Jump start for sales: insurers can use these six steps to boost sales and promote profitability and growth.

The past few years have been tumultuous times for insurers across all segments. Faced with slowing organic growth and inadequate return on capital, insurers have embraced a series of initiatives to reprice products, reduce costs and re-evaluate their portfolios.

These initiatives helped create a turnaround in profitability. But investors still are penalizing companies not just for problems with volatility and return, but also for poor prospects for growth in the face of double-digit expectations. Even stellar performers that hit their earnings numbers get punished by the market when the growth trajectory slows. Increasingly, it is time for senior management to turn its attention back to the need for profitable, organic growth--and there are few levers with more immediate potential for profitable growth than effectiveness in selling. Our observations tell us the majority of insurance chief executive officers count the sales force among their most underleveraged strategic resources.

The time may be right, but generating growth from more effective selling is not easy. The sales process is more complicated than in most other industries, and a variety of issues makes it difficult to improve performance. Some of these issues are related to an organization's capabilities (limited data-targeting tools, inadequate training, ineffective compensation system), some issues are market-driven (new competition, new channels) and some are just plain facts of life in the insurance business (complex product, long selling cycles, channel-conflict issues). Historically insurers have prioritized other tactics for growth: for example, underwriting and pricing in property/casualty or product design in life and health. But for most, growth from these tactics is hard to come by and often decreases margin when it does occur.

What keeps sales-force effectiveness on the agenda is that despite difficulties in execution, it promises growth and margin.

Critical Elements

Many executives are eager to improve performance but are unsure about how to begin. As one executive commented, "We've tried it all before--changed their pay structures, reorganized them twice in the past five years, provided laptops for each agent and had HR do training. But productivity is still lagging. What else can we do?"

Sales representatives, for their part, are likely to say they're working harder and smarter than ever but are being undermined by paperwork, the wrong products and inappropriate pricing.

These issues often arise because sales-productivity problems are misdiagnosed or mistreated. For example, it's not unusual for a company to find that after implementing a new quota and bonus system, sales reps work harder without showing progress, as they still are selling the same product mix to the same customers. New bonus systems may motivate the stars to shine for a while, but they often do nothing to improve the productivity of the remaining 80%.

Significantly improving effectiveness 2in selling requires a disciplined approach to a number of aspects of the sales process. Based on our work with a wide variety of insurers across different sectors of the industry, here are six strategic and operational hallmarks that characterize the most productive sales organizations:

1.

Focus resources on the most attractive segments via "test and learn." Many insurers have a good (or at least adequate) knowledge of their customer segments. The most successful companies take this understanding a step farther and use it to define and guide all aspects of their sales process. This would, for example, include such tangible and actionable items as tagging the prospect database, creating segment-specific protocols for service and teaching the sales force how to recognize and approach each segment. The end result is that the sales force has a very clear blueprint about whom to target, how to interact with them and what to sell them. Perhaps even more important, they know whom not to focus on, so their time can be spent most efficiently.

One very effective way of providing focus on the best segments is through a "test and learn" process. Leading insurers have begun to use the information gathered through the selling effort to identify product and segment information that can be leveraged quickly. For example, one direct-solicitation insurer had a large number of naturally occurring "experiments" from solicitations it had made in the past. Simply examining these experiments and selecting the best of the best allowed the company to see a 30% increase in acceptance rates.

2.

Manage the channel; make their success the company's success. The insurance industry is fraught with channel-management issues and conflicts. Insurance executives must struggle constantly with creating effective channel relationships as well as managing inherent conflict in channels.

In many cases, the channel (including agencies, brokers and consultants) controls all aspects of the customer relationships, especially for new sales. It is in their best interest to keep the insurer from forming a direct relationship with the insured. It is also in their best interest to treat the products as a commodity to be provided at the lowest possible price, so they are providing the extra value.

Most insurers have long since woken up to the fact that channel producers are important customers in their own right. Few insurers, however, actually segment and tier channel producers based on the opportunity they present. Relationships are highly fragmented, with little consistency in messaging, issue resolution, value proposition and "customer" experience. This leaves the relationship in the hands of a few salespeople rather than controlled at the company level, and it often leaves a company hostage to its sales three.

In the case of a large health insurer, more than 60% of its revenue came from just five channel relationships. Even with such concentration, little was done to coherently manage these relationships. The channel was being treated differently all over the country; relationships were fragmented, and no national relationship coordinator was in place. By creating an internal relationship-management function at the corporate level, the company is on track to generate more than $100 million in additional premium dollars.

3.

