Independent Agent Sub Producer Commission Structure

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Independent Agent Sub Producer Commission Structure

Postby jafa0602 » Mon May 17, 2010 8:44 am

Independent Agents or Sub Producers' Commission Structure will vary from agency to agency, owner to owner, but what is a fair sub producer/agent commission structure for the following insurance agent scenario AND taking experience into consideration?

6 years financial services, independent rep - 75% payout - No salaries or benefits, straight 1099
5 years insurance adjusting, independent adjuster - 60-65% payout - No salaries or benefits, straight 1099 or corp to corp

I've tried to find additional information on insurance journal that indicates an "industry standard" for new agent sub producer commission structures, but haven't seen very much and wanted feedback from industry professionals respectfully. Since insurance varies from state to state, let's run this scenario for Texas.

Is 40% on new business and 20% on renewals a fair consideration with no draw, salaries, hourly pay or benefits? Seems like no salaries, no draws, no benefits would come with a commission model much like the other two models above with higher payouts and the agent assuming most of the costs associated with doing business.

Now consider the prospective agent already pays for gas, laptop, internet connection, salesforce.com, assumes his/her own tax burdens and offices out of his/her place. So outside of lead expenses and charge backs, does it really cost 60% to 80% for the agency operating costs?

Thank you for feedback, insight and opportunities
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Re: Independent Agent Sub Producer Commission Structure

Postby FFA » Mon May 17, 2010 10:26 am

I run a 50/50 split of all house commissions with my Producers. In todays economy, there are many people out there willing to give it a try with no base.
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Re: Independent Agent Sub Producer Commission Structure

Postby alx730 » Tue May 18, 2010 9:40 am

50/50 NB, 40/60 renewals in my office. In your example, I think 60/40 producer/house would be more fair thank what you're considering.
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Re: Independent Agent Sub Producer Commission Structure

Postby yoyowordup » Tue May 18, 2010 11:07 am

Does it matter if it cost the agency 60%/80% to operate? Are they entitled to a profit for the risk they take and the name they've built?

It seems that the replies here are oversimplified. There are all different types of agency setups. Large agencies with lots of leads/referrals. CSR support etc.

I worked at an agency that paid 50/50, but the producer did all CSR support including taking phone calls for glass claims etc. Another agency had 40/20, but they provided full CSR support so the producer can do what he/she does best - SELL!

Make sure the culture/environment of the agency is what you want. It sucks to wake up everyday and have to deal with people that you don't mesh with.

Good Luck!!
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Re: Independent Agent Sub Producer Commission Structure

Postby volstrike3 » Wed May 19, 2010 8:37 pm

It really depends on what the agency provides and the amount of hand holding required. I have a 1099 producer with a $400k book of property business with preferred carriers that almost no maintenance. He sells and services his own accounts and his accounting is accurate. He is a great agent that takes up very little time an energy. I pay him 70% new and renewal and would take 100 more just like him.

I have others that require more handholding or have more service intensive books that get between 45-55%. You eventually find a level where that book of business is profitable for the agency and the producer feels like he is getting a fair deal. Experience doesn't matter unless they have a book of business already or know the ropes with all of your carriers.
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Re: Independent Agent Sub Producer Commission Structure

Postby tflood » Thu May 20, 2010 10:59 am

I wouldn't want to be audited by the IRS on that producer who is making 400k a year from your firm. If he derives the majority or sole source of income from you, and he's not a dba, LLC or S-Corp, the IRS would construe that person as an "employee"
That being said, I wouldn't take a 100 of them.. "it's never a matter of if, but when...." at that income (1099) level it's "when" he will be audited.

If he's inflating his schedule "C" to reduce tax liabilities, and you're giving him the majority of the 1099 income, and he's auditied, guess who is next??? The IRS is all over this
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Re: Independent Agent Sub Producer Commission Structure

Postby volstrike3 » Thu May 20, 2010 11:36 am

I understand your point of view and have discussed it with my CPA and business Atty... but he has another $250k or so in life and group health business placed directly through MGA's that I am not paid on.
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Re: Independent Agent Sub Producer Commission Structure

Postby sunnieday » Thu May 20, 2010 11:49 am

I think you are referring to $400K in premium, not in his income from commissions. The splits we offer are 80% new and 40% on renewal with the agent taking care of servicing. If we service it is usually 50/50.

