ACG - Agency Consulting Group

The PIPELINE

A national monthly newsletter for agency principals dedicated to agency management topic

When Do Producers Stop Being Producers?

Producers get paid for PRODUCTION!!!! That should be no surprise.

When a producer continues to grow his/her book of business by increasing the client base and not just the premium or commission, he/she is doing the job of a producer, whether that increase is simply positive growth to the book or a predetermined agency minimum mandated by the size of the client base. A produce’s growth is not judged in terms of premiums and commissions due to the impact of hard and soft markets on these factors. However, if the definition of a producer is “a staff member responsible for the retention and continuous growth of the book of business”, growth of client base satisfies that statement.

Some producers grow their books of business until they reach a level of comfort, the position at which their bills are being paid and a desired standard of living is being met. Others lose the “fire in the belly” and the “thrill of the kill” and become more service oriented. Either way, the producer may attract additional clients and replace lost business, but sales activity is no longer the major part of their day.

When a producer RIP’s (Retires in Place) or becomes an Account Executive without telling the agency owner of the change in attitude, two things must happen: 1) new producers must be sought who will market insurance to agency prospects for a living, and 2) the producer’s compensation program must reflect the changed condition.

There has always been a question about commission compensation for producers vs. for non-producers. Whether paying a stable commission rate, a New Business rate and a Renewal rate or a Base (prior year book of business size) and Growth (excess growth in commission over prior year total book) rate, the general consensus is that someone whose only job is production is paid at a higher overall rate than those staff members who earn a living through a salaried position and also occasionally sell an insurance policy. If that is the case, the reverse should also be true. If a producer converts himself/herself into an Account Manager or Account Executive by spending most of his/her time on servicing issues instead of on the hunt for new clients, compensation should be altered to be closer to that of other Account Manager or Account Executive positions. This is done by contractually reducing the commission rates offered to the producer by 1% in any year that client growth is not experienced. Remember, an apparent growth or reduction in commission may affect a few lost accounts or market conditions rather than be a true measure of a producer’s sales activity.

Consider evaluating your production staff on the growth of the client book of business. Also consider replacing non-producing Producers to avoid the semblance of a large producer presence with little, if any, real production taking place in your agency. If a producer has converted, make sure you are not continuing to pay him as a producer when he/she is performing the same task as others who are also servicing books of business at lower rates.