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Building a Better Agency

Growing a multiline agency demands thinking holistically about the enterprise.

By Troy Korsgaden

There’s a great scene in the movie, “The Karate Kid,” where the old instructor, Mr. Miyagi, has given a challenge to his student. The young man is to leap from a rock, turning full circle mid-air to land on one foot on another rock. It sounds simple, but is actually very difficult to do. The wise instructor was trying to impart a valuable truth to his student saying, “The key to life is balance.”

Balance and multiline agencies
And so it is for the multiline insurance agency owner—the challenge of achieving balance. Balancing expenses versus revenue, balancing the agency’s book of business for the best return on investment, balancing the agent’s time for optimum results. Once again, it sounds simple, but as many agents are discovering, the balance they seek is difficult to achieve.

If your agency is like most multiline agencies, the multi is a bit of a misnomer. The traditional business model for multiline agencies was a foundation of auto and fire/home business with a few life and/or commercial policies to round things out. The thinking was that when agencies reached beyond the mark of the 5,000 policies-in-force, the agency would be successful and profitable, and all would be golden.

Internal marketing
Another part of traditional thinking involves marketing. While everyone agrees that external marketing is appropriate for newer agencies, conventional thinking has carried this notion forward to apply to all agencies. So agencies of all sizes, even the really large ones, continue down this path of external marketing to gain new customers and achieve agency growth. But let’s balance the results of this marketing effort with the truth: Agencies are bleeding P&C customers out the back door as they gain new ones at the front door. Where is the growth? Most agencies do not spend more than a cursory amount of time and effort on internal marketing. Sure, some agencies conduct an annual review, but that’s about it.

Analyzing your agency
Let’s see if all really is golden in your agency. As agency owners, we have come to accept the reality that auto and fire customers require a lot of attention. Many of us have staffed-up to provide the best possible service to our clients, regularly conduct annual reviews and feel that we are doing all the things necessary to run a successful insurance agency.

The reality may not be quite that rosy. Sure, we have the staff and we provide a benefits package competitive with those in other industries, but it all comes at a price. Have you checked your agency’s bottom line lately? Most of us are so busy, we just keep on selling and selling year after year, thinking that if we are growing revenue, all is well. Many agents give little thought to where their money is being spent or if the agency’s bottom line is meeting goals and expectations. Just as you go to your physician every year, perhaps it is time for an annual agency analysis. It takes just a few simple equations to get a true picture of your agency’s health.

What is your annual agency revenue? Divide that number by the number of policies-in-force. This is Revenue per PIF.

What is your annual agency expense? Divide that number by the number of policies-in-force, this is Cost per PIF.

Next, subtract agency expenses from agency revenue. That’s your net profit. Now divide that number by the number of policies-in-force. This is Profit per PIF.

How many households do you serve? Now here comes a revelation. Divide your net profit by the number of HH. This is Profit per Household.

If this number is less than you expected—or less than $100—join an ever-growing club. It’s time for a new strategy that will enable you to achieve a better product balance for agency profitability.

What agents are discovering is that the traditional, two-dimensional business model of auto and fire/home comes with a high price in terms of agency profits. Servicing auto customers requires time and staff, both of which cost money. It’s a catch-22 situation: An agency must provide high-quality service to its customers or risk losing them to the competition. And competitors are surrounding the agency from all sides—the internet, # 1-800-CHEAP-INSURANCE and a host of competitors just down the block are taking a bite out of most agencies’ auto business. Before that bite becomes a huge gulp, let’s stop playing defense and switch to offensive strategies.

Remember Mr. Miyagi: “The key to life is balance.” Multiline agents are rethinking their business model and putting into place strategies for sustained growth in the future. What are they doing? They are looking at their business from a new perspective. Agents are coming to understand that to fulfill their twin goals of success and profit, they need to examine the number of households served and the density-per-household, rather than just looking at policies-in-force.

How many lines of insurance has your agency placed in each household you serve? One? Two? Now think about how many lines of insurance are in your own household. Ten? Twelve? Though that may be higher than average, the typical household carries at least seven or eight policies: auto coverage on two cars, homeowners or renters insurance, a life policy on husband and wife, and health insurance on husband and wife. We’re already up to seven policies and haven’t included anything for the kids, a vacation home, boats, RVs and motorcycles. It’s likely there are also umbrella policies, business insurance and financial services products. The possibilities and opportunities for add-on business are staggering.

