While many insurers use a tiering method for evaluating their distributors, not all utilize a statistical approach to measure their agency force, according to “Selecting Agencies for the Future Now is the Time,” new research from Ward Group. By minimizing subjectivity and culling underperformers, carriers can improve combined ratios by 3 to 5 points by focusing on building relationships with the best agencies and improve operating results, Ward Group said.
"Carriers benefit from a distribution management practice that effectively measures agency performance, filters out the low performers and identifies the right agencies to help meet future growth and profitability goals," said Jeff Rieder, head of Ward Group. "Our experience has shown that when an agency management program is performed correctly an insurance company can lower the combined ratio three to five points and drive sustainable long-term value for both the company and their agencies.
An effective scoring and tiering process, Ward Group said, includes:
• Selecting metrics that effectively measure agency performance and support performance goals
• Appropriately assigning the importance and weighting of metrics to calculate agency scores
• Using suitable methods for determining each agency’s share of each metric’s weighting
• Establishing thresholds for premium volume and agency score for appropriate distribution of agencies across tiers
• Analyzing and comparing tier performance using metrics selected for scoring, plus other pertinent metrics for monitoring improvement, incentives, benefits and service offerings
• Properly aligning incentives, resources, benefits and services with each tier
It is also important for carriers to collaborate with agencies, more effectively communicate the company's goals and risk appetite and learn directly from the agency's experiences and opportunities, Ward Group said.
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