Avoiding clutter, discord, and difficulty

In our experience, the number one contributor to

agency operational disfunction is the absence of a proper business model.

By Cheryl Koch, CPCU, ARM, AAI, ACSR, AFIS, and Mary Belka, CPCU, ARM, ARe, RPLU, CIC

Albert Einstein once said, “The leader is one who, out of the clutter, brings simplicity … out of discord, harmony … and out of difficulty, opportunity.” 

In our first “Take Back the Night” installment, we provided subtext to the agency operations challenges so many agency owners are struggling with today—and how those issues create a barrier to increasing agency value. We’ve described the symptoms that make agency owners believe they need more people, more technology, and to carve up the account manager position, in order to “fix” their problems, when in fact the opposite is true.

We described the clutter, discord, and difficulty that are all too prevalent in agencies today. Now we turn to simplicity, harmony, and opportunity to describe the highlights of a proven pathway to profitable growth, and increased agency value. A small number of qualified insurance professionals working together to recruit, serve, and retain carefully chosen clients, can achieve great things.

The right business model matters

 In our experience, the number one contributor to agency operational disfunction is the absence of a proper business model. After 30-plus years of consulting, we would estimate that fully 95% of agencies with operational issues have a business model problem, not a “people” problem or “procedures” problem. We have rarely recommended that an agency add people—fewer than 10 times between the two of us—in all of these years. Instead, we have helped agencies implement business models, processes, and tools that deliver results by realigning and/or educating existing staff.

Once the right structure is in place, the other pieces of the puzzle can be remedied. The business model basically consists of the combination of the agency’s operational organizational chart and accompanying position descriptions. The success of the business model is directly related to leadership commitment and discipline in ensuring accountability of all concerned.

The organizational chart identifies those positions and reporting relationships needed for effective operations. Some positions may not be filled, but all should be included on the chart.

Operations management over the past two decades has increased in scale to become the broadest area of agency management, with the most direct reports and requiring expertise on a number of subjects. The most effective operations managers are those who have actually done the account manager job; they have earned the necessary “street cred”.

Operations organizational chart

Simplicity is the key and it provides the best opportunity for consistency and scalability. The starting point is the organizational chart, answering the basic questions and clearly outlining the agency structure. Who does what? Who reports to whom and who is accountable for whom?

• The three areas of agency management are sales, operations, and financial, and they should be clearly reflected on the org chart.
• Commercial lines (CL), personal lines (PL) and employee benefits/life (EB) are three separate departments, even if they are across multiple locations.
• Producers report to the sales manager; account managers report to the operations manager, regardless of department, and again, they may be across multiple locations.
• Producers and account managers should specialize, choosing a discipline (CL, PL, or EB). It is a disservice to clients to “dabble” across disciplines; this is a big area for potential E&O (errors and omissions).
• Account managers should not report to producers; they are peers—two sides of the same coin, and equal on the operational org chart.
• Larger agencies may have departmental supervisors who serve as “middle managers” between account managers and the operations manager. Note: Supervisors should not handle an assigned book of business. Their role is to manage, serve as a resource to, and develop their direct reports.
• Administrative staff (receptionist) reports to the operations manager.
• Bookkeeping is ideally outsourced to an appropriate firm until revenues reach a level that warrants a full-time bookkeeper. If there is a bookkeeper, he/she should report to the manager responsible for financial management of the firm (usually the operations manager or president).
• IT/network management is generally outsourced and overseen by the operations manager.
• HR management is handled by the operations manager; payroll should be outsourced to a professional payroll service, even if the agency has a bookkeeper. Payroll firms also provide ancillary HR resources, for instance, employee handbook templates, forms, or limited HR legal advice, etc., for a fee, on an outsourced basis.

Who does what?

