Nearly 25 years ago, I wrote an article for another publication about the need for independent agents to recapture market share in personal lines. At that time, independent agents controlled about 35% of the personal lines market. The article talked about the independent agents’ advantage over the direct writers in terms of service and local presence. And independent agents continued to concentrate—very successfully I might add—on commercial lines.

Today, little has changed. Indepen­dent agents still control about 35% of the personal lines market, despite a number of initiatives that have been undertaken by trade associations to try and boost that number. The fact is that, in most cases, independent agencies put their best people to work on landing the more lucrative commercial lines accounts and personal lines is written on an accommodation basis, or they focus on high net worth individuals.

Well, there are some obvious flaws in this approach if an agency truly is interested in recouping market share in personal lines.

The most obvious is the fact that many high net worth individuals don’t start off as high net worth individuals; and if the direct writers start out writing those who are busy working on becoming well-to-do, they are likely to keep them unless something untoward happens. There is plenty of anecdotal evidence to support this. Nearly every independent agent I have spoken to in my decades as an insurance journalist knows of a professional who had sorely insufficient limits because that’s what he or she started out carrying.

Keith Oliver, president of Oliver Insurance Agency in Overland Park, Kansas, reports on one client—a doctor—whose coverage was cancelled by his direct writer because of a second water damage claim. He went to Keith for help. And guess what? The doctor had $100,000/$300,000 limits on his auto policy and no umbrella. Keith got him a package with higher limits and an umbrella for less than he was paying the direct writer.

Unfortunately, these individuals come to the independent agent only when that untoward event occurs. Sometimes it’s a policy cancellation, which is a relatively good event when compared with….

Sometimes it’s when a claim occurs and they find out to their chagrin that coverage just isn’t there or is insufficient.

Which segues into point number two. The “competitive price” that the direct writers advertise ad infinitum, ad nauseam is a myth based on the creative use of statistics. Listen carefully to the ads or read the small print and you will find that the savings are only an average for those people who saved money. “The typical challenge is not price,” Keith points out. “It’s things like explaining replacement cost after someone gets a great deal on a house. That’s especially true in today’s housing market. Competitors will conveniently ignore that issue.”

What is clear is that the independent agency system has the products and price, but agents aren’t quite sure how to combat the direct writer advertising blitz or how to reach—in a cost effective manner—those people attracted to the direct writers. At the risk of generalizing, independent agents aren’t sure that it’s worth it. Personal lines policies typically provide less revenue per policy than commercial lines.

However, on the positive side (literally), personal lines represents the only area where the property/casualty industry has seen premium growth recently. In 2009, personal auto premiums grew 1.2% and homeowners was up 1.3%, while the major commercial lines saw declines of 11.8% for workers comp, 0.9% for general liability, 10.2% for commercial multiple peril and 2.6% for commercial auto.

And personal lines traditionally shows steady growth while commercial lines is subject to soft and hard (maybe someday) market conditions, neither of which is pleasant. In the soft markets, agency revenues decline as premiums drop and in the hard market, agents have to scramble to find coverage for clients as companies jack up prices to ridiculous levels or stop writing certain coverages altogether.

And for those agencies that are seeing employee benefits pick up the slack for sagging commercial lines premiums, there is the nagging worry about the impact of federal health care legislation as well as the promise of falling commission rates from the few carriers that operate in the group health field.

On the other hand, “personal lines is an anchor of stability,” Keith observes. “We insure a large number of contractors. Residential builders got hammered (no pun intended) and commercial builders are struggling. In the last two years, personal lines has produced moderate growth that has helped stabilize the agency. Our revenue from personal lines generates between 30% and 40% of the agency’s total revenue.”

Oliver Insurance Agency has stratified personal lines customers in terms of revenue, ranging from VIP customers that provide more than $1,000 in revenue to C level customers that provide under $350 in revenue. For the VIP accounts, “we provide an annual summarization of coverages to help the producer and customer understand what they have. Those people often are associated with small businesses as well. Often, there are six, seven or more policies involved and there can be overlap between personal lines and business coverages.”

Oliver also has an internal referral program as well as bonuses for service people, based on retention. “And about a year ago, we converted one of our service people to a producer for personal lines,” Keith points out. “Our service people would often quote, write or get new business opportunities, but the closing rate was only about 20% because their focus was on service, as it should be.

“After the conversion, that jumped to 75%,” Keith continues. “The personal lines producer also gets referrals and goes out on calls with our commercial lines producers for a commercial lines review. At one of those meetings, she found that the client’s homeowners coverage was undervalued and two motorcycles weren’t covered. We picked up all the little pieces and it became a VIP account.”

