A large part of the operation of the independent insurance agency over the last two hundred years has been related to processing policies. Until just forty years ago, many agencies were still typing or printing policies and rating through manuals. But automation and rating systems streamlined the process. For a number of years beginning with the advent of direct billing it appeared as if the insurance companies were willing to process and send policies, and many policies are now being sent electronically. However, as the companies have faced the competitive nature of the internet generation, their rates and premiums have reduced, so their expenses had to be cut to generate profits to their stockholders. They currently face a crisis in their expense rates compared to those of the direct writers and part of their answer is to reverse their processing activity and put the onus of processing responsibility back on the agents.
Unfortunately, most agents are experiencing the same expense “crunch” as the carriers. Some tried to respond by using carrier Service Centers. They have, for the most part, been a failure because customers don’t tend to have all of their policies with one carrier. This forces them to call the agency regardless of the service center. And even if they are insured with a single carrier, the agency’s goal was to reduce work effort, not the “control” of the customer. It also didn’t help their cause that the carriers have boasted that the result of the Service Center concept in the long run would be the assumption of ownership of clients by the carrier.
Now agencies have Management Systems that extort a steep price for relatively difficult processing, carriers who insist on input through their own systems and an ever-increasing load on the service staff that is costing the agencies higher expenses annually. It’s not so bad in a hard market when rate corrections add dollars to the agency’s revenue. But in a soft market, it is a “double whammy” that is forcing many agencies into mergers or sales.
If I sound like a prophet of “gloom and doom,” I don’t mean to be. We have seen signs of the VIRTUALIZATION of the insurance agency business for over 20 years and that process appears to be accelerating.
This is NOT bad news for agency owners. Virtualization can be as simple as clustered marketing or the use of Agency Consulting Group, Inc’s Virtual Insurance Agency concept which permits agencies to maintain their own presence and integrity but centralize many administrative tasks to lower expenses. But it can also be the outsourcing of various agency functions that cost you time, money and a great deal of frustration as an agency owner. Outsourcing does not use a carrier Service Center. It uses a professionally trained and managed staff that answers the phone in your agency name, processes through your agency management system and does so with management and metrics that assure you that the process is done correctly and consistently – at a much lower cost than you could perform the same functions yourself.
Imagine for a moment if you could devote all of your expenses to the two most important things to you as a business owner, getting new business and keeping the relationships with your existing customers strong. In the virtual agency ALL employees are directly concerned with customer acquisition and retention. This means that automation, the tool for “efficiency” that is now eating 2% and more of revenue in thousands of agencies is outsourced to people who do automation for a living. I still don’t understand what an insurance agent is doing learning, troubleshooting and maintaining computer systems. Do you?
Similarly, thousands of insurance agencies, most of whose premiums are written through direct billed activity, have from one to four people in their Accounting Departments! When we analyze accounting functions in most agencies, we have difficulty finding a fulltime job for a single accounting manager. But work certainly expands to fill the time available, plus a little extra to show that we have a heavy workload, so accounting staffs keep busy.
Consider for a moment the effect it would have on your bottom line (staff reductions, space reduction, loss of telephone lines, etc.) if the only people you employed were people whose jobs were to establish new customer relationships and to keep relationships with existing customers strong so they had no reason to consider other options for their insurance programs. The key to this process is the evolution of processing centers that manage and maintain such high levels of processing and service that they would impose service standards with penalties for slippage on themselves.
Is this out of the realm of possibility? No! Customer service and processing centers could be created – or even purchased from agencies that have created strong processing systems – to service thousands and tens of thousands of clients and transactions at a much lower expense than for the clients and transactions of a single agency. Most agents will quickly admit that they don’t know how to process or how to manage their service and administrative staff. They don’t have the time, the skill or the training to manage service and administration as well as they do the sales function, and many need help in this core competency, as well.
Beyond Agency Consulting Group, Inc.’s Virtual Insurance Agency (VIA), conglomeraters and agency service centers have arisen trying to accomplish some of these virtualization functions. But most have ulterior motives, such as buying the agencies and books of business that they service. It is time for the next generation of virtualization to enter to field.
No one company has the skills and talent to manage all phases of the insurance agency operations that can be virtualized. However, those skills are in place and there are companies who handle IT, Customer Service, Telecommunications, Finance and Accounting and other aspects of agency administration very efficiently. There are moves afoot to consolidate the efforts of the leading providers of these services into a company that will handle every phase of agency administration and operations, leaving the sales and relationship function to the agents within each agency. Those agents who take advantage of this technological break-through will experience a much higher profit margin on the revenue they generate and will be able to devote their and their employees’ time on what pays the highest dividends – THE CUSTOMER. Let us know (al@agencyconsulting.com) if you are interested in this concept. Of course there is no obligation or commitment of any kind. However, if you wish to be on the cutting edge of this revolution in the insurance agency business, let us know. We will keep you posted on the progress of this exciting project.