Eoghan Trehy, Division Director, Macquarie Bank
Where to next for operational efficiency?
Given the pressure on revenue over the past few years, it’s no surprise that many insurance broking firms have focused on efficiency to build their profits. And we know it adds value to your business – for every dollar a broker can save this has an incremental impact on the valuation of the firm, particularly given the current multiples being offered for continued M&A activity in the sector.
Our latest benchmarking results found 71% of firms believe efficiency is the most effective strategy to improve profitability – and for large firms (with revenue over $4million) it’s the number one reason they’ve increased their profits in the past year.
So with this in mind, is there anywhere left to trim? Based on the response we’ve had from brokers across Australia over the past month as we’ve discussed the latest findings, I’d say the answer is yes.
Efficiency means, quite simply, being able to do things better by changing the way we do them. It doesn’t require massive transformation. A few incremental things can save time and reduce costs, but they may also create new opportunities for growth.
71% of insurance broking firms say efficiency is the most effective strategy to improve profitability, while 49% say it’s technology enhancements.
Efficiency across three stages
There is no question that the value of insurance broking depends on advice and relationships – but there is also a lot that goes on behind the scenes. So to identify any potential for further efficiency, it’s worth taking a look at each stage of the client process to see where you can automate, outsource, reduce double handling or get tasks done more quickly and cost-effectively.
- Administration workflow
The less time staff spend on back office paperwork, the more time they have for value-adding client service. Automating processes is the key here, and almost half of brokers (42 per cent) told us they’d like to improve efficiency in invoicing and document preparation.
If you’re still using paper to process policies and claims, stop. There’s no reason to do this anymore, and it creates inefficiency: double handling, manual error and wasted time looking for files. Cloud storage solutions and eSignature platforms (such as Dropbox) are secure, accessible and affordable.
There are also new ways to help people be even more productive. For example, workflow and project management tools (like Trello) can help staff prioritise tasks in their day and be more structured – rather than reacting to issues as they arise.
This may not be the biggest opportunity to trim costs, but it will empower staff to change their mindset as they realise how much easier new technology platforms can make their everyday tasks.
- Client service
With 55% of firms telling us they’d benefit most from increased efficiency in business development, and 52% saying client management, this is a significant opportunity to improve customer-facing operations.
I’d suggest two things are important here. One is systems; how do you capture and share meaningful customer data to provide better service and improve conversions? Customer Relationship Management (CRM) systems are an essential part of doing business these days, and you’ll need more than a spreadsheet if you want to automate parts of the process (such as follow up emails) or access vital information during client meetings.
The other is behaviour. We are all creatures of habit, so it’s worth stepping back to understand what the most efficient and effective business development process really looks like. Are we asking the right questions? Do we really understand what the client needs?
Advice and guidance through complex decisions – that’s the tangible benefit any broker brings to the insurance process. So how effective is your team at giving clients a better outcome?
This is really about working smarter. Some of your brokers know how to have a quality conversation with a prospect. They could coach or mentor others, so everyone provides a consistent and effective experience. Think of it as ‘learning by osmosis.’
Are bigger brokers more efficient?
This year’s benchmarking also revealed the impact of scale in the broking market, with 50% of large firms making a profit of 30% or more – compared with 28% of small firms. And for 68% of large firms, increasing efficiency is the reason for their increased profits.
It’s clear that when the principals of larger firms can step out of the day to day operations and focus on putting a strategy in place, it’s working. They have the capacity to delegate operational tasks to a General Manager, and the business doesn't solely depend on them finding the answers to every challenge.
Larger firms may also have the capital available to invest in long-term efficiency gain – such as new technology platforms or staff training.
But let’s also be pragmatic. Efficiency measures don’t mean big budgets, they may just require smarter thinking. And small firms also have the advantage of being able to move quickly and respond to market changes.
What technology are firms investing in?
- 31% plan to invest in CRM
- 36% in a broker management platform
- 23% in software integration
The virtuous cycle of efficiency
We always think of efficiency as a cost-reduction measure, but there are other knock on effects. For example, by investing in a CRM and workflow system you empower staff to improve their performance. Making their job easier (and more enjoyable) also attracts more progressive staff – the people who can help you respond to a changing market because they have the right skills and behaviours.
When the right people choose to be part of your business, they’ll bring more ideas to improve your business. You’ll be more willing to try new initiatives – and if it works, scale it up.
All this is the key to sustainable organic growth. It’s about being open minded to what is possible.
Getting started on the efficiency evolution
Getting started is relatively easy: you just need to do one thing differently. You don’t even need to be the change agent. Empower your staff and take advantage of different generational thinking in your business. Talk with other brokers to see how they manage workflow bottlenecks.
We are hearing plenty of optimism for future profit growth in this sector – as our benchmarking revealed, 35% expect to grow profits by 10% or more.
I certainly believe it is achievable, but it may include a number of factors aligning –market improvements, diversifying your product offering and continued M&A activity. Efficiency is just one part of the puzzle – but it’s also a piece you can influence almost immediately.