To successfully achieve annual new business plans, small business insurance producers should understand five key metrics and concepts to be effective.
Agency/Producer Hit Ratio
Tracking the hit ratio (aka closing ratio) overall and by class of business can help producers identify where to focus. Low hit ratios may be the result of not having the right target market focus. This is where breaking down hit ratios by class-of-business can help identify where to spend more time and where to spend less time prospecting. Also, if a producer’s overall close rate on small business is too low (typically below 30%), it may be an indication that the producer’s sales presentation is ineffective.
Carrier Hit Ratio
Knowing the hit ratio a carrier has on different lines of business can greatly help a producer focus on the right target markets. Reaching out to partner carrier representatives and requesting target market lists that include classes of businesses that have higher “bindability” rates (typically 70% or greater) may help. Initially focusing prospecting efforts on these classes of business will help to optimize producer efforts. Partner carrier representatives can provide this information by class-of-business, typically at both a national and regional level.
Quote-to-Bind
Quoting more policies that don’t have to reviewed by underwriting before binding means better efficiency through the quoting process. Lower quote-to-bind ratios typically reflect either an intentional effort to chase classes of business that require more underwriting sophistication or a lack of understanding of carrier appetite.
Average Account Premium
Understanding average premium written by account and line-of-business is important to understanding prospecting and production required to reach annual goals. For example, let’s assume a producer has annual new small business production goals of $250,000. If a producer’s targeted class of businesses has an average annual premium of $2,500, and the producer’s close rate is 40%, that means the producer will have to quote 250 businesses a year (approximately 5 per week) to write 100 BOPs (approximately 2 per week). One way to increase the average account premium is to identify businesses that also have other needs and can cross-sell other lines (i.e. business auto, cyber, EPLI, professional liability). A higher average account premium lowers the activity needed to achieve annual production goals.
Prospecting Pipeline / X Date
The most successful producers are those that understand two important concepts: (1) being top-of-mind for a customer when they are ready to buy is crucial, and (2) every sale means the producer has just lost their “best prospect”. A strong pipeline of engaged prospects (or contacted commercial X-date list) can be gold to a producer. The right number of engaged prospects will vary depending on average premium size, how many average attempts it takes to quote a business, and close ratio.
Understanding the business, what is important to the business owner, the business owner’s current insurance relationship, when they renew, and permission to follow-up prior to next renewal can fill a pipeline that will generate future results. Tracking, building, and replenishing an active pipeline to a desired number should be tracked. Falling behind means a producer needs to increase prospecting efforts. Once the desired pipeline number is achieved, a producer can then start replacing lower average premium/lower hit ratio prospects with higher average premium/higher hit ratio prospects.
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