In the Mix

It worked: The Bay State has some of the highest-priced real estate in the nation, and commission prices made the average personal account equal in worth to a small commercial account. “It wasn’t uncommon to spend $5,000 for personal,” says Hurley, “so we found it to be lucrative and a lot less shoppable.”

Until 2008, the Bay State set the price range for personal auto, negating consumers’ need to price shop. “It was your account concept that sold the business,” Hurley explains, and many insureds placed the remainder of their personal insurance with the agency that insured their vehicles.

This year, however, Massachusetts will move to managed competition in personal auto, opening the door to destabilization of personal lines market share. And while some personal lines agencies are preparing to write more commercial lines business, Hurley isn’t ready to make a drastic change to his agency’s mix of business just yet. “We’ve done particularly well in small to medium-size [personal] accounts, and our workflows are extremely efficient,” he says. When the agency identifies an opportunity to sell life or health, Hurley simply farms out the business to a brokerage and in this way, keeps the account.

How is your agency coping with the continuing soft p-c market? Are you waiting for premium prices to rise while your profits erode, or are you proactively marketing and selling other products?

Beyond P-C to Build Walls
IIABA’s 2007 Best Practices Study shows that many BP agencies aren’t standing still. Those in the $5-million to $10-million revenue category, for example, earned an average of 15.5% of annual revenues from non-p-c products last year, compared to 12.8% for2006. BP agencies in the same size category with growth of 25% or more generated even more revenue from non-p-c products, at 20.2% for 2007, compared to12.4% in 2006.

Of this non-p-c business, health sales out distanced all others at an average of 68.7% in the $5- million to$10-million revenue range, while life products averaged just over 11% and disability coverage ranked third at5.8%.

Shirley Lukens, vice president of Reagan Consulting in Atlanta and director of the Best Practices Study says the change is primarily client-driven. “Clients are demanding more service, and property-casualty agencies are being much more protective of these clients [by] offering a broader account line,” she says. “This way, there isn’t an opportunity for other agencies that sell life-health to get to the account’s decision maker…It’s about building walls around the client. ”

Dan Hurley is building walls by finding a way to supply his personal lines clients with life and health insurance. R&R Insurance in Minneapolis took a different approach last year by focusing more aggressively on it score book of business. Says Irv Cohen, vice president and director of risk management, “We had a great 2007 because we wrote a lot of new commercial accounts.”

Although the agency hasn’t changed its business mix in the last 12 months, Cohen says they’re now considering doing more with employee benefits programs to provide their commercial clients with more choices. “We find that most clients, if they had their druthers, would rather deal with one set of people,” Cohen says.

Thus R&R would deepen its commitment to commercial lines paradoxically by broadening its array of other products. But if it does, the agency’s principals won’t ask their commercial lines producers to become experts in employee benefits programs. “You wouldn’t ask your general physician questions about performing heart surgery,” reasons Cohen, “so we’re not going to try to cross-train our commercial producers.” Instead, the agency will hire additional life-health producers. Cohen says R&R’s commercial clients need to keep their benefits programs affordable in light ofsoaring rates.

A Rush to Benefits?
Patrick Linnert, executive vice president of the Concord, Ohio-based consulting firm, Marsh-Berry, says his firm’s agency clients are already increasing their focus on employee benefits. “Previously, a lotof our clients stood somewhere around90% commercial and personal, with 10%of revenues coming from benefits,” he says. “What we’re seeing now is a shift where our typical client is 82% property casualty and 18% employee benefits. The well-entrenched market on the p-c side has made agents want to diversify.”

But if every agency migrates toward employee benefits or more life-health generally, will there be a downside? Linnert can think of one: a dearth of qualified producers. “Our clients are finding it more difficult to find a great benefits producer than a commercial producer,” he says, “and trying to get a producer to sell both doesn’t work too well.”

One reason for the scarcity is probably increased demand. Successful life-health producers are already employed and may now be earning more than commercial producers. Unless they aren’t getting the pay and perquisites they want, Linnert says, they have little reason to move.

If you plan to recruit an accomplished life-health agent and are willing to pay well for one, Joe Traiser of Hales & Co. in Chicago advises looking for a professional who has investment credentials as well. Hiring such a person “would make an agency more full-service,” he says, and equip all of its producers with more resources to “wall-in,” or insulate, their clients from competitors. Traiser says his company has several agency clients who’ve begun selling 401(k)s and other retirement products as a way to increase or maintain profitability.

