Outsourcing in an Insurance Agency

Question – When is an insurance agent not an insurance agent?

Answer – When the agency owner and his staff must do a myriad of activities that are non-insurance related, for which they are unqualified and for which they have no experts on staff.

Whether the subject EEOC, fair labor practices, professional marketing, collections or automation, we often find ourselves on the short end of the “knowledge stick”. While most insurance agencies are not large enough to have personnel managers, a collection department, professional marketers and automation managers, they certainly have the problems associated with those areas. In the case of most insurance agencies, either the owner must assume the responsibility for the non-insurance task, an interested employee must assume that responsibility or we simply disregard the problem. Unfortunately, small insurance agencies are just as prone to law suits, to paralyze in computer problems or to the lack of effective marketing as our larger businesses. The lack of able assistance usually results in a crisis that could have been averted if the problem was attacked sooner.

These business activities that are required to manage your business successfully but are not insurance related can best be handled by out sourcing them to individuals or firms who are qualified to assist you, can become familiar with your organization quickly and can solve your problems much faster than you, for less expense than hiring a full-time employee and allows you to continue your and your staffs effort in your insurance business.

Out-sourcing non-insurance tasks and problems can be handled in a variety of ways.

Consulting relationships – firms likes the Agency Consulting Group can either assist you or can teach you the intricacies of strategic and tactical planning, automation development, mergers and acquisitions, internal perpetuation, enhanced workflow systems, incentive compensation programs and other relevant management tasks to make your business more effective. These are general consulting agreements that can either assist your agency with one problem or provide ongoing services.

Specialty consulting – if you find that learning and applying the skills that would be taught in #1 above would take too much of your time from your business of selling and servicing insurance for your customers, many specialty consultants abound who can provide ongoing assistance in specific areas. For example, while the general consultant can teach you how to select automation systems and assist you in the process, a specialized automation consultant will assist in the transition between one system and another, will help you price and acquire automation equipment, will alter your workflow procedures to accommodate a new system and will regularly audit your system to be certain that it is working according to your specifications. This ongoing relationship is for one purpose only – automation. Similarly, a general consultant can help you develop a personnel manual and teach you how to implement it yourself. However, if personnel matters take time away from the sales and service of insurance, you may want to use the services of a specialized Personnel or Employment Services consultant. That consultant would be given the responsibility of the design, implementation, management and audit of all of your personnel practices. Again, while personnel practices are complex even in a small organization, the lack of them can end your business with a single lawsuit.

The next level of out-sourcing is represented by companies designed specifically to help small business manage specific functions. ADP is one prime example of a company built on the need for out sourcing of payroll processing. Similarly companies exist that will manage your personnel process, manage your complete automated system, perform all of your marketing efforts for you and even handle your supplies and mail room activities. These companies make sense for medium size agencies whose revenue base does not yet require specialized employees for that purpose but whose growth and complexity require the function.

Imagine how much more effective you would be if you had a marketing manager paid a fraction of what a full-time manager would cost you to sit in on your strategic and tactical planning process and implement your marketing plans and campaigns to generate leads for you. All it takes is money.

While general consultants with areas of knowledge in all phases of insurance agency operations (like the Agency Consulting Group), specialty consultants, and out-source companies are used for agencies of all sizes, your budget will dictate the type of relationship that you establish. Every agency from $250,000 to $25,000,000 (in revenues) would like to have the services of full-time staff at a fraction of the cost of hiring them yourself. However, reality dictates that smaller firms would less efficiently use those services. They would be spending more than the value they received.

Generally, firms under $2,000,00 of revenue will most efficiently handle non-insurance issues and problems with competent, general consultants who are knowledgeable in the issues of insurance agencies. Agencies from $2,000,000 to $5,000,000 in revenues may find that their ongoing needs are better served by specialty consultants who are paid on a retainer or “as used” basis at far less cost than hiring permanent management for those roles. Larger agencies face a different dilemma. As all agencies, larger agencies face declining margins. while they can afford the staff positions that are required to maintain complex organizations, they might find themselves better served by using their funds for more sales or service related employees. These firms may benefit from out-sourcing non-insurance functions to professionals who serve many other businesses for the same activities.

Question – What are the activities in an agency that can be out-sourced to consultants or other companies?

Answer – any function in your agency that is not directly related to the sales and service of your insurance accounts.

Payroll – if your payroll activities consume more than a few hours a week of someone’s time, you can probably do it more efficiently and cheaper using an outside service.

Automation – a general consultant will help you and teach you how to manage automation yourself. A specialist consultant will do the aforementioned and will assist in implementation and monitoring of your automated system. An automation firm contracted by your business will help you manage your automation system on a daily basis.

Personnel – a general consultant will help you establish job descriptions, personnel policies and evaluation methods as well as compensation programs. At that point you assume control of them. A specialist consultant will also assist you in the implementation of those programs. A personnel company will act as staff to you in your personnel management and will be well versed in the state and federal regulations regarding personnel laws. Employee leasing companies will actually hire all of your employees and lease them back to you. This may develop significant benefits to some companies from a cost standpoint, from a management standpoint and from a benefits standpoint.

Marketing – most insurance agents can sell insurance to prospects if they are place in front of them. However they don not have the skills, education or background to efficient place themselves before sufficient prospects to maximize their agency’s growth. A general consultant will teach you marketing methods, help you establish marketing plans and campaigns and will even assist in monitoring those efforts on an occasional basis. A specialized marketing consultant has access to many sources of business leads and will manage that lead process on your behalf, if requested. The specialized marketing consultant should provide on-going cost/benefit analysis of every marketing program to convince that the program is working or to change it before it costs you too much. marketing companies exist to market for you. they will sit in your strategic plan to determine what type of marketing you can afford and desire. They will than construct marketing campaigns within your budget, implement them and report results as would a staff member.

In conclusion, whether you should out-source non-insurance functions in your agency or not depends upon your desires, needs and budget. The most effective insurance agencies in the country spend the vast majority of their time selling and servicing insurance. Out-sourcing through consultants or specialty companies can assist in the management of their business’ and the solution of problems more efficiently and less expensively than handling it themselves.