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The Cost to Quote
Bill Wilson |
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Abstract
According to consultant Chris Burand, "I have found that producers usually drastically underestimate the time required to quote and write an account." Do you know how long it takes to quote an account? More important, do you know what it COSTS to quote an account in the aggregate? When you look at the numbers, it's easy to understand why the more business you place, the more money you lose.... |
According to consultant Chris Burand (www.burand-associates.com), "I have found that producers usually drastically underestimate the time required to quote and write an account. I learned this by taking their estimates against a clock." Do you know how long it takes to quote an account? More important, do you know what it COSTS to quote an account? Keep in mind that the commission income you generate has to be sufficient to pay for all of the accounts quoted and not booked. When you look at the numbers, it's easy to understand why the more business you place, the more money you lose.
Below is a downloadable worksheet adapted from IIABA's Best Practices' Joint Agency/Company Planning Tool that will allow you to calculate, using your own figures, your average cost to quote. The worksheet then allows you to compare that number to your average commission income by line of insurance to demonstrate how you can improve your profitability by improving various conversion and hit ratios.
Below is a sample worksheet demonstrating, for this hypothetical agency, why only $1 of commission income is generated for every $3 of direct sales expense. This explains, for many agencies, why an account must be retained for 3-7 years before it becomes profitable for the agency and why retention rates below 90%, even with 10% annual new business growth, will result in a declining book of business.
Finally, courtesy of Chris Burand, here is a "Time Required to Quote" worksheet he has used in hundreds of agencies:
According to Chris, "I use it with my clients to identify efficiencies, inefficiencies, and to work backwards into how producers spend their time. For example, we know how many renewals and how many new business accounts the producer has written in the last 12 months. Then, they complete this form using their average size account. Then multiply the times by the accounts and add up the hours.
"The total time involved rarely adds up to more than 1,000 hours. At this point, no one can deny a problem exists and everyone starts working somewhat together to identify whether the problem is a low hit ratio, inefficient sales process, wasted time, too much service work by the producer rather than the staff, or whatever else the problem might be."
If you're interested in working with your producers to improve their sales goal setting skills and developing a methodical way of sales production, below is a downloadable article from elsewhere in the VU Research Library:
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Copyright 2001-2112 by IIABA, Bill Wilson, and Chris Burand.
Used with permission.
Revised: January 2012
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