Reasonable expectations for a new PL producer

[volstrike3]

I am a new independent agency owner (18 months) and I am looking at bringing on my first personal lines producer. I come from a small/middle market commercial background and my other producers write the same type of business and have the same compensation structure in terms of commission splits. Up to this point we have written PL to round out accounts but have not had a dedicated PL producer.

The PL producer I have been talking to has 3 years of insurance experience with a direct writer (Liberty). What is a reasonable expectation for new business production for an experienced PL agent in a metro area of approx 1M people? We have good market access and automation (comparative rater and AM system w/ carrier upload & download). We will pay for his networking group (LeTip) and 40 internet leads per month.

Thanks in advance!

[d's insurance store]

Way back when, in my direct writer days for one of the big 3, I felt I was doing well with an average of 1.5 policies per work day...in other words, about 30 policies per month.

But that was a long time ago, when the market was much more volitile and the phones rang just by virtue of being in the Yellow Pages and doing a direct mail campaign in my local marketing area.

I don't know that you can set premium requirements in the personal lines arena...because one could make the case that a productive producer is doing their job when a policy is placed...but the premium can vary widely depending on the potential for cross lines and the 'value' proposition placed on each new client...in other words, an auto policy placed in a married/multi car/homeowning household as an entry into the household account is different from a single car/liability only/shared living space client with little hope of future sales. But policy count is policy count.

I don't know the value of a biz exchange/tip club for personal lines...each time I investigated such a networking group, it already had one or two established personal lines agents and adding myself to the mix seemed counterproductive. Internet leads? Well, I hope you've investigated the vendor...after spending thousands and thousands of dollars with a number of internet lead providers, my conclusion is that the vast majority are a big waste of money and effort, but your milage may vary.

Probably the biggest growth engine for personal lines in the current market is referrals or a souped up internet appearance in a local area...and there may even be value in direct mail postcards in your area...of course, multiple mailings will be necessary to cut through the clutter and noise that's our new selling environment.


Good luck.

[volstrike3]

Thank you for your response. Judging production by policy count makes sense. Apparently his tip group only allows one P&C insurance professional and has been very good to him... so I am willing to gamble $1000 for the year to see if it works out. I felt the same way about online leads but he claims to be closing 15% with a direct writer that isn't particularly competitive in our area, so he feels like he can improve that number with better market access. This is new territory for me and there is little doubt I will make some mistakes... but I appreciate any feedback given so I don't repeat mistakes others have already made.

[kevinraz]

This can be tricky. While you want to inspire your producer to produce you don't want to make goals or the compensation structure unreasonable. If your new producer fails you fail as well - you have lost time and money.

I think policy count is a good idea as well. I would suggest some type of sliding scale with lower production goals to start and then higher goals later in the year. My logic is that even though your producer is experienced it's going to take some time to learn the new markets, underwriters and also your office machinations. Production might be very low for the first few months but should heat up as the year goes along. By the time their first year comes to an end they should be producing at a consistent level.

I encourage you to make your compensation program good if your producer turns out to be good. I was frustrated in my independent agency days by unreasonable compensation programs in the two agencies I worked for: in one I did not realize the impact of "net new and lost" to me when the average PL customer was about 70, in another I did not know that I would have to service existing business without credit or compensation in addition to selling NB to make commissions credited to me.

[wlunday]

Hey, Volstrike3... Happy New Year!
I've been in insurance sales a long time, and have always felt that a producer should be paid well for what they are worth... in other words, their production. But, after buying a P/C agency and merging it into my Life /Health agency, I needed not only production help but client service help, too!
I found the right people and offered them a reasonable salary to compensate them for the servicing tasks of the initial clients already in-house. Then, I pay a commission on any new account that comes in. We have a pretty great referral program going, and my PL producer is staying busy. She is earning about twice her base salary. Since we are a small agency (4), everybody does everything. We all service. We all cross-sell for each other. The Commercial "producer" manages the accounts as well.
So, I suggest you figure out how much of the agency income you want and need, and than fairly share the rest with the producers. in our case, the PL person gets 50% of the first-year comm. for annual policies, and half of the comm. for 6-month policies like some auto. No renewals. Our management system tracks the commissions easily and factors in the chargebacks when they occur. It's all fair. The Commercial producer gets 50% for new and 30% renewals as well, on accounts written since she's had the position. She inheirited a pretty big caseload, which does not pay her a commission, so her base salary is also appropriate. All in all, I think I'm paying them well above what the other area agencies would offer, but then I don't worry about them jumping ship. Get the right people on your bus, and make sure they are in the right seats! What a trip!

