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Management Reports Critical to Your Agency

Author: Al Diamond

As we approach a new year, I would like to offer agents a Management Information System (MIS) designed to educate managers and inform agency owners. Knowledge of critical information permits proactive, rather than reactive, management. It informs owners when things are going right and when changes need to be made to enhance productivity, efficiency and effectiveness within the agency.


We use this type of MIS in agencies of all sizes. It is critical for an agency of less than $1 Million revenue to know what is going on in Personal Lines, Commercial Lines and Finance. Even more than in larger agencies, small independent agencies must be sensitive to their health on an immediate basis. A financial, receivable, retention or production crisis in a small agency can be fatal.

Agencies over $1 Million revenue usually have some sort of MIS in place, formal or informal. As staff grows and department management replaces central management by one owner, it becomes too easy to lose control of the agency's performance. This MIS is designed to maintain control by the agency owners. It was actually originally created for an absentee owner who needed to know everything going on in his agency, although he was not on site. Not only did we have to provide all pertinent information to the owner, but we had to do it in as brief a form as possible. The end result was everything an agent needs to know about his agency in three pages or less. Of course, we also provide all the back-up documentation that the owners may need if they want to further analyze the reported events.

The first issue was purpose, frequency and targeted audience.

Production and productivity management wants to be tracked weekly. In smaller agencies, this report is generated to the owners by the department staff in personal lines and commercial lines. In most smaller agencies, marketing and claims is managed within the local departments, so those reports are combined. In larger agencies, production and productivity is still reported weekly, but to the department managers who control and make subtle changes, where necessary, to keep the department on target toward the annual goals.


Weekly Production and Productivity Reports

1.  New Business Written during the week...detailed by name, lines, and annual income generated.

2.  Lost Business that week...detailed by name, line of business and reason lost.

3.  Productivity (A + B - C)...This report tells you how much was actually completed within the week:

  1. Prior Week Backlog. Backlog is defined as those items left at the end of the week that could have been advanced toward conclusion if more time was available. By definition, Backlog excludes those items that have been advanced as far as possible and are awaiting further information from client or carrier.

  2. Current Week Incoming. Incoming work in a department includes incoming telephone calls, incoming mail and "Other" (e.g., work given to the employee by another member of the agency staff). Walk-ins are counted like phone calls (because they must be dealt with immediately). Faxes are counted as mail (because they can be set aside to handle later, if necessary).

  3. Current Week Backlog. Items remaining at the end of the week being reported (backlog defined as above).

4.  Claims activity...list claims opened, claims closed and any Large Loss Activity. A large loss is defined by the agency and the report identifies new large losses, new reserves, increases and take-downs.

5.  Customer Problems...this section identifies any client issues or rates encountered during the week of which the managers or owners should be aware.

6.  Systems Problems...the greatest cause of downtime in agencies appears to be the very systems that were adopted to promote efficiencies. In many cases these problems are self-inflicted by employees without sufficient knowledge or training to properly manage the system. At other times we encounter systems companies that are not as responsive as they should be to general or specific problems. Either way, managers and owners should recognize this cause of downtime and work to resolve the issues involved.

7.  Carrier the agencies served by Agency Consulting Group, Inc., we have recommended that each department should appoint Carrier Specialists whose jobs include regular contact and communications with the primary carriers dealing with that department. This section of the report is very helpful both within the department and to management to keep them apprised of carrier issues as soon as they arise.


Monthly Management Report

This is the regular "Check-Up" for the entire agency. It not only takes the agency pulse every month, but it also checks ALL vital signs and reports them to management. The report is even important if the agency is small and the owner is the manager and responsible for the components of the report. A written report is used as a point of comparison and trending, taking away the guess-work of analyzing the agency's progress and status.

Part I:  Agency Financial Results and Comparison Against Prior Year and Against Budget
Each category is measured as Current Month vs. Same Mo. Last Year and YTD vs. Same Mo. Last Year. If the agency has published a monthly budget, add vs. Budget to both the Current Mo. And YTD categories. Categories include:

1.  Total Revenue
2.  P&C Commission Income
3.  Expenses
4.  Profit

Part II: Department Results
Whether large or small, most agency systems have the ability to profit-center the operating departments. We highly recommend this because it provides you a tool to determine how profitable each department is to your agency both with and without allocated expenses. Every expense in an agency is either direct or allocated. A direct expense is one that can be directly identified and charged to a department. Personnel cost is a verifiable direct expense.

Occupancy costs (rent, light, heat, etc.) can be a direct expense if you charge a department in accordance with its space use against the total expense of the agency. Common area occupancy costs are allocated to the operating departments because all expenses in the agency must be charged against those areas generating revenues.

