Agent Compensation Ideas

[AgentTalk]

I work for an insurer that is evaluating our compensation structure. We are not convinced that base commissions are driving profitable growth. What are you seeing in the marketplace that you like/dislike? What would you like to see in the marketplace?

[Smalltownagent]

I'd just refer you to the previous thread (which I assume you've already read) about Travelers.

Needless to say, we're not happy with our own companies cutting our legs out from underneath us. If Company A cuts our commission by 33% and company B has not, guess who is going to get the less profitable (front-line underwritten) clients? Who's loss ratio are we going to want to protect?

I'll tell you in my office, when Travelers made this decision, this is what happened to our Travelers book over the past 18 months. We've rolled all the quality business to other carriers, left the trash at Travelers and we'll stick it with Travelers now only if all else fails and/or I don't want to put "that client" with one of my top P&C carriers.

[d's insurance store]

I don't know what carrier you work for, but it would be highly unusual for any insurance carrier in this day and age to be soliciting comp ideas from the agency owners. Insurance companies tend to have predisposed theories about how agents and agencies are going to be compensated and tend to stick with those models.

The actual agency tends to naturally gravitate to the higher paying carriers, but most agencies also tend to have multiple carriers, so that the designated 'top' carrier gets the best risks and the third or fourth carrier tends to get the junk or adverse selection candidates.

My experience is that when carriers make changes to agency comp, usually to the downside, they preface the announcement with some sort of patronizing jibberish as to how they've surveyed their agencies and this new comp scheme is what agencies 'want'...but no one that I've ever found has acknowledged being on the survey committee advising such a move.

That you're asking here is commendable, but probably not all that actionable on a carrier level.

[AgentTalk]

We are trying to discuss ideas that keep our agency partners happy as well as enable the insurance company to attain more profitable accounts. How can we structure our compensation package to accomplish this?

[lonestar]

agenttalk, it is very simple:

Pay agents better compensation(new and renewal) than the market, and reward them for a profitable book of business.
It is called being a true agency parter.

The problem with some other carriers, is that they have a sick definition of an agency being a "partner" with a carrier. Their definition is an agent bending over a desk, and having to bite down hard on a leather stick.

[sankykid]

I work for an insurer that is evaluating our compensation structure. We are not convinced that base commissions are driving profitable growth. What are you seeing in the marketplace that you like/dislike? What would you like to see in the marketplace?

What are you seeing that leaves you unconvinced?

[gforaker]

Most Companies I have seen who complain about having to cut commissions to remain competitive are losing renewals and new quotes by 10% or often much more. Frequently it is over 20%. They are just trying to blame their competitive disadvantage on the agents when it goes much deeper.

Progressive and GEICO each spend over $1 billion each on advertising. That is probably more than they would pay agents in commissions. Yes, they have a different business plan, but just cutting commissions won't get you competitive.

[UW4life]

I'm not sure the agent's suggestion of "give us more commission and reward us for placing good business" is really the right solution. That is how most agents are currently compensated by carriers but the reality is that agents aren't loyal to insurance carriers anymore and partly because they don't feel carriers are loyal to them anymore either. To get us back to a place where we can make a profit as carriers and in turn compensate our agents we have to change the dynamic.

Currently, agents are facing reduced compensation because the same commission percentage is worth less today than it was a year ago thanks to declining rates. In order for an agent to make more money in today's environment they have two options:

1. Write more new business
2. Target accounts that have bad losses because their rates are much higher and the agent gets paid commission no matter if the account is good or bad.

Option #2 appears to be a growing route chosen by agents. It is so much harder to write new business so they fall into writing the crap stuff and have no incentive to help improve the risk for fear that better results will net them lower commission dollars as the rate of the risk falls. This is clearly a major moral hazard. I actually had an agent tell me they only go after accounts that "are already on fire or being blown down by a hurricane" because that is where the money is. That was said to my face!!! Needless to say I stay away from that agent at all costs.''

