Cutting Corners

Some inside knowledge and a lot of experience strongly suggests that many agencies and brokers are cutting processing corners. I am not writing about immaterial corners. I am writing about them cutting large, material corners. Some have cropped the corners so significantly, their procedural manual is now an octagon.

Examples of the serious and grossly mistaken shortcuts include:

• Not checking renewals in part or in whole.
• Not completing certificates of insurance properly.
• Assigning policy checking to people who do not know what they are checking.
• Assigning processors that do not know the applicable coverages to do a CSR’s job.
• Moving accounts from one company to another without truly comparing coverages and then not advising clients of any loss of coverage.

The risks these firms are taking are significant. They are risking their reputations. They are significantly increasing the risk of errors and omissions (E&O) claims. They are belittling customer service.

Given the obvious dangers, why is corner cutting so rampant?

Corners are most often cut for three main reasons: using inapplicable benchmarks, cost cutting without performing quality cost analysis and desperation to write new business.

Benchmarking

The inherent problems with benchmarks in this industry leads many firms to cut corners. A key factor is the benchmarks available for CSR productivity are, by necessity of the compilation process, generic to the extreme. Some benchmarks are adjusted for very general geographic variance and some adjust for agency size variance. The result is still excessively generic for specific use.

An additional factor is the misuse of CSR productivity benchmarks. Far too often the decision maker simply compares the commissions in the benchmark to the commissions the CSR is servicing. Some do not even look at the true benchmarks but go by hearsay. I have visited hundreds of agencies and no two are the same.

The amount of work any given CSR can competently service depends on many factors, including their job description. CSR job descriptions vary significantly from one agency to another and their responsibilities determine how much in commissions they can service.

Another crucial factor is how cooperative the agency’s producers are in providing the correct information to the CSRs. In an agency where producer compliance is high, CSRs can service much more than in those where instructions are still provided on cocktail napkins.

Other factors include the size of accounts and the markets in which accounts are placed. A $1,000 account takes just as much time as a $3,000 account, so in one agency a CSR could competently service $300,000 and another $600,000 with little more effort simply based on account size.

Another important factor is the hit ratio on new business. If a CSR’s job description includes quoting new business and the hit ratio is poor, that CSR cannot service as many commissions as the benchmarks indicate.

A slightly different aspect is that some of the benchmarks are just wrong. The people that have compiled the data did not compile the data correctly resulting in benchmarks that are far higher than reality. High quality benchmarking in a service industry like this is quite difficult to do well, so most use excessively over simplistic techniques resulting, at best, in better temporary results for a high future price.

So when a manager sets certain commissions per CSR benchmarks, even if those benchmarks truly do not apply, most CSRs will get the job done but only by cutting corners. Sometimes management knows this and sometimes they do not know anything about it, until something really goes wrong. If you do not know about corner cutting and you are using industry benchmarks, you might want to examine your actual processing.

Cost Cutting

Cost cutting is sometimes directly tied to benchmarking. Sometimes though, agencies are just struggling to survive so they are cutting expenses in every possible way. One must survive tomorrow to experience the long run, but in the long run, this strategy will fail.

When management concludes the agency can only survive with 20 percent fewer CSRs regardless of the workload and simply tells the remaining CSRs to work hard and all will be alright, eventually this house of cards will fail. I have seen this happen with management expressly telling the CSRs what corners to cut. Eventually damage is done. Even if the agency is not sued, good CSRs often begin leaving for better jobs and jobs where they feel they are doing right by the customer.

Desperation to Write New Business

Growing sales has been very tough for many, many years now. The temptation to cut corners has grown too large to resist for many, and there really is nothing more to it.

Solution

For those readers that pride themselves on their professionalism and great execution, competing with corner cutters can be trying. Sometimes competitors do win by cutting corners. How can the true professionals take advantage of their sloppier brethren?

1. Have a script for your people so that when they come across competition cheating on certificates. I have seen several such scripts. They are impressive and they generally work. At the very least, these scripts plant an appropriate seed of doubt in clients’ minds so that when something goes wrong, they will remember who was honest.
2. Explain why renewal reviews are so important. A key reason corner cutters get away with not doing renewal reviews is that customers do not know renewal reviews, or even policy checking, should occur. Clients’ lack of knowledge is an important reason why they shop price and buy direct because they do not know what the agency is actually doing for them. Let the customer know what you do for them, why it is important, and if it is a prospect, recommend they confirm in writing the incumbent agency provides these services.
3. Explain why you spend the extra money, time, and training to compare coverages thoroughly when moving clients from one company to another so customers can experience your professionalism and appreciate you for more than a price.

Some readers might worry these suggestions create E&O exposures by increasing expectations. Personally, I would take this chance rather than cutting corners, which still increases E&O exposures.

In the former, no additional E&O exposures are created if the agency sets and meets these higher standards. Why not strive for higher goals of quality, professionalism, and success?

In the latter, the strategy is simply playing to the lowest common denominator and someone is always going to be willing to go lower than you.

The opportunity now to rise to the occasion is great. Time, patience, and some humbleness may be required. For those with fortitude, the ultimate return on investment will be great.