Broker Management: Defining “Good” Sales

Producers in property and casualty insurance brokerages are salespeople. And, like most salespeople, they believe in a simple equation: more accounts equal higher profits. Every commission dollar is a good dollar. Right?…Wrong.

One of the biggest challenges facing brokerages and producers, or account executives, today is the “plateau” in sales. Typically, producers go after more and more accounts and end up with a fairly substantial client base. Judging by the numbers, you would think things were going pretty well. But, in reality, the producer has not segmented his/her client base and has no idea which customers are profitable and which ones are not.

Certain groups of customers demand more service time and it is often the account executive scrambling to meet those needs. Simply adding more accounts to the picture does not solve this problem, it only creates a longer and flatter plateau.

The idea of ever-expanding accounts is good if you have time to give all clients top-notch service. But, you do not have this ability. Instead, many producers wind up running around trying to nail “Jell-O” to the wall. And this inevitably means that some customers, often the most profitable, are left under-serviced.

SEGMENTING

Once a brokerage has segmented its client base, and divided accounts into the “A”, “B” and “C” segments (and cut off the “Ys”), it is time to determine who can be traded off. It is time to compile the list of which clients fit which categories.

Let us look at the “C” segment for a moment. These accounts are the time-wasters we all know about. They do not typically represent large premiums or revenues, but they consume a disproportionate amount of a brokerage’s resources in service calls, coverage and price explanation and general complaint resolution. A brokerage has to ask itself: “what kind of service are we really giving the “C” segment?” If the answer is “way too much relative to revenue,” it is time to reevaluate how the whole sales and account management process is structured. In fact, it is time for account executives to trade off these time-wasting clients.

The first reaction from most account executives is often predictable: they fight it tooth and nail. Here is what we often hear: “I have worked hard to get these clients, there is no way I’m letting go.” The other typical response is, “what’s going to happen to my commission income if I do that”.

These are all understandable responses, but the brokerage principal has to address them head-on before significant change can happen. There has to be negotiation with account executives. They need to understand that when they hang onto small accounts, they do not allow themselves room to grow. Ultimately, it is a simple reality: If you do not let go, you your company’s sales will “plateau”. Clearly, this will affect the entire brokerage.

TRADE OFF

But, how do you “trade” accounts? Many account executives believe that service standards will suddenly slip if they are not in the picture. They are protective of even their smallest accounts, thinking they can be all things to all people. This belies a couple of myths: One, that the accounts were receiving good service to begin with (they were not) and two, that all accounts deserve equal attention (they do not). Part of the letting go process involves setting up a structure within the brokerage to handle certain kinds of accounts.

We call it the “independent business unit” (IBU). The IBU is a centralized unit in the brokerage created to handle lower-revenue accounts. Account managers and, in some cases, new producers run the IBU and receive a certain level of commission for these accounts. They should be able to take traded off accounts and hit the ground running. The goal is to provide an adequate level of service to the “C accounts”, and no more or less. The IBU can also take incoming calls or requests for insurance quotes.

The IBU itself should have targets for minimum revenue from each account. It is a good idea to have a minimum revenue-per-account number of say, $500 and move that figure up to $1000 or $1500 as the unit becomes more efficient. If the client’s business cannot meet even these minimum standards, he or she is likely a “Y account” and should be let go.

VITAL FEW

So where does this leave the account executive? Never have I known a good account executive who has made less money as a result of trading off. The process allocates clients by revenue derived, provides a corresponding level of service and frees up an account executives’ time. If account executives have more time to develop a deeper relationship with fewer but more profitable customers, the income stream will surely follow.

It is simply using the power of the “80/20” rule: 80% of a brokerage’s revenue comes from 20% of its clients, being the “A accounts”. Think of it as the “vital few” versus the “trivial many”.

Account executives can set a schedule to trade off those accounts that cost more to service than their time is worth. They can:

Take a leap of faith and trade off 80% of their accounts on day one;

Take a smaller leap of faith and trade off 40% now and 40% in 12 months; or

Use the “4 x 20” approach and trade off 20% of their accounts in the first month and 20% after twelve months, 24 months and 36 months.

At a minimum, account executives should trade off at least the bottom 20% of their clients. This will still only represent about 3% of their total commissions.

GAINING FOCUS

Those account executives who have tried trading off believe the process should be continuous. There is no question that it is a leap of faith. Some may think of it as “sales suicide”, but it is just the opposite. The freeing up of time allows account executives to invest 80% of their time in four critical activities: Sales, proactive renewal process, client relationship management and referral generation.

The bottom-line question for account executives is simple: What is in it for me? The answer is equally simple. Most producers are aware of the plateau they are caught in – they may call it a “rut” or even a “comfort zone”. But, they do not know how to break through to the next level of higher income. Trading off clients is one effective way of doing just that.