the services you said you would provide when you sold the business. One way to oversee delivery is to establish a formal service timeline that breaks down what services will be provided, target dates for delivery, and who from the agency is responsible for deployment. To help establish mutual accountability, the formal service timeline should be presented to the insured and signed by both parties via a service covenant or commitment contract. This provides insured buy-in that program execution is a joint responsibility. The service timeline also holds your organization ac-countable by providing a system for personnel to man-age the process internally. Your sales manager and/or other executives must implement a compliance process to track and ensure that "promises made are promises kept." In better agencies, management can run a compliance audit exception report at any time to proactively track which promised services are upcoming, which have been completed by the target date and which are behind schedule. By reviewing such exception reports, agencies can be proactive in the service delivery. To facilitate compliance:
Communication All of these services are useless if you are not delivering a formal Stewardship Report to the insured to close the loop. A Stewardship Report is an extension of the Value-Added Service Timeline, but includes activity completion dates and notes and your compliance audit score. While you may be comfortable that you completed all assigned service time-line activities, it is imperative that the key decision makers at the insured know you have delivered on your promises. Your competition already is, or will be soon, pitching value-added services to your best clients. Despite execution and current relationship strength, you need to ask yourself whether you're willing to lose an account because you did Stewardship Report review. One way to help force the insureds participation in the communication is to have them sign the one-page service covenant as part of the overall timeline that mandates joint participation in the plan. Just as compliance audits are meant to hold internal staff accountable for executing services promised to the insured, the Stewardship Report holds the agency accountable for communicating delivery. Many successful agencies periodically meet with insureds to review the service timeline, track progress (whether completed on time or not) and discuss next steps. There is risk in approaching a client and have a low compliance audit score. But, most insureds will be understanding if you are open and honest about what has not been completed, why, and what you plan on doing to correct it in the future as you strive for customer service perfection. Compensation Incentives
Step 1: Circulate Producer Performance Relative to Plan — Public posting is meant to drive peak performance. It affords everyone in the agency the opportunity to pro-actively offer assistance to producers so that producers can focus their time prospecting and closing. Posting is NOT meant to demean or embarrass individuals, but rather encourage everyone to participate in the growth process. Chart 3 below illustrates the percentage of TASC Partners who currently post producer performance relative to annual goals. Step 2: Non-Production Staff Bonuses Tied to Producers Attaining New Business Production Goals — Based upon the team-based concept of driving growth, the agency can create a system to tie all non-production staff bonuses to new business production and activities that enhance retention.
Step 3: Subsequent Modifier to Quarterly (or Annual) Bonus for Non-Production Staff — Next, agency management should run compliance or exception reports for each service person. An exception report should track how many client service activities were actually completed on time relative to how many were assigned. For example, if an individual had 47 client service activities assigned in a given period of time based on the bonus prescribed in step 2, this individual would only receive 50% of the potential bonus based on the weightings below:
Please keep in mind that the above percentages are for illustration purposes only. We are simply outlining a concept in this example versus dictating the proper scoring system. Each agency must make its own determination with regard to actual numbers. A subjective element should also come into play when calculating the exception report and bonus payment. There may be valid reasons that a particular deliver-able was not provided. The test for the "validity" of any noncompliant item will ultimately reside in your comfort level in communicating the rationale back to the insured. If the customer postponed a meeting for a week, there should be no penalties to the agency personnel as this was client driven, you feel comfortable reporting the non-compliance to the insured, and the client will accept it. However, if the noncompliance was an internal issue, you may be uneasy about reporting this through the Stewardship Report. Given that the client will know that you did not keep the promise, the internal individual should be held accountable. At the same time, imagine walking into an insured's office and communicate the Stewardship Report and saying, "It's been a great year. We delivered on 96% of our promises. Here is where we fell short and why, and these are the steps we will employ to strive for 100% service compliance in the future." Your differentiation becomes very transparent. Culture Shift In conjunction with a value-added service program, insurance organizations need to capitalize on a total agency sales culture. One mechanism for doing this is to change the AE or CSR perception of their personal roles and responsibilities: Current CSR Perception
Future CSR Perception
Client Acquisition & Retention Let us start this section by posing two questions. First, "How much does my organization strategize and budget for new business sales to generate growth?" Most agents and brokers invest a large amount of time, money and resources to plan for growth (planning meetings, sales meetings, hiring, training, advertising, marketing, technology, travel and entertainment, sales coaching, etc.). While the aforementioned growth investments are sound when properly implemented, agents and brokers must also ask the second question, "How much time and money does my agency allocate toward retaining current customer dollars?" Many agencies need to think about this and question retention strategies. Answers may fall into hiring service personnel, entertaining current clients, marketing reinforcement, etc. However, we challenge companies to state what their retention budget is on an annual basis. Most companies we see will state that they invest in retention, but don't create a budget and business plan to retain customers, so in the end the retention activity becomes a reactive activity versus a planned one. We believe that the number one reason customers leave is because there is no defined customer contact strategy. From the account retention side of the house, retention should be maximized through two main vehicles. First, retention should increase through internally managed early warning compliance audit processes to ensure that promises made are promises kept. Secondly, differentiation will enhance hit ratios, and in turn, reduce wasted submission activities. Reducing wasted sub-mission activity will then increase the amount of time available for service staff to focus on service timelines and stewardship processes.
