Leveraging Organic Growth Through Written Service Timelines

Copyright 2008 ProQuest Information and LearningAll Rights ReservedCopyright 2008 Rough Notes Co., Inc. <span id="x_hitDiv1">Rough <span id="x_hitDiv1">Notes <br> <br> <span id="x_hitDiv2">April <span id="x_hitDiv3">2008 <br> <br> BUILDING EQUITY VALUE; Pg. 132 Vol. 151 No. 4 ISSN: 0035-8525 <br> <br> 22286 <br> <br> 2024 words <br> <br> <br> LEVERAGING ORGANIC GROWTH THROUGH WRITTEN SERVICE TIMELINES<br> <br> Budanauro, Ed. <p></p> The author <p></p> Ed Budanauro, a senior consultant at Marsh, Berry & Company, Inc., can be reached at <a href="mailto:[email protected]">[email protected]</a> or at (440) 497-7887. <br> <br> ABSTRACT <p></p> Whether public or private, agents, brokers and carriers alike are focusing on growth and differentiation to shape strategic initiatives for 2008. Growth is important as a vehicle to drive earnings, provide reinvestment capital, diversify product and service offerings, capture market share, and ensure long-term sustainability. Differentiation is one conduit to support top-line growth. Average agency/broker organic growth rates continue to decline as premium rate advancement slows. Expected average organic growth rates for agencies and brokers in 2007 will come in between 3.5% and 6.5%. The good news, however, is that the marketplace has become a more level playing field. Peak performing agencies sell the value of their products, resources and expertise as they relate to the needs of the client. When defining your differentiation story remember this four-step approach: 1. Understand what makes you different. 2. Know how to articulate it. 3. Know how to show it. 4. Ask others to share it. FULL TEXT <p></p> Whether public or private, agents, brokers and carriers alike are focusing on growth and differentiation to shape strategic initiatives for 2008. Growth is important as a vehicle to drive earnings, provide reinvestment capital, diversify product and service offerings, capture market share, and ensure long-term sustainability. Differentiation is one conduit to support top-line growth. Differentiation is an internal-facing initiative that does not rely on large external allocations of capital but, instead, relies on distilling the unique story that already exists in your current operation. <p></p> Average agency/broker organic growth rates continue to decline as premium rate advancement slows. Expected average organic growth rates for agencies and brokers in 2007 will come in between 3.5% and 6.5%. Looking ahead, net written P&C premiums are expected to decline in 2008, with little relief in sight. Add to the mix the fact that insurance companies, faced with increasing pressure to maximize returns, will become even stricter in their underwriting requirements and discipline. They will compete on ease of doing business, risk and differentiation. As such, they will seek enhanced partnerships with agencies that can articulate company and agency differentiation, are dedicated to underwriting performance, and are committed to long-term growth. Tough times call for tough measures. <p></p> The good news, however, is that the marketplace has become a more level playing field. Long term agemVbroker relationships with insureds are being severed every day based on service, not just price. It is safe to say that the soft and evolving market is not something to be feared, but rather embraced as an opportunity to differentiate and lead organizational revenue and earnings enhancement. Those who are first to embrace a regimented differentiation pitch and process will be well positioned to capture market share and drive growth opportunities. <p></p> Differentiation <p></p> Peak performing agencies sell the value of their products, resources and expertise as they relate to the needs of the client. The way they differentiate does not center squarely on their insurance organization, but on the unique needs of their customers. Customers do not necessarily care why agencies are different. What they really care about is how your agency's capabilities, relative to other agencies in the market, can help them protect wealth and manage risk. While every agency has a differentiation story, very few have taken the time to quantify and institutionalize their particular pitch. When defining your differentiation story, remember this four-step approach: <p></p> 1. Understand what makes you different. <p></p> 2. Know how to articulate it. <p></p> 3. Know how to show it. <p></p> 4. Ask others to share it. <p></p> Every person in your organization should understand and communicate the same message. If you were to ask your personnel what makes your agency different, you would probably hear comparable answers around market access, staff and longevity. You would also probably recognize that these answers focus solely on your agency. You can probably be comfortable knowing that most agencies' personnel would respond in a like manner. <p></p> So if everyone is telling the same story, how can you be different? The first step is to understand why your clients do business with you and how others in the market may perceive you. Peak performing organizations question their current insureds to gain market intelligence. They capture data relative to how the insured first heard of the agency, how the insured perceived the agency in the initial visit, why the insured still does business with the agency, and current satisfaction levels with various aspects of the agency-insured relationship. After they gather the data, these agencies act on the feedback to fix internal problems while promoting the organizational strengths that ultimately help the client. <p></p> Once you gain an understanding of these external views, you will be better able to structure and institutionalize a pitch for your organization that focuses on customers. Too often our internal perception of differentiation does not mirror the market reality. By matching the two, we can proceed to the second step of differentiation: knowing how to articulate it. <p></p> Service timeline agreements <p></p> A powerful tool for articulating organizational differentiation resides in service timeline agreements. Service timeline agreements can best be thought of as "defined customer contact strategies." Research indicates that the number one reason a customer leaves any incumbent organization, across all industries, is the lack of a defined customer contact strategy. Simply said, agencies that wish to be successful need to be proactive in the areas of customer service and retention rather than reactive. <p></p> The premise of the service timeline revolves around proactively defining your relationship with the insured and