Performing Your Agency Report Card

By | February 5, 2024

The beginning of a new year with all the related planning is a perfect time to take a look back and find areas of improvement. Planning ahead requires an understanding of where you are now, how you got there, what works and what does not work.

Key Performance Factors

When it comes to understanding agency performance, there are five main areas of primary focus to review: 1) Financial Analysis, 2) Productivity, 3) Sales, 4) Book of Business Analysis, and 5) Agency/Carrier Relationships.

To get a good understanding of the strengths and weaknesses of an agency, the analysis needs to include peer group comparisons, as well as agency historical performance. Historical performance means simply looking at how the agency has performed year-to-year in each of the areas reviewed.

Peer Group Analysis

There are many excellent resources for peer group analysis. Some provide just a compilation of results while others have the raw material for self-analysis. See “Growth and Performance Standards” from CIC/The Academy of Producer Insurance Studies ( and “Best Practices” from IIAA ( ). Also, Oak & Associates can perform an individualized analysis of agency performance.

There also needs to be a subjective assessment of performance, areas for improvement and strengths that can be exploited. Sometimes there are too many deviations or intangible factors to be able to confidentially compare certain criteria to a peer group performance or even an agency’s own historical performance. A strong “gut feel” goes a long way in analysis. This type of analysis will provide insight to the meaning behind the numbers and gets the entrepreneurial juices flowing.

Financial Analysis

A good starting point is to review the financial health of the agency. It is relatively easy and it will need to be done for taxes anyway. For the financial review, one of course would need income statements and balance sheets. Don’t forget to obtain the accounts receivable and account payable reports.

First, look at the changes in revenue and expenses to prior years. Have they gone up or down? What is the percentage of the change in each category? Look at each expense category. Is the agency spending more or less than its peers? What is the bottom line? Is the agency profitable? A good rule of thumb is the total return for the owners and all producers (compensation, perks and profit) in an agency should be targeted to be at least 50% of the revenue.

Next, take a look at the following balance sheet ratios. The Trust Ratio (cash plus receivables divided by company payables) should be at least over 1.0 to 1.25, as well as the Current Ratio (current assets divided by current liabilities). If a firm is good at turning receivables into cash, the Collection Ratio (receivables divided by premium payables) should be 0.60 or less.

Review the aged receivables report. How good is the agency’s collection practice? Accounts over 90 days old are usually considered uncollectable. Remember — the goal is to sell insurance not to be a bank.

Productivity Analysis

Is the existing staff operating efficiently? Is the agency properly staffed? The best way to answer these questions is to review workloads and agency productivity. Keep in mind the single biggest factor in a profitable firm is a productive staff.

Start with the collection of the following: 1) an employee list including the percentage of time each employee (and owners) spends on production, service, administration and management; 2) compensation for each employee; and 3) commissions and number of accounts each CSR handles.

Usually, the hardest part of this exercise is to determine who is doing what role. In fact, don’t be surprised if redundancies and unnecessary tasks are uncovered. Still, it is important to begin the review with the big picture. Clean up of workflow can be done later.

The bottom line is the bottom line. Calculate revenue per employee, per CSR, and per owner/producer. Keep in mind to not use the job titles, but the percentage of time the employees spend in each category. If a producer truly spends a third of their time doing traditional CSR service work, then they count as 33% of a CSR and 66% as a producer.

Next, narrow the scope down to commissions per CSR and accounts per CSR. Compare the agency’s performance to its peers. Sometimes the comparisons to peer group numbers are not accurate because an agency may have a unique book of business, such as program business.

In these cases, subjective judgement is required. Another way to evaluate if the staff is productive is to calculate the “Spread,” which is revenue per employee minus compensation per employee, the higher the better, with the average being $50,000.

New Sales Review

An obvious key indicator to the success of an agency is new sales. New sales are a function of the effective use of agency resources. Collect sales information (new sales and total book of business) by producer and the agency overall.

It is important to understand not just what the new sales numbers are, but what the potential is for each producer and the agency overall. A bright young producer might have poor production results if they are not properly trained. A burnt-out but seasoned producer might be revitalized if a good marketing and servicing team provides proper support and her or she develops and keeps to a sales plan to get out of their rut.

Keep in mind that even if an agency has tremendous sales, if there is a significant loss of business through attrition, the effort for new sales is like digging out of a collapsing hole. Calculate the attrition rate for the agency and each producer. High attrition rates are usually an indication that the business the agency writes is transient, and either the clients are price shopping or are poor risks.

Another excellent sales indicator tool is hit ratios. Poor hit ratios will end up costing the agency a lot of money and waste the time of both producers and staff. The technique of producers with low hit ratios needs to be checked and adjusted. Often, the producer fails to pre-qualify the prospect.

Sometimes producers just are not approaching businesses that match up with the products the agency has expertise in writing or competitive markets in which to place the risk. Make sure the producers are properly trained. Have them take a sales class every two or three years, such as “The Dynamics of Selling,” offered by CIC/The Academy of Producer Insurance Studies.

Book of Business Composition

Now that the agency sales are understood, it helps to find out what exactly was sold. What is the composition of the agency’s book of business by line of business — personal, commercial, life, group benefits, program business, etc.? Calculate the average size account for each line. Also, how much of the agency business comes from the top 10 accounts? Finally, analyze what the distribution of business is by industry.

The review should evaluate if the mix of business is healthy for the agency. Niche selling is usually more profitable, however, it is also riskier. If the agency has a lot of small accounts, the procedures in place for selling and servicing them are critical in order to make sure the agency can make a profit. It is important to distance oneself from the book of business and objectively ask the question “is this book valuable or should its composition be changed?”

This diagnosis should also be done for each producer. Are the producers selling accounts that fit well with the agency’s book and its markets? Make sure that producers concentrate on larger accounts. Streamlining a producer’s book by removing small and non-conforming accounts to a Small Accounts Department or CSR to handle will work wonders in their ability to have time to focus on new sales. Changing compensation to not paying for accounts under a certain size will help transition the producer to larger accounts.

Market Relations

The last area to check out is the agency’s markets and the relationship with them. This exercise should provide some fun. List all the carriers with volumes, commission rates (or commissions), loss ratios and contingents received. Analyze how the agency’s book of business stacks up with the existing markets. Compare all the carriers and the products that the agency has with the top 15 industry groups the agency writes (e.g. manufacturers, retail, contractors, etc.).

Some of the questions that should be answered include: Will volume commitments be met and how will it be done? Are there new markets the firm should seek out? Is the volume spread too thick or too thin? Is the agency maximizing profit sharing agreements?

Part of the process should include a “what if?” scenario study. What if a key market pulls out? Where would that business be moved? It will be very beneficial to seek out reputable MGAs and surplus lines carriers. New channels need to be readily available if the market hardens or in some states markets have pulled out.

The Final Report

The final product should include all the reports previously described, as well as comments on what is working well and areas for improvement. Look for a second opinion on the final findings by soliciting input from key staff and outside advisors. Just like a report card from school, the agency review should be revised periodically throughout the year. The annual report card can be used as part of any business plan the agency may have for the year.

Owners that are too busy to reflect on their business’ performance will usually reach a plateau, as they do not have a firm foundation to build on. Take the time to perform an agency diagnostic. By making this effort to review agency performance there will be a noticeable improvement and the agency will enter into the strata of the high performing firms.

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