Increase absolute selling time--make this work in practice. Our work with a variety of insurers has shown that, on average, the sales force spends roughly 20% of its time actually selling to customers face-to-face--that's roughly one day a week. With such limited time in front of customers and prospects, it's not surprising that the sales staff feels stretched and management is frustrated. Worse, it deters sales reps from addressing the needs of those customers who really drive current and future profitability.

Many factors contribute to a loss in selling time. Inadequate targeting and account planning often cause salespeople to spend too much time prospecting. Another common issue is the lack of clarity around the sales role. Which activities do you want your salespeople involved in--prospecting, sales calls, proposal gathering, underwriting, policy issuance, account service and retention? Many insurers are able to eliminate 10% to 20% of unproductive sales-force time simply through a reevaluation of the key roles of marketing, sales, underwriting and support staff. This is equivalent to an increase of 50% to 100% in client sales time. There is also a significant parallel opportunity from reducing the cycle time of product and pricing decisions to market results.

4.

Focus sales management--build performance-management tools and discipline. Sales management is both a quantitative and a qualitative discipline. Many insurers fail at both. On the quantitative side, basic "funnel" statistics should include decline to quote, hit or close ratios, total volume, profitability, etc., of different segments and individual performers. Too law insurers have a handle on their over-all performance, let alone performance by segment or channel partner. Sales management often is handcuffed by legacy technology issues; for many companies, simply defining the appropriate metrics and identifying ways to get at the information without costly and excessive information-technology investment creates significant leverage in managing the sales force and channel.

The qualitative side of sales management is equally important, and it's equally important to approach systematically. Sales managers play many roles, including senior salesperson, mentor, coach and business developer. Efforts by some insurers to define the role of the sales manager more clearly--for example, by removing his or her direct involvement in sales--often overlook the different needs and skills of different salespeople. These needs often are unexpressed or subconscious but are surprisingly apparent from sales data.

One large European insurer recently found that more than 35% of its captive sales force was unprofitable, with no correlation between the amount of managerial support and training they received and their performance. Armed with this understanding, the company was able to characterize the different types of agents and tailor all aspects of training and management to the needs of the different types. Not surprisingly, productivity increased, performance along all sales metrics improved, and the retention rate for salespeople skyrocketed.

5.

Increase account planning; move beyond the "old boys" network. The general lack of strategic selling and contact relationship plans for major accounts and/or channel partners robs insurers of potential gains. Such a process provides a context for the integration of sales, specific product and pricing issues, underwriting concerns and new services. Account planning becomes particularly important if the insurer has changed overall corporate strategy.

Recently, a large commercial insurer made a strategic decision to focus on larger, Fortune 1000 customers. This was a significant change for an organization that normally had focused on the middle market. As the company changed its focus, the importance of each sale grew, but management had little control over how the sales force was executing appropriately to win the big accounts. The implementation of a comprehensive account-planning process not only allowed management to better control the sales funnel but also prepared the salespeople for sales calls by arming them with better information about the account and new ideas for competitive differentiation and topics for negotiation.

6.

Pay for value, not volume--identify and reward profitable activity. The refrain from the most aggressive and motivated sales rep is almost always, "Show me the money!" Most compensation systems are set up to do just that. But too often, they are based on metrics, such as volume or revenue, that may not align with corporate financial targets.

Value-oriented incentive schemes have to be aligned with the sales force's strategic goals. For example, one European bancassurer traditionally had measured its sales force based on a variety of metrics, including cross-sell activity, retention and product locks. Yet this scheme wasn't concerned with the economic value generated. A new, aggressive scheme of incentives was implemented so that salespeople were rewarded only for sales that generated profit in excess of fixed sales costs. Other activity metrics still mattered, but if it wasn't a profitable activity, there was no reward. Consequently, the sales torte spent more time on value-added activity, and within three months, sales rose by 40%.

Insurance has been accused of being a laggard in the financial-services industry across a number of dimensions, but notably in effectiveness at selling. This is coming to an end. Leading insurance companies--whether selling directly or through intermediaries--are building competitive advantage through superior targeting, leverage and support of their sales efforts. Given adequate pricing discipline and economies of scale, geographically and within lines of business, more effective selling should fuel a self-propagating, profitable model of growth for years to come.

Key Points

* Sales effectiveness has immediate potential for providing a company with profitable organic growth.

* Significantly improving effectiveness in selling is not easy and requires a disciplined approach to a number of aspects of the sales process.

* The most productive sales organizations have specific strategic and operational characteristics.

Chris Bernene is a principal in the Boston office of Mercer Oliver Wyman, a division of Mercer Management Consulting Inc.