The Middleton Group Releases its Biannual Compensation Survey: How Does Your Agency Compare’

Not surprisingly, compensation continues to be the single largest agency expense. The average independent agency in the U.S. spent between 62.2 percent and 66.3 percent on compensation in 2000, according to The Middleton Group’s biannual Compensation Survey.

Some 2.3 million people worked in the insurance industry in the U.S. at the end 2000. Of this figure, nearly 783,000 worked in agencies, brokerages and services and earned an average annual wage of $39,900 according to the Federal Bureau of Labor Statistics.

The Middleton survey results are divided into rural and suburban/urban agency groups. Results represent averages, not medians, and are comprised of agencies located throughout the U.S. Other than for the top management positions, agency size has very little bearing on the results since smaller agencies compete on salary with the larger ones. Also consideration must be given to variations in job descriptions despite having similar sounding titles.

General agency compensation information
The average rural agency this year had $577,194 in total revenues generated by 7.2 employees including the owners.

Urban agencies averaged $1,654,126 in revenue with 16.6 employees.

Revenue per employee was $80,166 in the rural agencies, up 11.1 percent from the 1998 level of $72,061. In the metropolitan firms the revenue per employee figure went from $96,168 to $99,646 over the past two years, an increase of only 4 percent. There were 1.8 agency principals in the rural firms and 2.1 in the urban firms. In the total group of respondent agencies sales functions were handled by 27.3 percent of the employees, management tasks were as-signed to 14.7 percent, and service and support personnel made up 58 percent of the employee group.

The rural firms reported a pretax profit of 11.5 percent compared with 7.0 percent in 1998 with the owners taking out another 23.9 percent in W-2 income. This puts the ownership return ratio at 35.4 percent of revenues, down overall from two years ago when it was 36.4 percent of revenues.

Urban owners had an average profit margin of 11.2 percent, compensation of 22.8 percent and a return ratio at 34 percent of revenues, up from the 32.9 percent of revenues recorded in 1998. Non-owner producers were paid 14.4 percent of total revenues in rural agencies and 15.0 percent of revenues in metropolitan firms. Non-owner managers and staff received 19.6 percent to 21.9 percent of total revenues.

Average wage increases for insurance agency employees were 5.1 percent for the rural firms and 4.5 percent for the urban firms, both above the levels reported two years ago and higher than the increases reported over the past several years. In both locations the most popular criteria for determining the incentive payments is agency profitability.

Revenue growth and increased productivity are also used by many urban agencies to create the bonus pool. Splitting contingent income has traditionally been one way of rewarding employees and many of the rural firms still use that relatively simple method of providing extra income for them.

Service staff compensation
Service staff wages have increased slightly over the past several years although not at the rates experienced in the early 1990s when the definition of CSR changed in many agencies from clerical to professional.

A number of firms use the size of the book of business handled to determine the salary for personal lines CSRs. For example, a CSR handling $125,000 in commissions might get a salary of 20 percent of that book, or $25,000. If she were to increase the book to $130,000 during the year, her salary for the next year would be $26,000.

In many agencies the personal lines CSRs also receive additional compensation for selling new business and expanding existing accounts. Forty-nine percent of the rural firms have some type of incentive. This ranges from an average of $10 per policy to 40 percent of the first year commissions and 5 percent on renewal. More than half of the urban agencies (57 percent) have such programs, paying either an average of $20 per policy or 35 percent of new commissions and 6 percent on renewal. Most of these amounts are higher than they were two years ago.

Sales compensation
Producers in rural agencies still tend to have less correlation between performance and compensation than do their counterparts in the cities. Almost one-third of them receive a straight salary versus only 12 percent in urban agencies.

In addition to the base compensation, most agencies pay for education, group insurance and business travel. In rural areas 26 percent of agencies provide a car and another 14 percent give a car allowance averaging $297 per month. Urban agencies provide a car only 19 percent of the time although 31 percent have a monthly allowance averaging $327. Entertainment expenses are covered by 29 percent of the rural agencies and 44 percent of the metropolitan firms.

After working for 18 months, a new producer is expected by agency principals to have developed a book of $82,647, in rural agencies – almost double the $43,925 cited two years ago. Urban agencies are looking for $88,129, one-third more than the $63,808 production required in 1998.

Management/ownership compensation
Urban agency bonuses make up a significant portion of the income of the president/CEO and sales managers, generally from 15 percent to 25 percent of the total compensation. Almost 80 percent of independent agencies give both owner and non-owner managers a bonus.

More agencies are now treating the agency principals as employees first and owners second on compensation issues. But the vast majority still use some combination of performance measurement and ownership percentage to come up with salaries an bonuses.

Regardless of location, the primary criteria for determining bonuses was percentage of ownership followed by the size of the book handled or management contribution. For both salaries and bonuses each of the groups indicated that longevity is no longer a major component for determining an agency principal’s compensation.

Information in this article is used with permission from The Middleton Group and is taken from the March 4, 2001, THE MIDDLETON LETTER, Volume XVII, Number 4. A complete copy of the Compensation Survey and information about The Middleton Group is available at midletter@middletongroup.com or by calling 708-354-0344.

Topics Trends USA Agencies Profit Loss Talent