How Process Improvement Drives Agency Profitability

To boost their profitability, agencies make investments all the time in people and technology, as well as in other businesses through acquisitions. But Dan Epstein, CEO of ReSourcePro, says there is another often overlooked source of improved profitability buried in agencies.

“The process is really the treasure in the backyard that is being ignored,” he says. “If you think of an organization as consisting of people, process and technology, there’s a lot of focus on people, hiring the right people, investing in sales training and there’s a lot of focus on technology, but there’s actually relatively little focus on the process side of it.”

His New York-based firm specializes in helping agencies improve internal processes so that they become a real competitive advantage and avenue for revenue growth.

“Process can drive profitability,” Epstein insists. “When we look at what’s the most efficient way to drive $100,000 to the bottom line or $1 million to the bottom line, the most efficient way for most organizations is through process efficiency. Process improvement – it also happens to be the most neglected way, in many cases.”

Epstein defines process as “all of the activities that go into delivering value to the client.” This includes policy checking, loss runs, bill reconciliation and other back office functions that the client doesn’t see but that are necessary.

One of the obvious questions that come up when agencies are reviewing processes is whether their producers are spending too much time servicing accounts and not enough time selling. Research by Marsh Berry and Reagan Consulting has shown that even top producers spend as much as 50 percent of their time on routine servicing of accounts rather than on selling, according to Epstein.

Similarly, Epstein says, customer service representatives (CSRs) spend more than 50 percent of their time on reactive, behind-the-scenes work that clients don’t see or value. Epstein says it would be more valuable for CSRs to be spending time answering the phone within the first three rings, developing stewardship reports, cross selling, rounding out accounts, or providing information to clients when they need it or proactively.

Once the tasks that do not drive value to the customer are identified, they can be given to other employees or outsourced to a service provider like ReSourcePro, thus freeing up more of a producer’s or CSR’s time for more valuable tasks. ReSourcePro, headquartered in New York, has trained insurance support staff in offices in China.

“There’s an opportunity that if you could push down work from people who could be delivering value to the client, then they could be writing more business,” the ReSourcePro executive says.

He calculates that a service person generating $400,000 a year in commissions brings in about $248 an hour. If an agency could free up 20 percent of this employee’s time, or about 329 hours, the result could be $81,000 in additional commissions. It’s reasonable to find at least 15 percent efficiency gains, or a 2.5 percent improvement in profitability, according to Epstein.

There are a number of process improvements agencies might consider including improving workflow, eliminating errors from poor quality, and standardizing processes so that when different people do the task they aren’t reinventing the wheel each time. Also, profitable agencies identify their most valuable clients so that they can then provide them a higher level of service than they give smaller or less profitable accounts.

Epstein is quick to add that he is not against investing in people or technology. “I’m not suggesting process improvement at the expense of other initiatives, such as hiring producers or investing in sales training or investing in technology,” he says. “What I am saying is that those other things are often thought of as drivers of revenue growth or as drivers of cost savings. But in terms of the return on investment and in terms of the speed of the return on investment, they are much less efficient than focusing on process improvement.”

Epstein’s pitch is not about just writing more accounts; it’s about writing accounts profitably.

“The ultimate goal here is driving profitable growth to business. It’s not just driving growth and it’s not just driving profit, it’s driving profitable growth,” he says. “To drive profitable growth, you have to write accounts profitably. To write accounts profitably, you have to service profitably.”

Topics Agencies Tech