There are several compelling reasons to adopt this strategy. By having more lines of insurance in each household, you are, in effect, insulating your client from the competition. If you have positioned yourself as a “trusted advisor,” your client will be reluctant to explore the latest “cheap insurance” offer. By having full knowledge of your client’s needs, your agency is positioned to provide more meaningful service. Internal marketing is less expensive than external marketing; thus, you realize some cost savings there. Research also indicates that profit-per-household increases dramatically with every additional line of insurance placed in the household. It is more efficient and less expensive to service 1,000 households with four policies each than it is to service 4,000 households with one policy each.

Examine this new scenario from the perspective of retention. Every insurance company is focused on improving retention. From the agency point of view, this also makes strong economic sense. The deeper you penetrate each household, the less likely that family is to leave your agency or not renew a policy. So, in effect, you are improving your agency’s bottom line with every policy that does not have to be replaced.

Customer service
As agents, we sometimes commit an unpardonable and potentially deadly sin: We take our customers for granted. “Hey, my customers are covered,” we think, “if they need something they will call me.” Can you imagine what the environment would be like at home if you did not call or speak to your spouse for a week or a month? Probably not very cordial, right? Fortunately, our clients have a different level of expectation. Our agency has been able to communicate consistently with clients through an accountability system. This system features an agency contact representative (ACR), who has no other duties in the office except customer contact. Through our ACR, we can guarantee that each client will receive a call inviting him to visit with us at least once a year. In addition, our clients receive another call during the 12 months offering to review other lines of insurance not currently placed with our agency.

We have learned first-hand that marketing to our existing customer base is not difficult and the sales results are steady and sustainable. By looking at our households differently and putting a plan of action in place to deepen household penetration, the balance of our book of business continues to change and broaden. While we still want to maintain our auto and fire/home business, what we uncover on a daily basis is a gold mine of new sales opportunities. We also discovered that as we go about serving the needs of our customers, we find they have needs for life policies, umbrella policies, commercial policies, home warranties and financial services. As a result, our agency has become multidimensional, as is fitting for a multiline agency.

Soon after we put an ACR in place, we realized that while the number of policies-in-force was growing, the number of households served had stabilized. I even found myself on a quest to eliminate the single-policy households because they no longer fit our business model. Heresy? No, just common sense. Agency profits continue to steadily grow and the golden promise that I had visualized has been fulfilled.

Have enough staff
Another part of the equation requires a balancing of the number of employees and our aggressive agency growth goals. The way I view it is: Employees are either a cost center (service) or a profit center (producers). So it is important to hire staff to fill agency needs and help achieve agency goals. Our agency features a life department, a commercial department, etc., with a specialist responsible for each area of expertise. Other agencies prefer to cross-train employees to handle all lines of insurance. But no matter which direction you choose, the important message is to have staff handle service work.

Agents who spend any time at all on service work are taking a short-sighted view of how they manage their business. We have an agency manager to manage the staff and we have customer service representatives (CSRs) to provide service. As an agency owner, my time is best spent on selling. That’s where I can make the most important contribution. How you spend your time tells a lot about how efficiently your agency runs. Agents that bemoan the time they personally spend on providing service to auto and fire/home customers need to hire staff to perform that function. It truly is a balancing act.

When do you add staff? Agents who take an offensive position in terms of agency growth tell me they need a staff member for every 750 PIF. Yes, I know, conventional wisdom dictates one staff member for every 1,000 PIF. But we’re in an offensive posture here, aiming at steady, sustainable growth. Ambitious goals require courageous actions. Does this sometimes require a leap of faith? Yes. However, when you add agency producers who contribute to agency goals, you will find that agency profits continue to soar.

Take stock
So what have we learned? Once an agency reaches some critical mass in terms of policies-in-force, a portion of marketing needs to be devoted internally. And as agencies get larger, an increasing percentage of marketing time and effort needs to be focused internally. We also learned that it is a myth that the rate of agency growth needs to slow once the 3,000 PIF benchmark has been achieved. We learned that our customers are happy to hear from us—that they have needs to be filled, whether by our agency or a competitor. We learned that the proactive steps we take with our customers have a profound effect on sales results. We learned that having a broader mix in our book of business greatly improves agency profitability. And—most importantly—we learned that it is more profitable to deepen household penetration than to spend vast sums of money on trying to gain new customers.

The old instructor, Mr. Miyagi, was right. The key to life is balance.

Twice named “Agent of the Year” from among 14,000 Farmers Insurance agents, Troy Korsgaden has trained nearly 30,000 insurance agents and staff across North America. He can be reached at 1-800-524-6390 or at


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