Agents currently have no skin in the game so to speak. Carriers need to figure out a way to compensate agents for good business because profit sharing agreements only line the pockets of Principals which doesn't help on the actual transaction. Not saying we should get rid of profit sharing with agencies but we need a way to motivate individual producers to make the right choices too.

[sankykid]

Agents currently have no skin in the game so to speak. Carriers need to figure out a way to compensate agents for good business because profit sharing agreements only line the pockets of Principals which doesn't help on the actual transaction. Not saying we should get rid of profit sharing with agencies but we need a way to motivate individual producers to make the right choices too.

Is it not common for carriers to reward specific agents with gift cards and/or cash for meeting new business goals?

[lonestar]

Lest you be fooled, make not mistake about it boys and girls:

Companies do not have to cut commissions. They do it because they can. There is a huge difference here.

[UW4life]

Agents currently have no skin in the game so to speak. Carriers need to figure out a way to compensate agents for good business because profit sharing agreements only line the pockets of Principals which doesn't help on the actual transaction. Not saying we should get rid of profit sharing with agencies but we need a way to motivate individual producers to make the right choices too.

Is it not common for carriers to reward specific agents with gift cards and/or cash for meeting new business goals?

sankykid,

Yes carriers do give gift cards and other "incentives" to place business with them but I think most agents would agree that the opportunity to make more income on every account they write is much more beneficial than a gift card to Red Lobster. Those are very superficial incentives that reward for a specific transaction after it has already taken place in most cases but it does nothing to help them choose what kind of business they want to write (profitable being preferred) and who they should place it with.

Additionally, your comment ignores the context of the quote which is that agents have no reason to write clean, well run business when they can get more dollars on bad accounts with higher premiums. They also will have certain markets that they favor with the top accounts and give the crap to everyone else. While there is nothing inherently "wrong" with that, it does paint a picture that the agent doesn't really value their markets today. What's the risk to them? Very few carriers are revoking contracts as a penalty for not placing good business with them or not sending much in to begin with. And even if they did, so what? The agency has another 150 contracts plus access through wholesale markets. There really is no downside for an agent today to use and abuse markets especially since we are all begging for business.

What if agencies had to start giving back their commission on crap accounts? If the industry moved towards compensation structures that required individual producers to give back their commission on an account that performs horribly they would think twice before writing "that building already on fire". Suddenly agents treat those bad risks like the plague and they can't find coverage. The market then hardens for difficult risks, capacity shrinks and prices skyrocket for the riskiest accounts.

If that were to happen the industry could finally start turning an underwriting profit again and E&S business would go back to the E&S market where it belongs. The agents who make the most profit for their respective companies through providing good risk management are the ones who will be the most successful.

[tflood]

Carrier X comes in and wants $100,000 of new premium for personal lines. If the average premium is $2,000, you only need to write 50 new accounts. So let's think about this and I'll show you why it's not profitable.
First, understand that the average P/L Close Rate = 25% (some may be higher, but this is an average)

Second- With an Average Close rate of 25%, you need to quote 200 p/l policies to get you to the 50 new policies.
But, in order to quote a prospect, you have to have a suspect. The average suspect rate to get to a prospect is 6:1. That is, you need 6 suspects to get you to 1 prospect that will allow you to quote.

Using the 6:1 suspect to prospect rate, you need to have 1200 suspects to get you to 200 prospects that at a 25% close rate will get you to the 50 new policies at an average premium of $2000 to get you to your production premium of $100,000. That's a lot of work!

All the while paying rent, overhead, benefits, salaries, etc.... and expecting the agent to do more and more of the work....
The way to profit is to maximize your revenue per employee, revenue per relationship, your renewal percentage, know what your batting average is on closing sales, and have a set sales strategy in place and don't deviate from it.

Decreasing commissions just makes it that much harder to be profitable, and the game tougher to play.... Agency principals need to be striving for at least a 25% profit margin. How do you get there? You only spend 75% of the money....