A Move Toward Life
Shawn Iverson, principal of The Insurance Center, LLC, in Ogden, Utah, set a goal to increase his multi-line agency’s percentage of life insurance revenues in2007 from 1% to 6%. To make it happen, he hired a life producer from the National Association of Finance Agents (NAFA), who set to work cross-selling life to the bulk of the agency’s commercial lines clients. Results, he says, were nothing short of amazing. “We increased our percentage of life business to 11%,” he exults.

Meanwhile, percentage of revenues from commercial lines products fell 5%, from66% of total revenues to 61%. But as Iverson points out, total revenues grew—and so did profits.

Since so many of the agency’s clients were cross-sold life in 2007, Iverson’s goal for 2008 is to cross-sell personal lines through internal producers or CSRs. Does Iverson expect resistance from his commercial lines producers? He’s not sure yet—but he successfully stemmed resistance to the increase in life sales by paying a portion of the commission to producers who referred the business and are licensed to sell life health. What about the producers not licensed in life-health? Says Iverson, “This gives them an incentive.”

Battling the Status Quo
But adjusting one’s mix of business maybe easier said than done if producers who are used to hunting the mammoth commercial account are asked to bring in other types of business that pay less. Michael White, a former life producer and now president of the consultancy, Michael White Associates, LLC, in Radnor, Pa., says one way to present cross-selling is to explain that, with premiums falling in business insurance, now may be a good time for clients to fill other needs that were previously out of their price range. “You can say to the customer, ‘We talked about doing X and Y some time ago, and we found we couldn’t do it then. But now that prices are lower, why don’t we take advantage and do it?’ ” he explains.

On the p-c side, Directors and Officers coverage is one possibility; in life-health, non-qualified deferred compensation plans or the long-overdue funding of a buy sell agreement could be other options. Although a commercial producer would potentially refer his or her customer to another department within the agency, the producer would continue to be involved while adding bricks to the wall of protection surrounding the client. “It’s hard to change a leopard’s spots,” says White. “But[agencies] need to participate in broad scale financial services.” The time is ripe for specialist agencies to gravitate toward a degree of generalization to retain existing customers and grow their business. Generalist agencies, meanwhile, should build on their structure through more aggressive cross-selling.

No matter how you decide to adjust your business mix, though, Lukens strongly suggests doing something. “Agencies not aggressively trying to grow their business and retain their clients are going to have a hard time competing and staying in business,” she warns in light of the Insurance Information Institute’s recently released Early Bird Forecast 2008, which calls for“ a slight deterioration” in net written premiums from the zero growth (0.0 percent)estimate for 2007.

The p-c market will be so competitive in 2008 that significant price variations will attract customers, “no matter how good you are,” she predicts. The up shot: an aggressive sales culture is a must for agencies seeking growth and profitability this year.

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


Analyze Your Current Mix
Is your current mix of business profitable? Or are certain lines suffering from the soft market, and in need of supplemental support? Joe Traiser, vice president at Hales & Co., Chicago-based investment bankers, advises doing a detailed analysis of each business line in each agency department by examining revenue and expense statements using Best Practices data as a benchmark. If your numbers are lower, “talk to the people doing the work,” he says, “because that’s where you might find unprofitable clients.”

As Traiser observes, it’s easy to overlook the expenses created by longtime clients who’ve always been demanding. But CSRs should be able to identify these insureds, and then it’s up to you to decide whether to impose service fees or take other action that could cause the client to leave.

If CSRs are unable to identify unprofitable clients—or inefficient processes that decrease profitability—compare revenue per employee against compensation per employee in the departments in question. Says Traiser, “You may have too many people employed for the commissions generated.”

Another thought: Consider dedicating one or more employees to business placement. Traiser says doing so can free internal and external producers to sell more, and can also improve relationships with carriers.
—S.H.


Diversify with Value-Added
Reagan’s Shirley Lukens has another idea: If you feel the need to diversify at all, introduce more value-added services. Best Practices agencies in the $2.5 million- to $5 million revenue range attributed an average of just 0.2% of 2007 revenues to value added services, with agencies of the same size in the 25%+ growth category reporting the same percentage. So small a portion of revenues stemmed from value-added services in every agency size category, in fact, that agencies with revenues over $25 million reported earning the most— a meager 2.2%.

“I think it’s a major mistake not selling more of these,” says Lukens. Whether these services involve helping with client legal issues or figuring out COBRA plans, human resources is a major expense for businesses, “so anything agencies can do to assist their clients in this area would be value-added,” she says.
—S.H.