Do You Manage Your Agency?

Or Does It Manage You?

by Ron Webber

Recently a new user of agency automation, asked me this question:  "I know agency automation is suppose to make my life easier and more productive, but other than helping me find files quickly, what else will it do for me?"  This is a question I am often asked, but seldom seem to be able to easily answer with the point I really want to make to questioners. I always review with them the many time saving benefits, such as having the electronic file on the computer, the customer receipting that automatically sets up an easy deposit, then prints checks to the companies and handles the electronic fund transfers and post them to the check book, and then I remind them how easy it is to find documents using transactional filing and document imaging. But this time when the question was asked, the right words just seemed to come out with a clearer definition of the benefits that every independent insurance agency will derive from automation.   

I answered with a question to the new automation user:  "Do you manage your agency or does it manage you?"  

Agency automation, by definition, is data entry that performs seamless actions to process daily work in an insurance agency. The entry work performed will produce agency accounting reports that will allow you to analyze and compare production and guide future decisions that are necessary to survive in any market conditions.  

When I look at a fully automated insurance agency and run management reports of their current and past performance, I can see a virtual picture of the agency, which not only shows where the agency is today, but where it has been and where it is going.  Every CPA can analyze your profit and loss statement and balance sheet to see where you are today and where you have been in the past. But that does not answer the question of how you got to this point and how market conditions will affect you in the future.  

Automation will produce agency management reports that will show me the percentage of the type of activities being performed by the day, week, month, quarter and annually. I can view the average premium being written per policy, the number of new policies being written, compared to the number of renewal policies for the agency. I can see the number of policies available to renew and how many were actually renewed. I can see the gross premium written compared to the net premium after cancellation and renewal. I can view the average percentage of commissions by its type and for all policies. All of these calculations compared to past history will show trends that will provide answers in helping the agency principal or manager understand their business, instead of managing by reactions to poor results.  

Good management of any business is based on proactive thought processes not reactive actions to save the business. If I ask an agency principal, "how are things going and what actions do they have planned to grow the profitability of their business, I usually hear the same song in every state. "Companies are pulling out, commissions are being lowered, and I am not sure what we can do about it."  

When I ask a well-organized, automated agency principal that understands how to analyze their agency management reports, I get an entirely different answer: "Our average policy premium is dropping so we are taking the following actions to write more multi-vehicle, family coverage that has been renewed or we can transfer to our agency. We see that our average commission for our personal line business has dropped a full percent during the past quarter, after closer review we discovered that our agents were being lazy at renewal of a certain company and renewing at an 8% renewal rate with the current company instead of re-rating and finding as good or better premium for the consumer and a full 12 or 15% commission for our agency. We have seen our net retained commission increase from 78 - 82% with a new program of incentives we initiated for our agents to work cancellations for missing information." (5% increase in retained commissions of an average agency could equal $7500 - 10,000.00 per year and larger agencies at least $15000 - 20,000.00 per year). That is what profitability is all about, the bottom line numbers. 

Look at your own agency income for the past year and increase it by 5%, to determine how much it would be worth to you writing the same number of policies next year. If the percentage of renewed polices starts dropping one month, you can start a program of writing those direct bill renewal customers a letter explaining your status as an independent agent and that you have some new companies that have great discounts for policyholders that qualify, and encourage them to call you and update their information for a possible savings. Even if you keep them with the same company, at least you are keeping them. If you made no effort to encourage them to contact you, maybe Joe or Bob that works with them might tell them about the great new policy he got at XYZ agency down the street that will get their business with some of the same companies that you already represent.  A good agency management system will write renewal letters for you with about 10 keystrokes. Letters get folded with the address showing through a window envelope for a huge investment of $.34 cents to save an average commission of $84.00 on each six-month auto policy. 

Did you ever wonder why some agencies can only renew 62% of their business and other are renewing 80% of theirs? They are either working really hard manually or really smart with automation. Which way would you prefer? All of the above proactive business decisions can be easily made using automated processes of good agency management. You do not have to have a college degree in statistics to see where you have been and where you are going.  But, you do need the information available at your fingertips. As a consultant, agencies paid me a lot of money to do this type of business analysis for them. A good agency management system will do it for you for a lot less. Plus, you get all the benefits of being organized, consistent, and more productive. 

How much does all this cost? You can have it all and much more for about $5.00 per day. Automation will make you more productive. Automation will make you more profitable. Automation is the management tool you need to manage your agency and succeed!  

Until next month, keep automating those agencies; I really believe the only way that you are going to survive in the 21st Century is to automate.   Remember, the bottom line is "Automation equals Productivity and Profitability."  

If you have any suggestions of articles on Automation in Insurance agencies, or comments please feel free to contact me.  

Ron Webber

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