Solutions for Agencies to the Producer Dilemma
By Catherine Oak and Bill Schoeffler

Second of two parts
In last month's column we discussed what we call "The Producer Dilemma" and detailed some of
the main causes. "The Producer Dilemma" is the lack of good producers and the agency's
difficulty in retaining good producers once they are hired.

There is no "silver bullet" to eliminate the problems caused by this problem. As
addressed last month, the industry needs to do a better job to attract young people into the
industry. But there are some options for the typical independent agency.

Every agency has at least one person and every person is unique, so every agency is
unique. This means that a great solution for one agency's problems may not work-or could even
spell disaster-for another agency. Most agencies fall into the middle of the bell curve and can
tailor a basic solution to fit their operation.

Terms defined
It would be useful to define some terms that will be used in this article. The main purpose
of an insurance agency is to sell insurance products to its clients and provide customer service to
support the sale and retain the client. Based on this purpose, the main tasks in an agency are
sales and customer service.

Sales includes everything from creating a prospect list to the initial call to the prospects,
collecting information, creating and presenting a proposal and, finally, the closing of the sale.
Customer service includes handling the mail, phone calls, claims and a good portion of the
renewal process.

There are no rules to the division of labor for the sales and service roles. One agency
may have a complete blending of the roles and another may draw a distinct line between the
functions that is never crossed. In most agencies, the producers will handle renewals and provide
some "service work" for the clients, especially for big issues or key clients.

Each agency must also understand its goals and what is required to reach these goals.
One agency may have only one owner who is also the main producer. This agency may be under
some pressure from the carriers to increase volume in order to retain company appointments.
Another agency that already has several producers may be in good shape with the companies
and is aiming to grow 20 percent a year (net of attrition).

Considering the problems posed by the "producer dilemma," how can these agencies
meet their goals? The overall objective is to let the producers "produce" and let the service staff
"service." The incorporation of this solution will look different for each agency.

Delegation of service
For the smaller agencies in rural or small towns, the producer is often the first point of
contact for the client. The producers in these agencies need to "train" their clients to utilize the
service staff. The delegation of service work is imperative to free up the producer's time to allow
them to sell to new clients.

Each producer needs to perform an analysis of his book of business to establish the
spread of the number of clients versus the account size. Typically, about 50 percent of the
commercial clients generate about 10 percent or less of commercial lines commissions (the 50/10
rule). This 50 percent of the clients are the accounts that the producers should pass to the service
staff to handle completely, including renewals. The financial impact of losing any of these
accounts due to lack of producer input is minimal.

All personal lines accounts and commercial lines accounts under a certain size should
also be handled by the service staff. Of the small CL accounts and PL accounts only the few that
are tied to larger commercial accounts or are related to influential clients should have producer
service or contact.

Based on this division of labor, producers should not receive renewal commission on the
accounts passed to the service staff, since they are not working on these accounts. A good
objective is to establish compensation based on who is doing the work.

Delegation of work will leverage the existing producer's unique talents and create more
time for the producer to sell to new and larger accounts. It is the equivalent to hiring a part-time
producer, without all the hassles. Leveraging the existing producers, especially the owners, allows
an agency to be poised for growth by utilizing the existing staff. This does not require the hiring
of a new producer.

Producer centers of influence
Producers should be encouraged to exploit their "centers of influence." Successful
producers will concentrate on accounts that they have some connection with or influence over.
An example of a "center of influence" may be seeking out accounts that are related to a producer's
hobby, such as home brewing beer. The producer may also be active in a trade or social
association or have connections with a certain industry.

A successful salesperson is familiar with the prospect's industry and knows the
intricacies involved, understands the special needs of the client and why they may be different
from another industry. This salesperson will be more confident and display a higher level of
interest in the client and thereby win respect from the client.

An agency that has developed certain niches should seek out people who worked in that
niche industry as a future source for salespeople. It is often easier to teach an outsider insurance
than to teach an insurance expert the technical aspects and unique requirements of a specific
trade.

The account executive
Large agencies that tend to handle medium to large commercial accounts need to go one
step further. Producers that show a highly refined ability for sales should be identified. These
producers have the drive and ability to generate tremendous sales. The only thing stopping them
from demonstrating their super sales ability is the time they spend on day-to-day servicing of
their existing clients.

These "super producers" should be pulled away from most service work so they can
dedicate their efforts to production. Teams should be created that contain a super producer, an
account executive and a CSR. The concept of the team is to allow the producer to focus on
production.

The account executive is introduced very early in the dealing with a new customer to
secure a good working relationship with the client. The account executive is responsible for the
overall client service that a producer normally handles. The CSR is responsible for the day-to-day
service work that the clients require.

The account executive is highly technical, customer oriented and very confident (i.e. a
blend between the CSR and the producer). The account executive has most of the attributes of a
producer but may lack some sales capabilities. They should focus on retaining the client and
account rounding.

This approach is similar to how some national brokers operate. In fact, they may be a
good source for finding an account executive. Promoting a talented CSR is also an excellent way
to fill this slot. A producer that lacks closing or cold-calling skills should also be considered for
this role.

A significant benefit of establishing this type of team concept is that the super producer
is not bogged down with client service or paper work. They can focus on finding new clients and
bringing them back for the other team members to properly service.

The issue of producers walking away with their book of business is minimized, since
they do not have the relationship with the client, the account executive does. The personality of a
typical account executive is such that they are less likely to take a book of business if they leave.

If the producer and account executive compensation plans are properly established, this
arrangement can be very profitable. Often the account executive's salary is based on a percentage
of the book of business, such as 15 percent to 20 percent of the book's gross commission.

Producers in this type of arrangement should be paid mainly for new business. Renewal
commission is paid to producers only if some of their time is needed to retain the account. The
renewal rate when paid should be 10 percent to 15 percent.

This arrangement splits the typical producer renewal rate of 30 percent to 35 percent
between the producer and the account executive. If the producer's efforts are not required to
retain the client, the agency will be able to save their 10 percent to 15 percent commission on that
client and thus increase profits.

Creative solutions
For the many agencies that fall in the middle of the bell curve, understanding your
agency and its capabilities is crucial before implementing any changes. In most cases, delegating
personal lines and small commercial accounts can be integrated successfully into the firm's
operation. The time savings for the average producer will be significant. Producers won't lose that
much compensation since the 50/10 rule often applies.

Many of the medium-sized agencies can utilize an account executive role, but adjustments may be required, especially if the agency feels it cannot support a full-time account executive. One modification may be that the account executive also handles the marketing role for the agency.

In some cases it may make sense for the producers to retain the largest accounts to
service and have the account executive handle all of the agency's medium accounts. The role of
the CSR remains the same: providing day-to-day service to all clients.

It must be clearly understood that by using the account executive and the team concept,
the agency is making a choice to draw a distinction between the pure sales role, standard
producer client support and the day-to-day service role.

Opportunities, too The "producer dilemma" has created many problems (and opportunities) throughout the industry. The future looks like it will be more of the same-few good producers and continued difficulty in retaining them. There currently is no concerted effort by the industry to create a conduit for young people to enter the insurance field.

The only thing the individual agency can do is to work around this problem. Just as
there are numerous causes, there are numerous solutions. For many agencies, the solution to the
producer dilemma is to maximize the unique talents of the existing staff.

Agency time and money should only be used for the quest of a new producer when the
existing operation has been streamlined to allow its current producers the time they need for new
production. When this occurs, the new producers that are brought on board will have excellent
role models to follow.