In looking at the $5 million agency revenue firm, the first year impact of increasing retention by four percentage points could equate to an additional $200,000 in revenue and $350,000 in value. Now consider the amount of time, money and resources your firm may pour into finding a producer to generate such numbers. Now ask yourself if raising your retention rate four (or even two) percentage points is worth the investment in a full time service compliance auditor. We pose this question because we believe that any agency seeking to properly design, implement and execute such a program needs to have a full time internal champion dedicated to ensuring consistency and maximizing retention.
Career Pathing The first step in developing career paths for employees revolves around defining the a various functions of personnel. Many high growth agencies are moving toward a four-tiered system of production and retention. The four tiers are as follows: Producers should produce. If someone is given a producer title, treated like a producer, and paid like a producer, then new business sales are the expectation, not the exception. The agent or broker needs to facilitate a sales culture and the producer must subscribe to it. To assist with the total agency sales culture, account executives should be tasked with proactively servicing accounts. Account executives typically have great relationship skills and solid technical skills. Most account executives are very similar to producers, but may not possess the right skill set to be hunters and closers. This is not bad, it is reality. Agents and brokers need to identify the strengths of each individual within the agency and align personal skills with organizational needs. Keep in mind that we are NOT advocating that producers reduce time associated with improving client relationships. As much as possible, the goal is to free producers' time to 1) enhance the overall customer relationship by transferring the proactive day-to-day servicing to account executives; and 2) focus on new client acquisition. Once roles and responsibilities are defined and compensation plans are implemented to reward desired behaviors, career pathing can take shape. Through a value-added service program, career pathing:
Competitive Advantage The successful design, installation and execution of a value-added service program provides the respective agent/broker with a competitive advantage as it:
If everyone is moving down this value-added service path, how can it provide any competitive differentiation? While leveraging value-added services is not a new concept, very few agents and brokers have fully developed an executable program. Peak performing agencies have been walking down this path for the past 18 to 24 months, learning lessons along the way. To look at the competitive landscape, we have found the following: Public Brokers have been utilizing value-added service programs for a number of years. But, execution is only a small fraction of what we would deem as a fully functional program. They have well-defined internal capabilities listings, are experts at selling the value of the services, and maintain well-documented roles and responsibilities within the organization. Where most public brokers are falling short, however, is within the consistent delivery and communication of the program. In general, they are making promises to insureds without ensuring that those promises are kept. Large, privately held regional agents have been working diligently over the past several months to design value-added service platforms. While very few have a fully functional program in place, these agents are leading the charge with respect to developing a comprehensive system inclusive of compliance auditing. Bank-owned insurance agencies are spending time and resources to develop value-added service programs, but are moving slowly and almost reactively. In general, these organizations have viewed value-added service programs as necessary to compete with public brokers and large regional agents/brokers for new and retained business. But, they have not yet invested the time needed to create a complete program inclusive of a compliance audit process. Some leading banks are almost there. The masses are not. For most mid to small insurance agencies, the value-added service concept is often revolutionary or even repulsive. Surprisingly, many in this category have just recently been exposed to the fact that their larger competitors are focused on these activities and will use this to steal business. For those that are currently leveraging a value-added service program, how is it working? Over eighty percent of respondents indicate that their current platform does indeed provide competitive differentiation within their marketplace. These agencies, however, have not yet completely institutionalized the entire process for administering a formal value-added service program, but service timeline. As they approach completion of an institutionalized process during 2007, their competitive advantage will only increase. Summary Value-added services are no longer the wave of the future. They are a current reality. Market differentiation will come to those insurance distributors that can proactively establish an institutionalized process to both sell the value of services provided and deliver on promises made. Such agencies are embracing transparency, seeking new business and retention differentiation, searching for cross-selling opportunities, defining customer communication plans, and openly holding themselves accountable to insureds through compliance auditing and covenant agreements. |
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Patrick T. Linnert is an Executive Vice President and John M. Wepler is President of Marsh, Berry & Co., Inc., a Willoughby, Ohio based management consulting and investment banking firm for public and private insurance distributors.
Transparency and disclosure has solidified itself at the forefront of insurance distribution along with compensation justification to insureds. Leading agents and brokers have turned these market challenges into opportunities and are proactively designing, implementing and executing differentiation strategies through value-added service timelines. While 72% of leading banks and 70% of large, regional independent agencies are traveling down this path, few have a fully functional program in place. Community-based independent agents are just beginning to enter the race as well. And as you know, it's a long process.
The keys to a differentiated process reside in the 10 C's of designing, implementing and executing a successful Value-Added Service Platform as illustrated in Figure 1 below.
Using the point system, you can assign a point value to each insured and for each prospect. One way to do this is to group clients by commission dollar size and complexity of client. Figure 2 above is just one example of how an organization may group clients to align profitability with services offered.
A common drawback in offering a value-added service platform is the fear of making promises that may not be kept. Working under the assumption that an account executive is ultimately responsible for executing such programs so that a producer can focus on new business production, an agency can tie compensation promises. The following is a three step process through which agents and brokers can encourage producers to sell and account executives to manage service delivery while maximizing the propensity for organic growth.
In the organizational sample in Chart 4, the average new business production relative to goal for the quarter (or year) was approximately 102% of goal. Thus, the service and support staff would be eligible for a 3% quarterly (or annual) compensation bonus. Before such bonuses are paid out, however, agency executives may want to look at step 3:
Chart 5 illustrates the first year revenue and value impact to two separate insurance distributors (one $5 million in revenue and the other $25 million in revenue) if the agent or broker could increase retention from 90% to 94%.
In Chart 6, we look at the long-term profit and valuation impact for the $5 million agency that increased retention from 90% to 94%.
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