Every insurance agency needs to have some financial measurement concepts for its utility and enhancing the agency’s profitability and growth i.e. the contribution to the agency per employee as well as the premium-to-profit-ratio. In general insurance agencies view revenue per employee to measure their productivity, however experts advice that this is not much of a help as it does not show the real cost of servicing production. In fact, it has been studied that an agency can achieve greater profitability by increasing each employee’s contribution via greater efficiencies and productivity.
The former gives us a simplified formula using the contribution per employee metric which is Revenue /EE-Compensation/EE=Contribution/EE. One can view that each employee is counted for contributing to the agency’s growth. One could even benchmark the results and compare with the top performing agencies to help set their goals higher and increase this per employee contribution to the agency.
Another alternative route is the premium to profit ratio, which is beneficial in representing how much premium one has to write in order to drop $1 to the bottom line. By carefully administering this equation and making the suitable alterations and inserting the increase in per employee contribution one can definitely see how much additional revenue, commissions as well as written premiums will be generated.
This above metrics are helpful in enabling an insurance agency understand their position in the market and focus more on the employee contribution to the agency, which is the ultimate resource in boosting the productivity and profitability of the insurance agency. The metrics if analyzed consistently can be helpful in propelling the agency ahead of its competitors’ in the market and having a better and secured position apart from improvements in the process, a better return on investment and revised bottom line.