There are two forces at work in the employee benefits landscape that are driving a need for agency owners to focus on operational efficiency: margin pressure and competition, John Ollis, VP, sales & marketing at consulting, technology and outsourcing firm IBX told attendees at EBA’s Workplace Benefits Renaissance.

First, demands and expenses are up. Second, revenue and profits are down, Ollis said last week at the New Orleans conference in a session titled “Improving operational efficiencies and boosting profitability.”

“To do what you do more efficiently and more effectively is one of the best ways you can combat margin pressure,” he said.

As for staying ahead of other firms in the market, “If you want to remain competitive you’ve got to get better on the operation side,” he added.

John Ollis, VP, sales & marketing at consulting, technology and outsourcing firm IBX, speaks at EBA’s Workplace Benefits Renaissance.
John Ollis, VP, sales & marketing at consulting, technology and outsourcing firm IBX, speaks at EBA’s Workplace Benefits Renaissance. Elizabeth Galentine/EBA

Taking a look at back-office operations has a high return on investment, Ollis said — even higher than gaining a new client. New business doesn’t make a brokerage much profit in the first year, he said, and then only about 20% of revenue from that business flows to the firm’s bottom line thereafter.

In fact, “a $100,000 expense reduction has the same profit effect as $500,000 in new revenue,” Ollis said.

Start improving operational efficiency by measuring revenue. Ollis recommended brokerages break up revenue tied to clients, carriers, service staff, size segments, producers and line of business into earned vs. paid commissions, base vs. bonus commissions and start and end dates. Through this level of analysis, an agency would know it is only be one or two cases away from earning a valuable carrier bonus for new business, persistency or upselling. Often, this information isn’t discovered until it’s too late to get the bonus, Ollis said.

Examples such as these sound like obvious solutions, but “the number of times this stuff is done is shockingly low,” he said. The reason is people often find themselves too busy working in their business to take the time to work on it. They “fall victim to the fire of the day,” Ollis said. “I see it almost without exception. Very few firms have done a great job at working on their business.”

The ultimate goal, he said, is to be able to break down all clients by profitability level. When asked who is their “best client,” most brokers will say the name of the company with the most brand recognition. However, it’s really which clients will make the firm the most money, Ollis added.

Significant productivity changes
When reforming a brokerage, “don’t make ‘great’ the enemy of ‘good,’” he said. Start small by thinking about process and procedure. For example, around 70% of activities, such as census data, presentation preparation and carrier changes, are non-client facing. “Focus on the things that the clients don’t see,” he said. “Don’t make your problems your clients’ problems. Your clients don’t care about your profit margin.”

“If all you did was focus on spreadsheeting and RFP development, those are two areas where we’ve seen significant” productivity changes, he said. Spreadsheeting accounts for around 25% of a brokerage’s workload, while RFP development is approximately 30%, he added.

For example, Ollis recalled one brokerage employee positioned as a spreadsheeting expert who was making $70,000 a year and did not know that Microsoft Excel has a built-in calculator. Before the error was caught, the employee was manually entering amounts into a handheld calculator — wasting hours of productivity in the process.

Even for the 30% of a firm’s activities that are client-facing, such as compliance, billing and claims resolution, the processing of those activities does not need to be client-facing, Ollis said. Requests for proposals are “really data and storage management,” but often “it’s a fire drill every time an RFP goes out,” Ollis says, when contracts go missing, the carrier rep can’t be reached, and other distracting outcomes occur with far too much frequency.

Proposals come back from each carrier “in a different language,” and trying to make cross comparisons can be like entering a dry cleaners and having the owner tell you to head to the back to find your shirts among the thousands of others, he said.

Instead, Ollis recommends requesting responses back in a specific format so that RFPs end up in a unified fashion. Some carriers will give a little pushback, but they will eventually comply, he said. “Your goal should be to be in front of your client,” he added. “Not to be spending time doing spreadsheet reconciliation.”

It’s not compromising the broker/carrier relationship, he said, but just making things quicker and more efficient. “There really is gold in your back office,” said Ollis. “You just have to dig a little bit.”

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