Individual vs. Systemic Efficiency

A British television commercial from 1986 showed a tough-looking skinhead tearing across a sidewalk, apparently preparing to attack an elderly man and abscond with his briefcase. 

The camera then pulled back to reveal the skinhead was in fact trying to rescue the man from a ton of falling bricks. That broader look gave new meaning to the viewer’s initial perception of the skinhead’s intended actions.

Cut to a modern-day insurance agency in the United States. Samantha is working when her phone rings. Customer-service policy dictates she answer the phone within three rings. Samantha is good at what she does, and her customer-service credentials are among the best in the agency. She picks up. It’s a client calling with a question about a BOP policy. Samantha does her best to track down the information and walk the client through an answer. They agree that they will talk again if the client needs more information.

According to agency standards, Samantha has excelled, answering the phone promptly and providing a great customer-service experience. But pull back for a larger agency perspective and the picture looks different.

The client happens to be one of the firm’s smallest commercial accounts. To take the call, Samantha had to put down the file on a larger, more complex account. After the call, she had to retrace her steps, and, a little impatient to get it finished, she misses a scheduled location. Assuming this is caught by a quality check, Samantha will have to come back to the account downstream and figure out why the location is missing so she can fix the error.

While Samantha was courteous and helpful on the phone, the call added to her stress. She was already feeling pressure to juggle clients and internal responsibilities with a multitude of interruptions throughout the day. The time Samantha spent with the small-account client quickly cut into the account’s profitability. Meanwhile, the disruption to her work on the larger account, and the downstream troubleshooting to fix the missing location, reduced the profitability of that account as well, potentially with knock-on effects to other accounts. Had the error caused an E&O incident, the cost would have been much greater. If all customer service representatives follow such best practices at the individual level, the impact could be disastrous from an efficiency and profitability perspective at the systemic level.

The conflict between individual and systemic efficiency is endemic across insurance operations. We see it in producers submitting incomplete applications to get new business in motion, thereby creating numerous follow-ups. We see it in the binding of accounts “subject to” by service staff. We see it in the lack of standardization in how people perform the same task or code the same type of account. While efficient for each individual, such practices create institutional confusion and undermine data quality, racking up wasteful time and cost.

Tracking Hidden Costs

How can we measure lost growth and profits due to over-servicing accounts, dropping work for interruptions, re-keying data into multiple systems and fixing or endorsing missing information or errors in the policy? At a macro level, one approach is to benchmark agency production against comparable organizations. A good metric for productivity is to look at “contribution” or “spread” per employee. This is calculated by subtracting your payroll per employee from your revenue per employee. This indicates the average per-employee effect on overhead and profit and can identify a generalized marginal contribution per employee.

Using a premium-to-profit ratio rule of thumb of 45:1—assume an average commission of 15% and a 15% margin for earnings before interest, taxes, depreciation and amortization—a brokerage would have to massively increase premium to make up for the productivity losses.

Compared to standard growth strategies like hiring new producers or investing in systems, there is no more efficient way to drive profitable growth than freeing up existing staff from wasteful activity so they can better service more accounts.

So how do you get started finding more time for your staff? These five tips can dramatically increase productivity and profitability.

1. Focus on strategic priorities. Every employee must understand departmental goals, tradeoffs, appetites and targets and the role each individual plays in reaching them.
2. Streamline inefficient workflows. Bring team members together to document workflows, making processes visible to standardize ad hoc tasks, triage accounts, identify bottlenecks and reduce waste.
3. Enhance account segmentation. Create detailed service levels by revenue, profit or complexity to assure people are spending time on the accounts that drive rather than erode profits.
4. Align people with activities that clients value. Clarify which activities create value for clients and segment activities internally by employees’ knowledge, experience, cost and contribution.
5. Track critical success factors. Track operational metrics and process discipline, while educating employees on productivity drivers.

Success depends on employees understanding the business strategy and how it relates to their work. Create a common sense of mission by engaging team members in making processes visible, solving problems and reducing waste. Such engagement empowers employees to think organizationally, not just individually.

Samantha is representative of many insurance service professionals. She cares about her agency and wants to do the right thing for clients. It’s up to management to guide and coach her while establishing the strategic vision and organizational standards needed so she and her peers work in tandem for the greater good of the firm.