“Every time we are contacted, it’s because the person needs the product. The key is conversion,” notes Robert H. Bourdeau, vice president of Al Bourdeau Insurance Agency in Flint, Michigan. “We’re as competitive as possible and win an account at least half of the time. Of course, that’s not our ultimate goal. We want to win 100% of the time. We have the right products at the right price to handle any personal lines situation. And the key to that is volume. We have about 20 different companies for personal lines and we need to provide them with sufficient volume and good business to keep them happy so we can maintain our depth of coverage options.”

Al Bourdeau Insurance has a long history of successfully marketing personal lines. “We’ve normally had an even split between personal lines volume and commercial lines,” Bob says. Today, however, personal lines represents closer to 60% of the agency’s volume as commercial lines has been buffeted by a deadly combination—the soft market and a poor economy that has hit southeast Michigan especially hard. And when Bob says “volume,” he means it. The agency handles some 25,000 personal lines policyholders out of its six offices and is doing everything it can to increase that number.

Both Keith and Bob agree that technology plays a key role in successfully writing personal lines on a profitable basis. “Our personal lines strategy,  to focus on volume, makes the effective use of technology an imperative,” Bob declares. Both agents also agree that, as Bob notes, “personal lines has absolutely been far more stable than commercial lines.”

Interestingly, technology has been used at Al Bourdeau Insurance “to create a very personal, one-agency experience when people contact us,” Bob says. “We have 106 people so there are many individuals who do similar jobs to meet the needs of a person who contacts us. Customers often want to work with a specific agent or service representative; we encourage and enable that. But we also pool skills using technology, so if the customer doesn’t indicate a preference to work with a specific agent, work is allocated uniformly by our systems.

“And that starts with the receptionists. When a person calls one of our offices, if the receptionist at that office is busy, a receptionist at another office will pick up the call. The system identifies where the call originates and that information is data that stays attached to the call. When that call is transferred, the call center software tries to assign the call to a staff person in the office where the call arrived to begin with,” Bob explains. “Our contact center software creates a visual depiction of our company as if it were all at a single location, showing every person who is at work, whether they are available, and some indications as to what they might be doing. The visual cues are subtle but valuable feedback for efficient call handling.

“This has been really great, not just for the customer who is calling, but for the people in the offices. We get better utilization of all staff, and a sense of being a team,” Bob says.

The same kind of thing occurs when a customer seeks a quote online. The request is packaged  as a document and preferences are attached that will help the system assign agents based on geographic location, and then inserted into a work queue. The contact center software assigns these quote opportunities as agents become available. This same concept for workflow distribution is applied to customer service and claim assistance as well.

Of course, marketing is a major part of making certain those calls and online requests keep coming in. “We need to be nearly overwhelmed with requests,” Bob says. “The best source is referrals. The best new customers are those who are referred by our best current clients and we have tools in place to make that happen. We incentivize customers to provide referrals and use this in our marketing.

“We also do a lot of traditional and nontraditional marketing,” he continues. “In addition to regular Yellow Pages advertising, newspaper ads and direct mail, we also utilize extensive online marketing tools such as the online phone directories, micro-Web sites, pay-per-click ads, and mobile tools. More recently we’ve deepened into building a presence and referrals through social media where we can project our personality and stimulate buzz in the marketplace. We are seeing a steady increase in business coming in due to our online presence.”

Making all this happen is the personal lines team that is comprised of five different positions. The sales people connect with the customers and drive referrals. Their job is to cultivate new accounts and deal with all sales-related interactions with customers. They do no service work.

Techs or raters support this effort by applying the data gathered by the agents to underwrite and price product options specified by the sales people. They work through the portfolio of companies available to the agency and will come up with the best fit for the client. They do everything that does not require interaction with the customer directly.

Then there are three units within the service team: Customer service reps interact with the customers and know the accounts. They are backed up by a group of processors who deal with the part of service that does not include customer contact, including executing change requests online or via paper as required, and renewal processing and review. The third group deals only with claims assistance.

Compensation includes incentives for all the service people to find things that could impact current or future policyholders, including changes in policies, underwriting criteria, and so on. “It’s kind of like encouraging our people to play an insurance version of ‘Where’s Waldo,’” Bob quips. All the information gleaned from this effort is included in a database that also includes information on the differences between all the company’s products. “It’s hard to point at any one thing that makes the operation flow. It’s attention to a hundred little things, the design of business processes and the integration of people and technology that make it work,” he says.

While commercial lines accounts certainly look more attractive at first blush with their larger premium dollars, they also tend to leverage an agency to the point where the loss of a major account can be a serious event. On the other hand, personal lines offers a stability that is not present in the commercial lines arena, and the loss of one personal lines account rarely will result in serious consequences for the agency. In addition, being the agency of record for the person just starting out can reap long-term benefits. No one knows who is going to be the next Bill Gates, but you can bet if you’re the agent for that person and treat him or her well from the beginning, you can expect some nice returns on that investment.