14 May How Much Do You Know about Your Book?
Now that it is a new year, agencies often dissect their books to better understand any dynamics that are occurring. For example, what were the three key industries in which you had the most success in the new business written in the last year? What are the three main industries of your overall commercial lines book? Answers to these questions (and others) are important as they may drive some key business decisions.
Often, when I pose these questions during the annual reviews, the responses tend to be “guesses” with no real statistical data. Having good data and knowing what to do with it are the keys. I have read many articles that conclude that the proper use of data will be a key determining factor that will impact the future of insurance agencies. The issue is that the fields in the various agency management systems are either not being completed or are not as accurate as they should be. Just putting numbers in there is not the answer.
Years ago, the SIC (Standard Industry Classification) number was entered. The North American Industry Classification System (NAICS) has largely replaced it. NAICS is a classification of business establishments by type of economic activity. NAICS employs a five or six-digit code; the first two digits designate the largest business sector; the third digit represents the subsector; the fourth digit represents the industry group; the fifth digit designates the NAICS industries; and the sixth digit represents the national industries. While typically, the more detail, the better, that may not always be necessary if what you are looking for is essentially the data in the first three numbers.
Over the last 10 years or so, specialization has become more of the culture of many agencies. Specialization may not be realistic if your prospect base is more varied. In that case, maintaining your structure as a generalist is probably best. However, other agencies may find that their success rate for new business and retention is higher for certain industries and thus decide to dedicate a greater focus on those industries through the establishment of dedicated units. They can then achieve efficiency, a goal for every agency.
This sounds good, but what if your agency has not completed this industry field in the system? If that is the case, then today is a new day. Require that on all new business, the field must be completed and work out a plan for the existing book. You should be able to run a report that provides the number (and names) of the accounts where the information is not present. Based on the severity of the issue, require that the information be entered on a set number of files each week/month. You can possibly require all renewals moving forward must have this information entered. It will take some time to get up to 100%, but at least there is a plan for the data to be more robust.
Another approach many agencies have used to achieve greater efficiency is developing a small business segment. You should be able to run various scenarios based on premium size or revenue size. Typically, the procedures for small accounts differ from those for larger ones, so having a segmentation should provide some value and result in efficiency gains.
So maybe the best question is, “How well do you know your book?” Now might be a good time to start dissecting based on industry or size. This practice will provide a benchmark moving forward for comparison’s sake.