How To Use a Comparative Rater without Destroying Your Revenue

For years Independent Agents have longed for the holy grail of quoting–the comparative rater.  It is here!  Prior to comparatives, it could take an agency hours to quote one small personal lines account because the data had to be reentered into each company’s rating software.  If the account manager really did this, the hit to revenue becomes truly apparent.  You pay the CSR $15/hour and it takes him 2 hours to quote one policy.  He only sells 1 out 3.  So for three quotes it would cost you $90, and on average you make $80 to $100 per auto policy.  This is depressing.  Thankfully most CSRs did not follow this path.  Due to experience, many learned what companies were better on what types of risks.  Also, they gravitated to whatever ever systems were easier.  So instead of quoting your 7 – 10 companies per risk they might be only quoting 3 -5.

Today comparative raters have changed this.  Insurance Scoring has made it very difficult to determine company niche and get a bead on what company appetites were.  As a result, there could be a lot of competitive opportunity lost if all companies were not quoted. Because of internet based quoting systems, comparative raters can pull from multiple sites and aggregate the data in one place ensuring accuracy.   One company rep told me that in his state, nearly 80% of all their quotes are now coming through comparative rates.  This has helped tremendously agency workload.

This trend toward comparative rater use has caused agents to be less hesitant about picking up multiple markets.  At one time an agency might limit himself to 3-5 carriers, now he is willing to pick up 7-10 because he can quote them all and hopefully create a competitive advantage in the marketplace.  However, this is where a hit to revenue can begin to occur.  If an agency does not train their staff well, the presence of the rater can further ingrain their staff that price is king, and the cheapest always wins.  What can begin to happen is that profit sharing is diluted, and staff may slowly move business to lower commission carriers.  Staff do not think of these concerns.  Ease of doing business is their master.  If the price is low it is easier to sell.

Now your 5 million dollar personal lines book that was split between three carriers is now split between 7 carriers, and you no longer qualify for profit sharing thresholds.  Your revenue has dropped by a third because previously most of your business sold at 15% commission and now a majority is being sold at 10%.  This is dangerous especially in this market.

Bottom Line:  Comparative Raters are good, but keep your eye on where they are taking your business.  They could create more revenue problems than they solve.

 

Is Personal Lines Growing?

How do you evaluate growth?

Do you pull your commission statements each month, total all your companies, compare against last year, and rejoice if flat or positive?  Are you more financially savvy and throw in expenses into the mix and look at net revenue and compare?

These are not bad strategies and do provide a barometer for how your agency is performing, but do they give you the full story and lull you into a fall sense of security?There are really three measures that should be considered when measuring agency growth:

1.  Revenue (gross & net),

2.  Written premium,

3.  Customer count.

Revenue:  For the vast majority of agent’s this is the factor that trumps all others.  This is what pays the staff, keeps the lights on, and helps pay your mortgage.  But why could revenue be a deceptive indicator?  Currently in many personal lines markets, the industry is seeing a hardening of rate in property lines.  As a result premiums are much higher and thus commission dollars are usually up (if you maintain significant retention).  In a soft market, such as we are seeing in commercial, an agency could be growing customers, but continue to lose revenue because of decreasing premiums.  Perhaps one of your companies increases commissions for the short term resulting in more dollars, but not necessarily more growth.  Customers could be flowing out the back end of the agency, but by looking merely at revenue you might feel safe and happy.

Written Premium:  Similar pressures affects written premium as they do revenue, because they are so directly connected.  However, can you think of times where written premium could be increasing and customer count or revenue be down?  Currently, we are seeing carriers making moves that result in this very scenario.  In order to contain loss pressures, they are not only taking large property increases, but decreasing commission at the same time.  In this case, an agency could see premium growth but revenue decreasing by a third due to commission drop.  Rate increases can often mask retention issues, if owner’s are just looking premium growth.

Customer Count:  This is the final measure in our triumvirate.  Yet in working with agents over the years it is very rarely considered.  Revenue and Premium are king and queen, and customer count is kept outside the castle.  Yet, it can give a quick indication of what is happening in an agency.  There are times such as a soft market that customer count could increase dramatically but written premium and revenue would not keep pace unless company incentives kicked again.  More often rate pressure could drive customers away but written premium increases would indicate growth.  An agency that merely stayed flat in customers, could look like a growing agency due to rate.  Revenue could increase for much the same reason, and yet customers would be moving down the street.

The Bottom Line:  If you were forced to pick one, we think customer count is the safest, because it is able to weather the storms of market swings, and when things get hard pay increases may follow.  The safest way to manage growth is to consider all three factors and make sure that they all are positive.  The owner/manager can then develop strategies for each factor.  Perhaps this is a topic for another day.

How do you measure growth?

What is Productive Agency?

Why productive agency?  Why not growth agency or hot revenue agency?  Not all agencies want to grow.  There are important reasons for that but all agencies want to be productive.  The bottom line is extremely important, and this blog is designed to help agencies become more productive in Personal Lines Insurance.

My personal experience has been in both the captive environment and independent agency environment.  Both have unique challenges, but certain principles are applicable to both.

Thanks for visiting, and keep coming back for articles and tips on making your insurance agency more productive.

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