communicating the nature of the services you are already offering. In its basic form, a service timeline outlines a series of initiatives and promises that you and your best clients will undertake over a given period of time. As an insurance agent or broker, you already provide a host of services for each client. And while you may communicate this orally at certain points in time, a service timeline consistently documents and reinforces this message externally. The service timeline reminds clients why they do business with you. <p></p> Service timeline initiatives and promises come in many forms. For some agencies, loss control, claims review, fleet safety programs, wellness programs, HR consulting and the like are the service offerings of choice. For others, services can simply represent quarterly phone calls, monthly enewsletters, invitations to semiannual presentations, and commitments to return phone calls and e-mails within 24 hours. <p></p> As the relationship progresses, peak performing agencies also provide their top clients a stewardship report. A stewardship report is simply a report card showing that the promises made in the service timeline are actually being delivered. <p></p> The salient point is that many agents and brokers already differentiate themselves relative to the competition-but few are communicating it systematically to their insureds. Service timelines and stewardship reports are a means to articulate and show an insured the value you provide when most of the market has not done so. <p></p> Service timelines and stewardship reporting-in practice <p></p> While many high growth organizations are successfully leveraging these processes within their top client base in efforts to stave off competitive incursions, most agencies are still not harnessing the full potential of service timelines and stewardship reporting. <p></p> Many of the pitfalls contributing to unsuccessful implementation of these programs are related to lax executive oversight, inadequate employee training, and the inconsistency with which the timelines and reports are shared with insureds and prospects. <p></p> A recent survey of agencies that currently offer these programs revealed many deficiencies: <p></p> * Only 28% affirmed that all internal parties are formally trained to manage and deliver the service timeline and stewardship reports. <p></p> * Only 21% of agencies proactively track each client's service timeline to review successful on time promise delivery and to identify problem areas. <p></p> * Only 36% believed that their service timeline reports were consistent among producers or account executives. <p></p> As you can see, even among agencies that have implemented service timelines and stewardship reporting programs, there is still a great need for more oversight and accountability. The following section makes the case-in dollars-for why agencies should embrace the implementation of such a system. <p></p> The financial justification <p></p> Because the first step in implementing service timelines and stewardship reports resides in solidifying the relationship with an agency's top customer base, let us look at the financial impact that an increase in retention can have on agency fmancials. This example looks at an organization with $3 million in commission and fee income. Let us assume that the agency writes 12% of the prior year's commission and fee income in new business. Let us also assume that the agency can increase its revenue retention from 91% to 93%. For simplicity, we are assuming that total growth increases from 3% (100% less 9% attrition plus 12% new business equals 103%) to 5% (100% less 7% attrition plus 12% new business equals 105%). <p></p> The chart on page 132 illustrates the impact that a two-percentagepoint increase in top line commission and fees can have on the organization. <p></p> The blue bars illustrate the projected standard growth based on 91% revenue retention. The red bars show the incremental year-over-year revenue associated with 93% retention. Summing the additional commission and fees of year one through year five, the aggregate commission and fees enhancement is roughly $1 million that the agency would not have realized. Additionally, if we assume a 21.4% EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) percentage and a 6.5X EBITDA value multiple, we can see in the chart on page 134 the value impact that sustained retention can have on our organization. <p></p> In year five, the value difference between a 91% revenue retention rate and the 93% revenue retention rate is $488,000. These are the metrics high growth agencies are modeling. They are asking two main questions. First, what is the opportunity cost of being reactive and losing one of our top accounts? second, how much time and money are we willing to spend to achieve such goals? <p></p> If an executive believes that such retention (or new business production) increases can be attained through service timeline and stewardship reporting processes, what is the agency willing to invest in it? Many are simply redefining differentiation and incorporating service timelines by restructuring current personnel. Others are hiring additional people to focus on governing the overall process. Either way, the time and money needed to design, install and execute such processes pales in comparison to such external growth solutions as acquisitions. <p></p> Summary <p></p> Service timelines are no longer the wave of the future. They are a current reality. Market differentiation will be achieved by those insurance distributors that can proactively establish an institutionalized process to both articulate the benefits their organization provides to clients and reinforce that message. Our next article will focus on best practices for designing and executing a service timeline process. <p></p> We estimate that less than 2% of the general marketplace is leveraging service timelines. As most agents and brokers passively contemplate the importance of this process, 80% of high growth agencies report that their service timeline and stewardship reporting process provides them a competitive advantage in both new business production and account retention. As many seek external solutions to repair declining growth rates, high growth agencies and brokers are simply mining and selling the resources that already exist. <br> <br> GraphsIMAGE GRAPH, Incremental Revenue Growth <br> <br> May 12, 2008 <br> <br> <div> <div class="x_nshr"> <center></center> <center><a href="http://www.lexis-nexis.com/lncc/about/copyrt.html" target="_new" class="x_pagelinks">Copyright © 2008 LexisNexis, a division of Reed Elsevier Inc. 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