*This article starts a continuing series about how to maintain and grow the value of your insurance agency so it will hopefully be worth more tomorrow than it was yesterday. In this entry we cover the meaning of “value” and why it should be the highest priority for every insurance agency owner.
I would be a very rich man if I had a dollar for each time I’ve asked an insurance agency owner, producer, or CSR, “How much new business did you write last month?” and the answer was, “I don’t know.” How is that possible?
In our business, all day, every day, we constantly work with numbers. How many miles driven each year? What’s the commission rate for that carrier? What are the limits of liability? These are all critical numbers that are considered when writing business in agencies. And yet, agency owners typically have no idea what the critical numbers are in managing their own business and that lack of understanding has a very big impact on the value of the agency.
In the automobile industry, car dealers and salespeople are paid a variety of different ways based on certain performance metrics. For example, if the dealership sells a certain number of cars each month, the manufacturer gives them a bonus. If the dealership takes delivery of a certain number of cars onto their lot, the manufacturer gives them a lower cost on that inventory. And if a salesperson is able to close a certain percentage of prospects by selling new cars, the dealer pays them a higher commission and gives that salesperson more prospects than the other salespeople get.
So do you think car dealers can answer the question, “How much new business did you write last month?”
You better believe they can, because they recognize that those critical statistics are vital in managing and growing their business. Insurance agents haven’t figured that out yet, which is one of the primary reasons agents aren’t growing their businesses.
As an agency owner, you should always know the key metrics about your business. A performance metric is simply a measure of an organization’s activities and performance in those activities. What are those important metrics for an insurance agency?
Here’s a list of the bare minimum that agencies should be tracking on a monthly basis:
- Number of total applications written in the agency.
- Number of new business applications written in the agency (rewrites and renewals are excluded).
- Number of leads/prospects and where they came from (e.g. client referral, Internet, etc.).
- Number of quotes prepared/given by each agent.
- Number of applications written by each agent.
- Closing ratio of each agent, calculated using the quotes and applications data.
Depending on the capability of the agency’s automation or other means to capture sales and retention information, there are many other performance metrics that would be valuable to know on a monthly basis, such as the number of service calls, the number of clients who walk-in to the office, the number of renewals compared to the number of expiration's in a given month, or the total amount of new premium written, as a few examples.
Once you have identified the metrics you want to capture, then you need to identify a measurement method. Measuring can be as simple as making hash-marks on a white board in the office for each different item (e.g. quotes, applications), or entering information into an Excel worksheet, or running a report on an agency management system (assuming the necessary data exists in the system). But whatever the means to measure is, it must be understood by everyone and done consistently. Finally, when you have several months’ worth of performance metrics, you can begin to monitor the results and compare them to previous periods. That monitoring will result in understanding where your business is coming from, who is writing it, what kind of closing ratio your agency has on your quotes, and how the agency is performing each month compared to the previous month and the previous year.
In other words, you will finally understand the critical numbers that will help you manage and grow your agency. There’s an old saying, “If you don’t know where you are, you probably don’t know where you’re going.” In insurance agencies it is vitally important to choose some key performance metrics, measure them consistently, and monitor the results over time so you know whether your agency is growing or shrinking. By keeping track of these basic business statistics, you will be adding value to your agency.
About the Author: Jerry Pickett is VP of Mergers & Acquisitions/Client Consulting with Agency Acquisitions – an Astonish Results Company (www.AgencyAcquisitions.com). Agency Acquisitions works with agency owners to help maximize the value of their agency, perform agency valuation analysis, and handle all aspects of acquisition transactions for sellers and buyers of insurance agencies. Contact Jerry @ 614.859.9606 or email: email@example.com