The COVID crisis is driving high unemployment, closing businesses, and charging a significant toll on independent insurance agencies. If your agency hasn’t already experienced a dropoff in revenue, just wait. It’s almost inevitable.
The smart agency owners are already looking at options to:
- Generate more revenue from the current book of business.
- Ramp up sales to new customers.
- Minimize expenses to preserve something resembling profit.
I’ve already written extensively about the first two topics.
Often, cutting expenses means cutting payroll. It’s an unpleasant but necessary subject. No one likes layoffs.
Is Your Payroll Expense Too High? Check the spread.
There is an easy way to figure out if your agency’s payroll expense is too high. The metric is called spread per employee, or just simply, spread.
You can calculate your agency’s spread by subtracting the average amount of compensation that you pay per employee from the average amount of revenue that you generate per employee.
Once you’ve calculated your own agency’s spread, then you can compare it to industry benchmark data, such as Big I’s Best Practices Study.
Now, project your spread moving forward, but assuming, at minimum, a 30% reduction in revenue.
COVID-related damage to independent insurance agency revenue is coming, in the forms of:
- Policy cancellations
- Policy coverage reductions
- Lower premium renewals
- Return premium on audit
- Reduced or no profit-sharing
Once you’ve projected your future spread, which takes into consideration the almost certain reduction in revenue which is coming, how do you feel about the future of your agency?
Service Centers Can Make Your Agency More Efficient
The insurance companies know what is coming. They know that the industry is in disruption.
One way that they are helping independent agency owners in the short-term, and helping themselves in the long-term, is making carrier service center offerings attractive.
Advantages of using carrier service centers
Simply put, carrier service centers can help agency owners lower fixed expenses associated with customer service. Generally, carrier service centers charge a percentage. So, as revenue reduces, so does the customer service expense.
While we might have to swallow our pride to admit this fact, but service centers might be able to offer better customer service in a way that your customers might prefer--using call centers, email, webchat and/or text messaging. Additionally, many service centers are open after hours and on the weekends. Does your agency offer customer service during off-hours? Some even have self-service options, so clients can get their own certificate of insurance or change their contact info on their own.
Using carrier service centers simplifies your operation if you are also taking my advice and consolidating your book in order to maximize revenue from current customers.
Disadvantages of using carrier service centers
If you choose to use carrier service centers, you’re giving up some opportunities to differentiate yourself with current customers.
If your team is consistently delivering an outstanding customer service experience to your customers, then you might want to think twice about using service centers.
Most independent insurance agencies aren’t leveraging their regular customer service contact in order to deepen relationships, cross-sell, and/or upsell insurance coverage.
Find out how well your current customer service is performing
Do you know if your CSRs are delighting your customers? Here are three ways to investigate:
- What’s your retention percentage?
- Is it 90% or higher? Your customer service is probably pretty good.
- Is it between 80% & 90%? That’s average.
- Is it below 80%? You have a problem.
- Ask your customers, via survey, a few months before renewal, how they rate their experience.
- Are your CSRs playing any part in the upselling or cross-selling with existing customers?
If your retention rate is 95%, your survey results indicate that the overwhelming majority of your customers love you, and your CSRs are cross-selling and upselling like crazy, then you probably shouldn’t consider using a service center. You don’t need it.
If your retention rate is 81%, the survey is lukewarm, and your CSRs aren’t upselling or cross-selling; then, you can probably operate more efficiently relying on carrier service centers.
Always keen on helping others make their dreams come true, Tony and his team have helped independent agents grow into more than 250 independent agencies. This has made OAA the number one ranked Strategic Master Agency of SIAA for the last 5 years, and one of Oklahoma's 25 Best Companies to Work for.
Tony loves to share his knowledge, insight and wisdom through his bestselling books as well as in free mediums including podcasts and blogs.
Tony and his family are members of Crossings Community Church, and he is very active in community initiatives: he’s chairman of It’s My Community Initiative, Inc., a nonprofit working with disadvantaged people in Oklahoma City; and chairman of the Oklahoma Board of Juvenile Affairs., and he has served through many other organizations including the Salvation Army, Last Frontier Council of the Boy Scouts of America, and the Rotary Club.
In his spare time, Tony enjoys time with his family. He’s also an active outdoorsman and instrument-rated commercial pilot.