Compensation depends upon what the producer does for the agency and client, NOT how long he’s been with the agency or even how much he has produced in the past.
Imagine for a moment that a computer vendor suggests to his employer that he continue to be paid for accounts which he wrote over the last 10 years. “After all, he says, I’m responsible for $10 Million of sales and we’re still getting income from the maintenance and servicing of all of those accounts.” The response would be, “And we paid you well for producing those accounts. Different people in the company are responsible for maintaining the relationship with the clients and they are the ones who do the service work, not you.”
Why is that different in the insurance business?
Producers are paid for selling insurance. Producers are paid for maintaining the customer relationship in order to retain those customers, and premium and commissions. Producers are not paid to service clients since most agencies have service staff to fulfill that function.
Many agencies have converted clerical Customer Service Representatives into professionals who have no problem working directly with the client staff, who deals with the daily insurance tasks AND with the decision makers responsible for the renewals of their insurance programs. Agencies with legitimate Account Executives and Account Managers must ask themselves how they justify enhancing those roles (with appropriate compensation) while still paying the producers for those accounts.
If an Account Executive or Account Manager has assumed the control of a customer relationship on behalf of the agency, an adjustment must be made to the compensation that a producer earns from those accounts. Two people can’t be paid for the same job – maintenance of a strong relationship and retention of the accounts.
Practical Money Matters must Rule:
Producers are paid from 30% to 50% of the dollar. CSRs may be paid as little as 5% of the commission dollar for their participation in account processing. However, Account Executives and Account Managers earn from 10% to 15% of the dollar for their control and retention of their client base. The extension of the responsibilities of AEs and AMs and the additional compensation earned by these roles must take money from either producers or from agency non-compensation margins. Since total non-compensation costs (plus average profit margins) for agencies were between 48.1% and 50% of revenue last year (source: Agency Consulting Group, Inc. Composite Group Benchmarking Study), the only place to take the additional funds for enhancing the service positions is from owners’ compensation, or by reducing the profit margin that we are trying to enhance.
Efforts are made to professionalize the service team to better control and retain the clients and to relieve the overworked producers by affording them more time to produce new business. Unless the compensation schedules for the sales team is changed to reflect a higher level based on sales (commission book of business growth), we are taking money out of owners’ pockets to sponsor the enhancements to our service team.
Agency Consulting Group, Inc. approves the replacement of clerical CSRs in agencies with professional Account Executives and Account Managers. It makes sense for most clients to have the same insurance professional helping them through their both their renewal as well as their daily insurance activities. Producers need be involved for clients who require a close touch personal relationship be maintained in order to assure retention of the account (i.e. the annual shoppers; clients with major changes in their program or account, etc). The producers should be paid a portion of the renewal commission for their assistance in the sale or management of the renewal. If Account Executives and Account Managers are properly involved in customer relationships, there will be a diminished need for producer intervention in most commercial lines accounts.
Thereby lies the solution. INTERVENTION-BASED COMPENSATION.
There does not have to be a hard-and-fast rule about how compensation splits should be done. This can be managed by client and by scenario. For instance, if a client is high-maintenance and requires a producer’s time on site to assure retention, the producer should be paid for that account. If an account that is properly manageable internally shows signs of shopping or of discontent, the Account Executive or Account Manager should bring in the producer and yield a part of the commission to the producer (better to split commission and keep the account than to have all the commission but no account paying it). However, small commercial lines (and certainly personal lines) with which the producer has no involvement after the sale should be paying the producer one time for selling the account. Other commercial lines for which AEs and AMs are adequate to manage and retain the business should also not pay producers simply because they once (years ago) sold that account.
If this seems like a threat to producers, it is not meant to do so. The major issues that every producer brings to Agency Consulting Group, Inc. during its interventions with their agencies is that a) they are overworked – too many customers demand their time, b) they don’t have time to write new business, and c) they don’t have a way to make more money.
A few producers have solved these problems. Here’s what they have done:
1. They hand off (giving away the commissions as well) the bottom 10% of their business every year. These accounts generate a lot of time use and work and little return to the producer. These accounts are handed off to younger producers to teach them how to manage a book of business or,
2. They are handed off to AEs and AMs for management. These roles are paid for the size book of business that they handle, so they welcome more and try hard to cross-sell, grow and retain every account that they can control.
3. The producers use the time saved from the hand-off of their bottom 10% to go after referrals and new clients that generate more premium and commission than they released in their bottom 10%. This pays them better every year by culling the book of business and growing larger accounts.
Whenever you see a producer with a $1,000,000 + commission book of business you can be sure that they use others to service and manage the clients and spend their time growing the book of business.
Finally, this process makes ultimate sense to agency owners who trade 30%-50% compensation for client relationship management for 15% compensation for that role. Unfortunately, agents being controlled by their producer find themselves paying for both full producer commission (for a greatly diminished role in client management) AND higher compensation for AEs and AMs than they paid for clerical CSRs. The source for that the additional compensation is from the owners’ pockets though diminished compensation for those services or diminished profits at the bottom line.
In order to make this move to intervention based compensation, all the agent’s “ducks” must be in a row. First he/she must have a marketing solution for producers who gain sales time. Second he/she must have AEs who are skilled enough to take over client relationships and who can sense when and if producer intervention (at an appropriate compensation at renewal) is justified to retain the client. If a move is made to the Account Manager concept in which the Account Manager actually travels to clients on a regular basis (replacing the producer’s time and freeing the producer to sell more) those AMs must have all of the skills of a professional agent (except the need to close sales). Please call Agency Consulting Group, Inc. if you would like to speed the successful conversion of the service team to the client management role and of producers to the pure growth mode. Agency Consulting Group, Inc.’s toll free number is 800-779-2430.