This is an area that can be hard to unwind; yet it is a critical component in creating an effective business model. Everyone must stay in their lane. This is an important step in eliminating inefficiency, duplication, and E&O exposure. It can feel counterintuitive at first, but it is ultimately liberating, creating more time for producers to sell, and for account managers to provide true service to their clients. It also creates accountability and the basis for performance-based compensation, a hallmark of a well-run agency. It is not possible to create accountability for account managers if the job is parsed out to multiple players. Simply put:

• Producers sell.
• Account managers service.
• There are no “assistants” or “technicians” or “outsourced servicing” positions in our model. They are not needed for optimal handling of accounts, when proper operations management, procedures, and educated, trained account managers are in place.
• Receptionists (not account managers) answer incoming calls. They also retrieve items daily from carrier websites and team emails and distribute them to the account managers. They should not assist account managers outside this limited scope.

The agency must define what service is—and what it is not. For instance, as we have written in the past, service is not taking cash or direct bill payments; calling or otherwise contacting poor pay clients; running MVRs (motor vehicle records); handling low limit, low hit ratio call-in quoting; or pointless renewal marketing of more than 10% of agency accounts, regardless of perceived market conditions. Clients—and producers—can be retrained to understand and appreciate what real service is.

Account managers—handling all aspects of assigned accounts. This may take a leap of faith for some; however, we have proven time and again that account management is defined as handling all aspects of one’s assigned accounts, including all appropriate file documentation. The person who orders a policy or an endorsement, or makes a request, should be the person who makes certain it is received and, once received, checked for accuracy before being attached to the client file. Account managers should handle all invoicing on their accounts; this should not be handled by the bookkeeper.

The backup for an account manager is another account manager; the backup for a producer is another producer. The producer is not the backup for servicing his or her client’s file. Producers should insist that clients contact the account manager for all service-related inquiries; they do not have time for servicing accounts. They have significant new business sales goals to achieve!

Primary—next available handling of calls. It takes three times as much time to return a voicemail message as having a qualified person handle the call when it comes in. If an account manager is on the phone or away from the desk when a client calls, the receptionist can direct the call to the “next available” account manager, which phone systems can track for fair distribution. If all staff is handling file documentation properly, per consistent agency procedures, a qualified individual should be able to help in most cases. Overall, this approach saves time and shows the client that the agency works as a team to help in the absence of the primary person who handles their account. It eases occasional account reassignment as well.

Commercial and personal lines—Alpha split on books of business. The most effective method is—big surprise—simple. Alpha split works best, though many excuses to do it differently abound. The least effective is the “one producer/one account manager” approach, which leads to the most inconsistency and imbalance in assigned books. We recommend alpha split, with an annual realignment as necessary, if books become unbalanced due to attrition or new business circumstances.

Personal lines—most effective business model. The best opportunity for profitable growth and effective handling of PL accounts occurs when the agency employs a dedicated PL producer with significant new business goals (minimum $50,000 to $100,000-plus annual revenue), who focuses on recruiting “target clients” the agency has identified in its strategic plan. The producer handles everything through binding; the account manager is introduced properly and handles the account from that point forward. The producer should not be involved in servicing, including writing new policies as needed. The account manager handles all aspects of the account.

Coming segments

Our next installments in the “Take Back the Night” columns will discuss intentional leadership, educational career paths, and exceptional operations management tips for creating unicorn account managers. A worthy investment!

The author

Cheryl Koch is the owner of Agency Management Resource Group, a California firm providing training, education and consulting to producers, account managers and owners of independent agencies. She has a BA in Economics from UCLA and an MBA from Sacramento State University. She has also earned several insurance professional designations: CPCU, CIC, ARM, AAI, AAI-M, API, AIS, AAM, AIM, ARP, AINS, ACSR, AFIS, and MLIS.

Mary M. Belka is owner and CEO of Eisenhart Consulting Group, Inc., providing management and operations consulting to the insurance industry. She also is an endorsed agency E&O auditor for Swiss Re/Westport. A graduate of the University of Nebraska, Mary holds the CPCU, ARM, ARe, RPLU, CIC, and CPIW designations.