Happy New Year to all!

Wayne Lunday, LUTCF, CLU, ChFC

[volstrike3]

Wayne,

I agree with your philospohy. My agents sell and service as well. My CL producers make well above market rate (50% new and renewal)... partially because they were established and needed a carrot to get them over here and partially because I feel like people want to deal with "their agent". I have a smaller shop as well (4 producers, 1 girl friday) and while I will probably never have a million dollar+ producer, I feel like our retention will better. I know as a producer it is fairly easy to take business away from an overworked CSR at a big agency when the client has not seen their agent face to face in several years.

I am thinking about 75% new/25% renewal for the PL producer with a draw. We don't have much of a PL book for him to manage so he will be doing nothing but chasing new business for the first few years.

[kevinraz]

Wayne, I like much of what you said except the part about not paying commish on renewals.

Back in my agency days nearly all of my service time was spent on renewal business. Are you thinking that you pay for that work in the base salary? If so, your employees might not see it that way - they can see the reward for producting NB but not for servicing renewal business.

This was frustrating to me during my producer days. I was judged on NB production but had to spend 75% of my week servicing clients that had been with the agency for years and never got any credit for it. Then when those clients dropped off (death, moving, lost business, etc) I was pegged for the lost business against my NB numbers. I hope you are not doing that as well.

I also realize that I was working for a lousy agency that has had a track record of very high turnover for producers. Got out and went to the company side of the business.

[Sports_Agent]

Go Vols:

We have spoken before... I am a former Liberty Personal Lines Sales Rep and Manager. Liberty now will write substandard auto and non-prior auto. The 7.5 policies this prospective employee is writing is somewhat low.

Best Practices suggests a lower first year commission (say 40%) and a lower renewal maybe 10%. Obviously you want to structure your compensation to encourage new business production but you also need to encourage renewal retention. New Business Personal Lines Policies traditionally have a higher loss ratio than renewal business. Underwriters need some time to assist you in keeping a clean "book" to keep you profitable.

I would suggest a tiered commission based on rounding accounts. If he writes an auto and home together give him a greater percentage, if he adds an umbrella, boat, etc. maybe a little higher percentage. The more policies per account the greater the retention. I also pay a higher commission on preferred risks versus substandard risks.

I have 18 years as a direct writer and 16 years now as an independent agency owner. I now have offices in 4 states and no two of my agents are on the same compensation plan. They start out similarly ... but higher producers with clean books earn more.

Good luck... and GO VOLS!!!
David,
PhD, CFP, CPIA, LUTCF, STEP, Attorney-In-Fact

[wlunday]

Hi Kevinraz! Happy New Year to you, too!

I do understand your thoughts about continuing commissions to the P/L people as well. However, in this particular agency, I pay her pretty well. Her Base Salary is set well above the norm for the area, probably the highest P/L CSR/Producer salary in the county. She's worth it. Then, since I'm doing most of the efforts to get the business into her, bird-dogging, paying for all the referral incentives, newsletters... it all adds up. As you know, acquisition costs are generally about 1.5 to 2.0 times the "first" year commission. Wages, keeping the lights and heat on, advertising... you get the picture. This just seems to work well for us.
If I only paid a commission, or perhaps mimimum wage plus commission I'd agree with you. But, that's not the case.
I've been actively working on getting the right team together, paying them well, and growing organically at a good pace. It works. I do like paying for production, but if my P/L producer decided the fixed benefits (salary, medical, 401-k, etc...) were not up to her standards I'd lose her for sure. Hope this helps!

Wayne Lunday, LUTCF, CLU, ChFC