Insurers expanding through internal growth

Insurers looking to expand their operations are doing so through “staff-driven, organic growth,” according to Business Management Group, Inc. 2006-2007 Owner, Executive and Producer Compensation Survey.
A decrease in the exchange of large books of business is the root cause of this shift, which has lead to a shift in compensation package offerings and new recruitment and training strategies. The new strategies also address the shortage of trained sales professionals, according to the survey.
Suzy Hammett, vice president of Business Management Group and author of the study, says the shortage of sales talent has necessitated the hiring of non-industry producers. In fact, she says this recruitment strategy was cited as a key tactic for 85% of the survey’s respondents.
“That means it’s even more important for agency principals to know how to attract and retain top performers with good training programs and competitive compensation packages,” Hammett says.
Conducted in March 2006, the survey indicates that the level of compensation for agency producers was directly related to the agency’s size and individual earnings. For example, the smallest agencies, with less than US$500,000 in revenue, averaged US$55,000 in total compensation per multi-line producer. The largest agencies, with revenues in excess of US$25 million, averaged US$192,400 per producer. Nationally, the average total compensation was US$44,583 for new, inexperienced producers and US$113,925 for seasoned multi-line producers.
In addition the survey shows that producer commission rates at the largest agencies averaged 4% to 12% less than those in mid-size and smaller agencies.
Business Management Group says the difference may be due to the fact that larger agencies tend to provide additional resources such as sales centers, central marketing and account executives, which increase the cost of acquiring and keeping business yet can help increase an individual’s productivity.
The benefits and perks offered by an agency, the survey indicates, are important components of a producer’s total compensation package. For example, 57% of the survey group provided reimbursement for travel and entertainment expenses, while 32% paid a monthly auto allowance that averaged US$431 per month.
The survey also shows that the most important factors in determining base salaries for executives, is the management responsibility and the size of the book of business produced. Sixty-two percent of respondents ranked agency profits as the key factor for determining executive bonuses,
The survey also suggests that in order to retain the most senior personnel, more agencies are offering long-term incentives in the form of stock redemption and deferred compensation plans. For example, 36% of respondents were offering incentives to owners and 39%were offering plans to senior management. In addition, 27% of agencies were offering executives equity in their book of business while 24% were offering senior management stock options.
Finally, a continuing trend the survey reveals is the focus on developing new and larger accounts. According to the survey, 24% of agencies are eliminating or reducing commissions on small commercial accounts. Instead, more agencies are establishing small business units to handle sales and service functions and reduce operating expenses so their producers could focus on larger accounts.
Agencies, as observed through the survey, seem to be depending more on customer service representatives to sell additional insurance products to customers and are structuring their compensation to reflect this trend. For example,
65% of agencies are paying these reps for writing new business. Customer sales rep commission percentages, which vary by line of business, averaged 21% for commercial lines, 24% for personal lines and 22% for employee benefits.