For most lines of insurance business, commission income is growing and most insurance agents and brokers expect profits to be similar or better in 2013 compared to 2012.
That’s according to the 28th Annual Market & Financial Outlook Survey by MarshBerry launched in conjunction with Insurance Journal in June. The survey compiled anonymous general independent agency information along with financial, market, carrier and technology data. The survey results indicate that there is an optimistic outlook for the insurance industry.
Another optimistic indicator is the amount of planned new hires for next year. Sixty-three percent of survey respondents indicated that they are increasing headcount in the next year. Continued employee reinvestment is a positive sign for the industry. Hiring new employees is necessary for future growth; however, missteps in employee hiring can be very expensive.
Hiring and replacing employees is costly. A study conducted in November 2012 by the Center for American Progress found that for positions earning less than $75,000 the typical cost of employee turnover was 20 percent of the salary for the position. (See Center for American Progress, There are Significant Business Costs to Replacing Employees, Nov. 16, 2012.)
Fixed costs of hiring new employees include recruiting and headhunter fees, costs associated with posting the positions on a job board, referral fees paid to employees, as well as costs related to licensing and outside training.
Hidden costs are more difficult to quantify. These costs include the knowledge lost when a trained employee leaves, lower productivity for the individuals who need to assume additional work until the position is filled and the time spent reviewing resumes, interviewing candidates and making job offers. There are also costs associated with internal training. A knowledgeable team member must train a new employee on an agency’s processes and procedures, as well as spend time checking their work, until the new employee is up to speed.
Based on MarshBerry’s proprietary financial management database, Perspectives for High Performance, 52 percent of employees terminated in 2012 were hired in the previous three years. For 2012, the first year turnover ratio was 20 percent. This means that 20 percent of employees terminated in 2012 were also hired in 2012. Of the employees terminated in 2012, 19 percent were hired in 2011 and 13 percent were hired in 2010. Terminated employees include employees who retired, employees who voluntarily left the organization and those who were let go.
Develop a Plan
Similar to other areas of the business, an agency should develop a plan to hire, keep on-board and retain new employees. In our experience, many firms have not invested the time, or money, to build strong employee retention strategies that include career paths and corresponding compensation scales, clearly defined job descriptions, on-going meaningful performance evaluations, and effective on-boarding and training programs.
Employees are the most valuable asset of an insurance agency. Hiring the right people, reducing employee turnover and increasing employee satisfaction can position an agency for sustainability. Employee turnover is not preventable. The goal is to retain the key employees who can propel your agency forward.
A Few Ways to Reduce Employee Turnover
- Review agency compensation packages to ensure commission rates, salaries and benefits are in line with the market. Start by benchmarking compensation by position against insurance agencies of a similar revenue size, with similar average account sizes, or in a similar region or metropolitan area. Next, develop salary bands or ranges for each position. To retain key employees it is important to link pay to performance. Recognize above average employees and reward them for their efforts.
- Before posting an open position, develop a position description to outline the roles, responsibilities, and identify the necessary skills for the position. It is critical to select the right person for the position. Utilize employee assessment tests to screen the candidates and identify whether their personality characteristics will match the position.
- Once hired, employees need to know what is expected. Communicate the roles, responsibilities and goals for each position. In addition to annual performance evaluations, employers should regularly praise good efforts and provide feedback on the individual’s performance.
- Create career paths to illustrate how an individual’s career could progress through the organization. Implementing a four-tier service model allows service personnel to progress from an entry-level processing role to a high-level account executive.
- Provide opportunities for employees to share their knowledge. This can occur through one-on-one training sessions and mentoring. For example, the mentor assigned to a new producer should be an experienced producer who provides direction about the types of business to target and assists with sales training by going on new business calls.
- Employees will leave. Use the departure as an opportunity to get feedback on ways to improve the organization. Conduct exit interviews with employees to understand the positive and negative aspects of the agency.
The MarshBerry 2013 Market & Financial is now available for $199 at http://info.marshberry.com/marketfinancialoutlook. The report enables independent insurance agencies to highlight key agent and broker performance trends from 2007–2014. The five core chapters offer a market overview and outlook on:
1. External Environment Perspectives
2. Carrier Relationships
3. Growth and Profit Perspectives: By Revenue Size and By Region
- Total Commission Income – Overall, Organic and New Business Growth Rates (Property & Casualty; Life & Health; Fee Income)
- Non-Commission Income (Contingents; Overrides; Investments)
- Growth Strategy
4. Operational Perspectives
- Expense Management
- Information Technology/Technology Investment
- Human Capital
Bosma is senior vice president at MarshBerry. Email: MeganBosma@MarshBerry.com. Phone: 440-392-6553.