Cost centers (i.e. agency owner if not paid on commission, accounting department, reception and mailroom costs) are allocated to the operating departments in the most appropriate manner for that particular cost. For instance, if your personal lines are all direct billed, the majority of your accounting department costs will be allocated to commercial lines. The receptionist, on the other hand, will be allocated in accordance with telephone volume, usually heavily skewed toward personal lines.

These reports provide the same information, but by Department:

1.  Personal Lines...Revenue vs. last year and budget for both the month and YTD. Expenses vs. last year and budget for both the month and YTD. Profit vs. last year and budget for both the month and YTD.

2.  Commercial Lines and any other operating departments generate the same one paragraph report as Personal Lines.

Part III: Balance Sheet
Every agency management system will print monthly balance sheets. Most agents pay no attention to this report, even though it is the BEST gauge of the health of the agency, because they don't know how to measure liquidity. The following liquidity ratios should be calculated from your balance sheet and reported monthly. Each should reflect the ratio for the month end and the same calculation for the same month last year (as a point of reference and comparison).

1.  Current Ratio (should be over 100%)...Current Assets divided by Current Liabilities.

2.  Receivables/Payables Ratio ( should be less than 75%)...Carrier Receivables divided by carrier payables.

3.  Trust Account (should be over 100%)...(Cash + Savings + Receivables) divided by total accounts payable.

4.  Tangible Net Worth (should be positive and growing)...Total Stockholders Equity less all Intangible Assets (i.e., renewals/expirations, covenants, goodwill).

5.  Tangible Net Worth as a % of Revenue (should be over 15%)...Tangible Net Worth divided by Revenue.

6.  Earnings/Tangible Net Worth (should be over 16%)...Before Tax Earnings divided by TNW.

7.  Acid Test (should be over 90%)...(Cash + Savings + Marketable Securities) divided by Company Payables.

8.  Long Term Debt/Equity (should be less than 150%)...Total Other Liabilities divided by total stock equity.

9.  Debt/Assets...Total Liabilities divided by total assets.

10.  Working Capital...Current Assets less Current Liabilities.

11.  Days of Working Capital (should be more than 30)...Working capital divided by total cash expenses divided by 365.

Part IV: Aged Accounts Receivables
This section reflects the names and amounts due for every account with a balance over 45 days. Some agents use balances over $1,000 as the starting point. This highlights those clients who have put the agency at risk. Many agents leave each month's list on the report adding the most current month above the prior months to determine if specific clients are the primary cause of any receivables problems during the year. This is typically one paragraph for each month listing each client name and amount outstanding.

Part V: Cash Report
The accounting department is often charged with projecting the agency's cash position over the next month (on a week-by-week basis). This allows the agency owners to recognize cash positions in the event that money needs to be infused in the agency at any time. For each of the upcoming weeks the report reflects (A-B-C=D):

1. Projected Cash in Bank beginning of week (prior cash + expected receipts)
2. Projected Company payables for the week
3. Projected Vendor payables for the week
4. Projected Cash in Bank at end of week.

Part VI: Production Report by Department
1. Compare Commission for month to same month last year.
2. Compare NB bookings for month to same month last year.
3. Compare cancellations for month to same month last year.
4. Compare Net Position for month to same month last year...Net Position is New Business less Cancellations for the month.
5.  Post the same for items for YTD.
6. Post the Retention calculation for YTD...Retention is defined as (YTD Total commission less New Business) divided by Prior YTD Total Commissions.

Part VII: Claims by Department
1. # Claims opened.
2. # Claims closed.
3. # Open claims remaining in the department (Commercial lines splits 1st party claims from long-tail claims).
4. Increases, Decreases in Large Loss Claims.

Part VIII: Marketing (if agency has a marketing department)
This report is split between New Business and Renewals where the Marketing Department is responsible for both.
1. # New Submissions to Marketing.
2. # Quotes delivered.
3. # Accounts Written.
4. # Accounts Lost.
5. # Accounts still pending.

The total length of this Management Report rarely exceeds three pages. Supporting documentation is either available or is attached to the report (depending on the desires of the agency owners). When this report is first constructed, you may not have comparison data available. However, this will become your base year against which you can measure your results in the coming years. If you implement these reports (or those components that apply to your agency), you will begin generating that valuable information that will permit you to absolutely know your agency's health at any time.

Copyright 1999-2013 by Agency Consulting Group, Inc. Used with permission.

​127 South Peyton Street
Alexandria VA 22314
​phone: 800.221.7917
fax: 703.683.7556

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