The ability to grow and add value to an agency is only useful in the long run if it is sustainable. Maintaining value requires taking a deeper look at some of the important KPIs that affect the overall health of an agency. EZLynx Agency Pulse puts these metrics and more at your fingertips each month for a quick agency check-up. We’ll look at three proven indicators that we have seen as most important to sustained stability in an independent insurance agency.
1. Balancing revenue segments – Revenue is vital to any business and diversifying these segments helps provide long-term stability. As we know, personal lines are becoming ever more competitive and frequently see a high level of churn. Balancing this out by increasing the segment of commercial policies and other segments helps provide long-term revenue stability. Most personal lines agencies should aim for a PL/CL ratio around 60:40 for ideal revenue segmentation.
2. Carrier Distribution – The fluctuations of carrier rates are common place. Many producers go with a gut feeling about which carriers are hot at any given time. The truth is that they all will eventually have rate increases and decreases. Like investing in the stock market, the best way to manage risk is to diversify your assets. Managing the percent premium volume with each of your carriers will provide greater long-term revenue sustainability. Try aiming for a distribution with no more than 20 to 25 percent of your premium volume with any one carrier.
3. Revenue Per Customer – This is an interesting metric because, financially speaking, increasing this average is a good thing; however, if you are depending on one or two large accounts to bring it up, it can be fiscally risky. To mitigate these two alternatives, focus on balancing this with the policies per customer indicator mentioned previously. Our current customers average 1.6 policies per customer, and captive agents achieve upwards of 5. In a typical independent agency, it is not unreasonable to aim for a policy per customer number at three or above. Higher numbers correlate to a stable balance of revenue among your customers and an increase in the average customer life-time value to the agency.
Another major factor in keeping these metrics stable is to establish process and routines. According to leading neuroscientists, more than 40 percent of what we do in life and business is based on habits2. Creating specific procedural habits in your agency helps maintain consistency and efficiency. Setting specific processes for managing new business, cross selling mono-line policies, working renewals, handling policy change requests, etc. can make a huge impact in the sustained growth of an agency. Each customer interaction provides an opportunity to build customer loyalty and reinforce the agency’s unique value proposition. Setting process expectations for producers and CSRs in your agency will help this to become second nature and keep your staff from missing opportunities to reinforce the relationship with each customer.
EZLynx offers turn-key business solutions to help any agency grow reach its goals like the Agency Pulse, which puts agency KPIs at your fingertips. EZLynx offers products to help make your job easier, so you can get back to what really matters!
(2015). 2014 insurance agency transaction multiples. The Deal Maker’s Dialogue, 6(2).