Measuring Success: Best Practices for Insurance Agency KPIs

By Team INEX |

KPIs, or key performance indicators, are objective performance measures that companies can track over time. They are valuable to all industries because they establish benchmarks, provide targets for teams to aim toward, and provide important insights to enhance decision-making across the board. 

With a historical reliance on analytics, the insurance industry is in the business of tracking performance. Agencies can improve insurance agency valuation and overall growth by identifying critical KPIs and harnessing the power of data to enhance their products and services.

Using KPIs to Improve Insurance Agency Valuation

The insurance industry is complex, with innumerable metrics that can be useful for measuring performance. While focusing on any data point can provide individual benefits, choosing the optimal indicators can make a difference in the performance of departments, individuals, and the organization as a whole. 

The data needed to improve business decisions exists in every insurance agency. Financial statements, sales data, employee production, profit and loss analyses, customer data, and new business information all provide essential information that can help to manage and optimize the growth and value of the business.

Types of KPIs for Insurance Agencies

Focusing on tracking and evaluating key financial, operational, and customer metrics helps insurance agencies determine the effectiveness of marketing, sales, processing, and customer service efforts. Tracking all of these analytics is optional, but focusing on a few from each key area provides valuable insights into critical business operations.

Financial KPIs

KPIs related to the company’s financial health help identify costs associated with each stage of the business cycle, including analytics pertaining to the following factors.

  • Written premiums: The total payment required for the company’s insurance policies issued during a given period
  • Loss ratio: The ratio of paid claims to premiums collected
  • Policy retention rate: The number of customers at the end of the quarter, minus new customers signed during the quarter, divided by the total amount of customers at the end of the quarter, multiplied by 100
  • New business growth: The increase or decrease of insurance sales during a given time period

Operational KPIs

Operational KPIs are primarily time-based and measure the agency’s time-management effectiveness.

  • Policy processing time: The total turnaround time from placement of the customer request to completion
  • Claims processing time: The number of business days to process a claims submission
  • Average handling time: The average employee time spent per call, including administrative tasks
  • Underwriting expense ratio: Refers to the agency’s overall expenses versus premiums acquired in a specific period, with expenditures including onboarding, underwriting, customer service, and more 

Customer-focused KPIs

Studies show that 17% of customers will leave a company after one bad experience, and 59% leave after several. Tracking KPIs that reflect customer experience is a critical measure of an insurance agency’s success.

  • Customer satisfaction (CSAT) scores: Indicates customer satisfaction, obtained through feedback surveys
  • Net promoter score (NPS): Measures customer loyalty, obtained through a single-question survey
  • Customer lifetime value (CLV): The total profit or revenue generated by a single customer
  • Customer churn rate: The rate of customer attrition during a period

Connections Between KPI Categories

While KPIs naturally fall into customer, operational, and financial categories, these metrics have widespread interplay. When operational efficiencies are high, customer satisfaction and retention should also be high, translating into higher profits. It is essential not to ignore the relationships between categories; these trends present valuable data for insurance agency valuation.

Best Practices for Selecting and Defining KPIs

The key to choosing KPIs that will effectively measure performance and drive future growth is to select those that best align with the company’s strategic plan and current direction.

Identifying Goals and Objectives

Determining the critical goals and objectives to focus on is a crucial first step before choosing KPIs. Without the sense of direction provided by a clear corporate strategy, KPIs will not be as valuable as they can be. A good rule of thumb is to set and focus on three to five goals within one year.

Balancing Quantitative and Qualitative KPIs

While quantitative KPIs related to profit or assets are inherently easy to track, these are not the only measures of business performance. At least as necessary are qualitative KPIs that measure customer satisfaction or retention, product quality, and employee morale. A balance of quantitative and qualitative KPIs will provide a well-rounded snapshot for insurance agency valuation.

Ensuring SMART KPIs

A good KPI will help move a business in the right direction, but the KPI must be SMART (specific, measurable, achievable, relevant, and time-bound) to be effective.

  • Specific: Clearly defined and based particular goals or objectives
  • Measurable: Quantifiable with concise metrics
  • Achievable: Realistic based on available resources and current performance trends
  • Relevant: Provide insights into key business areas
  • Time-bound: Should have an achievement target or timeline attached

How INEX Enhances KPI Performance

The Capital and Growth Advisors at INEX serve as valuable insurance agency valuation consultants through intentional and strategic planning. INEX professionals help agencies to develop a roadmap for their business, establishing a target and outlining the necessary path to reach it. Advisors help companies in the insurance sector to reach long-term objectives by supporting KPIs, improving operations, and optimizing the agency’s value.

Support KPI-driven Success

INEX advisors can assist with all aspects of the strategic vision process, including selection of KPIs, ongoing assessment of metrics, and implementation of data-driven changes to ensure the business is moving in the right direction.

Improve Agency Operations

A strong business analysis can identify weak spots to improve and areas of strength that can be capitalized on. INEX can assist in implementing an effective cycle of measurement, feedback, and action to ensure optimization of operations for insurance agency valuation.

Optimize Agency Value

The Agency Optimizer Process developed by INEX helps insurance agencies increase earning potential. The ultimate purpose of this multi-step process is to move the agency into the highest performance range possible. 

KPIs are an important aspect of measuring business performance for insurance agency valuation. By selecting and focusing on the appropriate metrics that align to the goals of the leadership team, insurance agencies can develop a snapshot of their business, monitor its trajectory, and realize significant performance improvement.

About INEX

Founded in 2000, INEX Capital & Growth Advisors is a multi-disciplinary firm providing management consulting to the owners of insurance agencies throughout the United States. Our senior principals have participated in more than 500 perpetuation, merger, or acquisition transactions over the past two decades.

We are thought leaders and agency experts in several initiatives — from providing agency succession plans to valuation services to assisting with strategic planning and mergers and acquisitions, financial structure optimization, revenue maximization, and others to help agency owners seize opportunities that will bring current and future rewards. We also provide support in areas such as staff development and operational improvements.

The consulting arm of our company works with the management of insurance agencies and provides expert witness services and insurance coverage analysis in various insurance litigation cases.

To learn more, call us at 603-665-6000 or visit our website.