Grow Small Commercial Accounts with a “Producer-Free Zone”

There are myriad reasons and methods for restructuring your agency. In my June 7, 2004, column I suggested completely eliminating your personal and commercial lines departments and replacing them with combined direct response and face-to-face sales teams. This column suggests a commercial lines alternative for principals who are not yet inclined to make such a radical change.

It starts by recognizing that certain producers invest the bulk of their time on accounts that generate the most commission. This is logical and desirable. But it can also be detrimental if it leaves the agent’s smaller insureds struggling to fend for themselves.

Other producers do the reverse, spending too much time working with tiny commercial insureds, instead of investing their selling time bringing in fresh meaty accounts. To remedy these situations, many offices start a small business unit. This is a great solution when you have the accounts, staff, and resources to populate an entirely new department. A second possibility is letting a carrier service center manage your small business clients so your firm can focus more on sales. But you must have the right companies and comfort level to employ this approach.

So, what do you do if it’s unfeasible to set up and staff a new department, but you still want to better manage your small clients internally?

A viable solution is to create and install a commercial “producer-free zone” (PFZ) within your agency. This approach offers you many of the advantages of a real in-house department, but without the need for its formal structure. It transfers the responsibility for the servicing and growth of your smallest commercial accounts from producers to agency-based customer service reps in a way that lets all parties come out ahead. The “zone” surrounds a book of small account business that’s serviced entirely by skilled commercial CSRs, but only after first being underwritten and once renewed by an agency producer. After that, the individual accounts are managed by a CSR and are no longer under the direct control of the original policy-writing agent. Many agencies operate personal lines in a similar, although not an identical manner. Over time, the PFZ can include all of your small business accounts that fall below a certain dollar threshold, with the important exception of smaller VIP policies that are allied to larger clients.

The benefits of a PFZ begin with increasing the responsibility of your commercial CSRs. While many reps don’t enjoy selling new policies, they thrive on having the ultimate responsibility for the accounts in their charge. Your producers will benefit by being relieved of the burden of dealing with low commission accounts, freeing their time to add new clients and to service their top insureds. And most importantly, the small business client gains. They benefit from the attention of an experienced producer when their operation is being initially insured by the agency. Plus they enjoy the care of a veteran CSR, throughout the life of their account. Your office profits through significantly improved small policy retention, additional revenues from CSR-initiated account rounding, producers who have the time to go after bigger leads, and a staff that works closer together.

Which existing accounts should be zoned “producer-free?” Unlike a full-blown small business department, you don’t need a minimum volume to set up a PFZ. You can start by projecting the dollar threshold of the accounts that you expect to be placed in the zone, e.g., those under $1,000 in annual commissions or under $5,000 in annual premiums. Use your management system to determine exactly how many accounts would become producer-free at this commission level (remembering to exclude diminutive VIP accounts). Your goal should be to zone no more than 20 percent of your current commercial book. Though, in time the PFZ may well expand beyond the initial 20 percent. Eventually, you may even need to hire extra personnel. Fortunately with the zone in place, you can add CSRs instead of high-priced producers.

It’s important not to initially overwhelm your reps by transferring every eligible account to them at once. CSRs and producers need time to review each policy and CSRs need time to absorb their additional duties. Stretch the process out over a year or more. This allows agents to introduce reps to many small business owners. But keep in mind that CSRs don’t have to meet every PFZ policyholder, since many are already long-time insureds.

In terms of new accounts, it’s business as usual for the first year of a new small insured’s life. One of your producers will close the sale, as if the zone didn’t exist. However, soon after the policies are written, the new account’s CSR should be introduced to the client. This simple act will ease the eventual transfer of authority from sales agent to sales-and-service person. Then at renewal time, your agent, not the CSR, should collect updated information and work to retain the business. An account’s first anniversary is its most important. Therefore, it makes sense to have the insured’s producer remain the primary contact during the renewal process. Once the account is safely retained, the writing agent should sit down with the CSR and review its policies in detail. At this point, responsibility shifts, and the account becomes producer-free. Thereafter, only the rep initiates client contact. Still, it’s important not to prohibit an insured from communicating with his original agent. Simply ask producers to gently advise their former clients that in the future, they should contact their CSR for service. This shouldn’t present a problem, since agents have used call acceptance and transfer techniques for years in personal lines.

When it comes to presenting the PFZ to your CSRs, be upfront about it. Gather together your commercial service staff and ask them something like, “If we gave you full authority for the agency’s small business accounts, how would you handle this responsibility?” Chances are they’ll be receptive. After all, much CSR-producer conflict arises from the day-to-day handling of accounts. And naturally, your CSRs will rightfully expect to be compensated for their increased accountability. An easy way to pay CSRs, at minimal cost to you, is to create a bonus pool for all PFZ reps to share in at the end of each calendar quarter. The purpose of the pool is to encourage CSRs to retain the accounts in their charge and to generate add-on and upgrade sales. The pool should consist of 20 to 40 percent of the increase in PFZ commissions, over the same quarter of the prior year. You’ll have no trouble funding the pool as it’s calculated only on growth. When there is zero or negative growth, no bonus is paid.

For example, commissions received on PFZ accounts for the fourth calendar quarter in 2003 are $10,000. For the same quarter in 2004, received commissions total $15,000, due to CSR sales efforts (and not fresh accounts being added to the zone). This means that your reps get to divide 40 percent of the extra $5,000 in revenue they created, or $2,000. In lieu of cash or in addition to it, you can also reward your CSRs with time off, the right to represent the agency at conferences, or extra education that’s paid for the agency.

Revealing the PFZ concept to your producers is a bit trickier than with CSRs. Once the zone is in place, you can’t continue paying your producers for servicing small accounts. Therefore, you must arrive at a formula, before meeting with your agents that allows all parties to profit. Consider paying a generous first-year and first-renewal commission on PFZ-eligible new business, but nothing after that. Simultaneously increase their new and renewal commissions on medium-to large accounts. This simple shift encourages larger sales, while still providing something for the small stuff.

It’s tough to grow an agency when your top salespeople are preoccupied with your tiniest accounts. Therefore, you should shift this responsibility to your CSRs, who are usually more than capable of administering most small commercial business. Additionally, the small policyholder will enjoy greater attention, translating into better retention, more account development, and higher commissions per account. You and your producers will enjoy the time to stalk bigger game, making the PFZ a rare opportunity for everyone, including your companies, to win.

Alan Shulman, CPCU, is the publisher of Agency Ideas, a subscription-only sales and marketing newsletter. He is also the author of the 1001 Agency Ideas book series and other popular P/C sales resources. He may be reached at (800) 724-1435 or by e-mail at: shulman@agencyideas.com. His Web site is www.agencyideas.com.

Topics Agencies Commercial Lines