Growing pains: the number of large agencies is increasing, making changes in management practices more important than ever. (Property/Casualty: Selling Insight).

As independent agencies continue to merge or make acquisitions, the number of larger agencies is increasing. During the next few years, the size of the average agency will double. These larger, more complex firms will find it difficult to achieve desired profit levels unless they change their management practices and focus on four areas critical to growth and profit: sales, automated procedures, performance management and compensation.

Sales: Agencies that provide strong management for their sales people--yet are also constantly hiring salespeople--achieve the highest organic growth rates. The combination of higher production per salesperson and the revenue produced by new producers allows these agencies to achieve double-digit growth, even in soft market conditions.

In these organizations, salespeople develop personal production plans that are monitored monthly. Sales goals are publicized among the sales team, and high performers are recognized with extra compensation, trips or perks. Regular sales meetings focus on success stories, sales techniques and reports on die team's new business progress. Producers who cannot achieve desired results are coached and expected to improve. Producer cooperation also is expected in cross-selling, team selling and following procedures. These firms also have higher close ratios, which result from qualifying prospects and better data gathering.

Automated procedures: Technological advancements make it possible to work in a paperless environment. Agency management systems can record all policy detail, as well as attach letters, digital pictures and e-mails and store any document in an accompanying imaging system. If agencies still maintain paper files, commonly it's because producers insist on paper files as they have never learned to use automation. Customer service representatives also can hinder productivity by using cumbersome procedures, rather than working with automation. A common practice is to print and send forms from the company fax machine, rather than fax them directly from the agency system. A representative who works efficiently from the electronic file is able to process the transaction while the customer is on the phone, eliminating the additional steps and possible errors that result from writing down information and processing it later. Agencies which have implemented automated procedures have increased productivity and lowered com pensation costs.

Performance management: Achieving high profitability also means raising employee productivity. Employees whose performances are managed have better knowledge, stronger skills and more effective use of automation. Three important components to good employee performance are goal setting, training and coaching, and feedback. Employees need to understand what standards or targets they need to meet. They should know, for example, that they need to maintain a book of business of a certain size, maintain accurate policy detail in the computer system, complete billings on a timely basis, and complete certain educational courses. Their goals form the basis of their annual, written performance reviews. To support them in achieving their goals, managers provide regular training.

Compensation: Agency compensation expense averages 60% of every revenue dollar. It is the highest and most important expense, as the business is typically built on relationships and the service that people provide.

It is important, then, to manage compensation costs and use compensation dollars to provide the right motivation. Producer compensation has evolved to reward producers more for new business than renewals. High-performing producers are provided higher car allowances or rewards for achieving stretch goals. They are sometimes rewarded with long-term incentives for achieving consistently high performance and significant books of business. Commercial lines producers are not paid on small accounts, and those producers who choose to sell small accounts have a different compensation plan which rewards them for new business production, rather than renewals.

Service staff compensation has escalated, in many areas, beyond real value because it is so difficult to recruit and retain people. Agencies are using survey information to set realistic salary levels, but they also are using goal setting to provide bonus opportunities to customer service representatives and managers. When employees achieve their goals, it supports agency success.

Sharon Cunningham, a Best's Review columnist, is president of Business Management Group, a management consulting firm specializing in the agency system. She can be reached at [e-mail].