The reality is that any system with an excessive number of beneficiaries will eventually fail. Beyond this, any system with unproductive workers will crumble given enough time.

Insurance agencies are no different. If your insurance agency remains in balance in terms of revenue generated (production) and benefits paid, your “system” is sound. If not, “reform” may be in order.

Fortunately, there are several very easy-to-calculate productivity metrics to assist you in determining the relative health of your agency “system,” such as:

Revenue-per-employee: Agency revenue divided by the number of agency employees, on a full-time-equivalent basis. This essentially represents the money being paid into the system on a per-employee basis.

Compensation-per-employee: Total compensation paid (this includes all salaries, commissions, bonuses, health benefits, retirement contributions and payroll tax withholdings) divided by agency employees. Compensation-per-employee represents the benefits being paid out of the system on a per-employee basis.

Spread-per-employee: Revenue-per-employee less compensation-per-employee, or what you have left over (on a per-employee basis) after youve paid everyone. The spread is used to pay all the other agency expenses. Hopefully, after all the other expenses are paid, youll still be left with a nice profit.

Average annual new commission per producer.

Average book of business serviced per customer service representative.

As with all metrics, these productivity measures must be viewed with a somewhat critical eye. There can be very sound reasons why any of these measures might appear askew. For example:

Your compensation-per-employee number might appear high (and thus your spread per employee quite low) if you paid substantial bonuses at year-end to reduce your taxable income.

Your revenue-per-employee might appear lower than average if youre in the process of staffing up today to meet future growth objectives.

Your new commissions per producer figure may be lower than average if you have a stable of young, unvalidated producers.

Having said this, these productivity metrics remain invaluable indications of your agencys overall health. Take a few minutes to measure your own results against those comparably sized “Best Practices” agencies.

If youre lagging the pack on any of these measures, this may be an indication that your system is out of balance and in need of attention. If youre ahead of the game, great–figure out how to do even better. Here are some general suggestions to consider if youre looking to improve your agencys productivity:

Invest in technology, training and streamlining procedures to improve productivity. Make sure that the agencys procedures are uniform, consistent, up-to-date, understood and adhered to.

In addition, make sure that all work being done takes full advantage of todays agency management systems' capabilities. Are you doing things right or are you doing things the way theyve always been done? Further, are you doing the right things in the right way?

Manage your producers towards desired results. First, make sure that your producers are meaningfully compensated for new business written and that theyre held accountable for doing so. Does your agency have specific and realistic new business targets in place for each producer? Are financial consequences in place for producers based on actual results?

Next, make sure your producers are writing the right business. No commission split in existence can make up for business thats unprofitable for the agency to write given its size or the servicing it requires. This is why many agencies are moving to producer compensation plans that are tied to the overall profitability of the producers book of business rather than its size.

Allocate support personnel appropriately to ensure that your best producers are free to produce–make sure that your “star” producers have all the help they need in terms of support personnel. Make sure your inactive producers dont consume resources better allocated to the producers writing the new business.

Compensate based on performance, not tenure. Set specific and realistic goals for employees that can be measured and then tie compensation to success in reaching these goals.

Regularly compare whatever productivity metrics you consider to be meaningful against “Best Practices” agencies and manage with an eye for continual improvement. Current “Best Practices” results are always available at www.reaganconsulting.com or via the Independent Insurance Agents & Brokers of America Web site at www.iiaba.org.

Unfortunately for the Social Security system, it is essentially “led” by politicians with a two-to-six-year time horizon between elections. Any substantial reform to improve the health of the Social Security system is unlikely given the unpopularity of reform with older Americans and the power these older voters wield at the ballot box.

Leaders of insurance agencies have much more flexibility and incentive to improve their own systems. Our free-market economy quickly and efficiently rewards the proactive and punishes the inactive. If only the same were true in our political system.

Tom Doran is a principal with Reagan Consulting, an Atlanta-based management consulting firm that serves the insurance distribution system. Reagan developed and produces the “Independent Insurance Agents and Brokers of America Best Practices Study.” He may be reached at [email protected].

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 25, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.