On the David Miller conversation, he is an independent agent now and represents Nationwide as all Florida agents that were exclusive Nationwide agents became independents several years ago when Nationwide was pulling its' homeowners market.
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Re: Independent Agent Sub Producer Commission Structure

Postby volstrike3 » Thu May 20, 2010 1:34 pm

I was referring to a $400K in terms of commission. A $400K premium book would not be worth the hassle if you are paying 70%.
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Re: Independent Agent Sub Producer Commission Structure

Postby jack1978 » Thu May 20, 2010 9:52 pm

I just di not get some of the people here. If you have an independent agent that does not require any hand holding or any leads, what makes you think he cannot pick up his book of business and simply transfer it to the guy next door who will welcom him with open arms. If you have an agent that is bringing in lot of business and you are not giving him leads, 60-70% is the norm. You are getting free money. You are getting clients you could not get on your own. In a way, they are paying you, you are not paying them. They are giving you free money. It is not costing you a dime to keep an agent that is on straight commision and does his one CSR. Am I wrong? By giving an agent 45-50%, when they do all the work and deal with all the head aches, how long do you think its going to take them to realize you are not the only game in town? Keep your agents happy, pay them 5% more then the guy next door, they will keep bringing in cients for you.
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Re: Independent Agent Sub Producer Commission Structure

Postby miinsguy » Fri May 21, 2010 11:28 am

If this business were soo easy everyone would do it!

I have been on my own for 15 years for Life & Health and 6 years ago I started my own P & C Agency.

Yes I thought I deserved more than 50%. But I know know that was a reasonable split.

There is a lot more to being in the insurance business than just selling to customers - E & O insurance, customer service, getting carrier appointments, keeping carriers happy ...

Yes the guys getting 40 new and 20 renewal may be underpaid but not at 50 / 50.

Stop worrying how much you are giving up and deal with your production quota or you may find yourself out on the street with no appointments!
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Re: Independent Agent Sub Producer Commission Structure

Postby NYagent301 » Fri May 21, 2010 11:46 am

Jack1978 you do not understand what it takes to run an agency. miinsguy is right, carrier appointments is key, as well as E&O and carrying costs of another person. Automation and backroom support is often taken for granted. I've been in business for over 20 years and rarely have been provided "leads" from my agency. If you are really a salesperson you will make your own way, come up with marketing ideas and put them into action. Do you think the agency should derive noting from the relationship? Every situation is different and the key to the whole thing is a good "balance" where both parties feel they are benefiting from the relationship. Once there is mistrust and animosity the relationship has run its course.
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Re: Independent Agent Sub Producer Commission Structure

Postby jack1978 » Sat May 22, 2010 12:20 am

I am talking about agents who do not require leads and do not require any hand holding whatsoever. Trust me, I do know how to run an agency and do know the difficulty of appointments. My only point is, you have to keep your GOOD agents happy. You can have all the appointments in the world, if you don't have new business coming in the door, you won't be around for a long time.
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Re: Independent Agent Sub Producer Commission Structure

Postby FFA » Mon May 24, 2010 10:53 am

Lots of opinions, different ways to do things. One thing I remember from Community College is to keep your sales force happy.

No one seems to complain about a 50/50 split. Have one guy on one scale and another guy on another scale could lead to internal issues among the sales force. So, KISS it.
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Re: Independent Agent Sub Producer Commission Structure

Postby volstrike3 » Mon May 24, 2010 11:02 am

I agree that it is best to keep it simple... but not every producer or situation is the same. Some require more (support, leads, coaching, clean up etc) and some require less. You are not going to pay a green producer that needs lots of handholding and backoffice support the same that you are going to pay a seasoned PL producer with a book of business that requires almost no attention. If the two producers are bringing the same revenue, skill level and level of autonomy then they should be paid the same. Producers are business people and they understand some level of overhead and profit margin is involved. When we are talking about 1099 producers we know that we are not providing a whole lot in the way of support. Market access, agency management system, comparative raters, accounting systems, etc. They are basically agency owners who don't want to recreate the wheel. Paying them 35/25 like the are at an alphabet house with a lot of resources, internal referrals and an 18 month draw isn't fair either.
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