Starting an insurance agency is a thrill, as well as huge dose of anxiety. For most agents, the income for the first few months is a pittance compared to the work they've put into the business. To make matters worse, as you see your cherished checks come in, you realize that most, if not all, of your paycheck goes right back into the business! Sometimes it’s a wonder people choose to be an insurance agent.
However, between six months and one year, you get the sweet, sweet satisfaction of seeing renewals roll in on top of your new business commissions.
I like to golf. I’m pretty much terrible, with most of my time spent deep in nature instead of on the fairway. However, every round I hit about five shots that make me think, “I can do this!”, and I keep playing, always hoping that I’ll get better. Hitting those rare good shots helps me see the light, and it keeps me going through all the bad shots.
I’m kind of like the guy in the video below, at 1:56 through 2:15:
Those first renewals are like hitting a solid shot after playing mediocre golf for the first three holes. There is finally the feeling of success and, though it's brief, it keeps you going.
In my discussions with agents, it seems like if you can get past the first three or four years, your chances of “making it” skyrocket. You’ve got a decent book with decent revenue, you should have a good referral network, and you’re ready to grow.
To keep the golf analogy going, it would be to the point that you’re a scratch golfer, you know you’ll play well, and you can enjoy the nice fairways!
Back to business – at this point, what do you do about the service required for your book?
If you’re a one man show or small agency, the problem is once you hit your stride, you’re now facing more and more service questions, so time that should be spent on growing your business is spent on retaining business.
Retention is vital for an agency, and service is part of that. You may feel like you’re caught between a rock and a hard place: do you focus on selling or service? There is only so much time in the day! If you try to do it all, you might feel like you're drowning in things to do - but struggling to grow.
Then you have the bright idea – hire someone to do the service for you! It’s a great concept, which is why most agencies have Customer Service Reps, or CSRs.
Back to the problem, though. At this early stage in the game, most agents are just starting to feel like they’ve broken through the red stage of the business, and are creeping into the black.
According to LinkedIn salaries (which obviously isn’t 100% accurate, but should give us a good idea), the median base salary of a CSR is $34,000.
That doesn’t take into account other costs to the business to hire someone, such as taxes, or additional benefits like health insurance. The point is, hiring a CSR isn’t cheap, but if an agent can make the jump from being a one man show or family agency to an agency that can both service and sell at the same time, things should be looking up!
The problem is that making that jump can be hard, and it might cause an agent to feel like they are taking two steps back after making one nice financial step forward.
Bring in service centers
The idea of a service center is to alleviate the service demands of an agency, while not requiring you to hire, train, manage, or pay an in-house CSR.
How? It is run by the carrier themselves. Allied, Encompass, Safeco, Grange, and Travelers are just a few examples of the carriers that offer this help. They hire, train, and make the service teams experts in the product so you don’t have to.
But what does it cost?
Generally speaking, a carrier will charge an agency 2% of your gross renewal commission in order to take advantage of the service center. Let’s say that you’re writing about 30,000 a month in your first year.
By year’s end, you’ll have a book around $360,000. That’s a big enough book that people will definitely be calling with billing questions, endorsement requests, auto ID cards, and mortgage companies will start calling for renewals so they can update their escrow payments.
For many agents, they may start to look for a CSR to take care of the service, while they keep growing. For an agent in this situation, a service center absolutely makes sense.
The CSR would cost, on the low end, about $30,000. The service centers would cost you $7,200 at 2%, and in both cases, the same amount of service work is removed from the sales agent.
Any agent should have questions about service centers:
For example: “But what about cross-selling opportunities?”
Great question. Service centers cross sell. And when they do, guess who gets paid? You!
“What about personal touch?”
Having a service center doesn’t prevent you from doing annual reviews, sending e-mail campaigns, text campaigns, or any other retention campaign to your clients. You can maintain, and even automate, those touch points to make sure you have that personal touch.
Additional advantages of service centers
Now you may be thinking, “OK, it sounds great for a start-up, but what about a bigger agency?”
Great question! Let’s say it’s been a few years and the agency is at $1,000,000 – that means you’re now giving up $20,000 of your commissions for a service center. Still less than you’d pay for a CSR, and the cost of service will naturally increase and decrease with your agency, since it’s based directly on your renewal commission.
In contrast, with a CSR, the agent needs to figure out who, when, and how to hire. And, once that CSR is hired, that revenue is gone whether your agency grows or not.
Service centers aren’t just more cost-effective than CSRs at the beginning of an agency – they are more effective long-term as well. Additionally, they increase the ease-of-doing-business for the agency principal.
One size doesn't fit all
Service Centers aren’t the perfect answer for some agencies. After all, you run your own business, and if you feel that your clients must have someone to come in and drop off cash as payment, then a service center isn’t a viable option.
For the agents who are concerned about the true cost of service, a service center can be an excellent avenue, which will allow for focused growth while taking care of your clients.
The amazing thing is, with IHT, we have negotiated service center costs! That means if you decide to work with one of our service center carriers, you’ll be paying even less than 2% for your service. Imagine having nearly a dozen insurance companies to sell, with no monthly or start-up fees, and service is practically taken care of for you.
What could you accomplish? What kind of book could you grow?
If that sounds fun, give us a call. We should talk!
IHT is a multi-state insurance agency with dozens of branches across the eastern and central United States.