Agency compensation reflects organic growth, profitability and retention

With fewer large books of business changing hands recently, insurance agencies are relying on staff-driven, organic growth to expand their operations. Compensation packages and new recruitment and training strategies have shifted to reflect this trend, and also to address the shortage of trained sales professionals, according to a recent report by Business Management Group Inc.

“With a shortage of sales talent in today’s market, hiring producers from outside the industry has become a key recruiting strategy for almost 85 percent of respondents in our survey,” said Suzy Hammett, vice president, BMG and author of the “2006-2007 Owner, Executive and Producer Compensation Survey.”

“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.”

BMG’s survey, conducted in March 2006, is a 46-page report based on responses from 162 agencies and brokerage firms, categorized by line of business, six regions and 2005 total agency revenue.

Producer compensation. According to the survey, the level of compensation for agency producers was directly related to the agency’s size and individual earnings.

Commission rates. Producer commission rates at the largest agencies-those with revenues greater than $25 million-averaged 4 percent to 12 percent less than those in mid-size and smaller agencies. This 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.

Benefits and perks. Beyond commission, the benefits and perks offered by an agency were important components of a producer’s total compensation package.

Executive compensation and bonuses. For executives, the most important factors in determining base salaries were 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 compared to 50 percent of respondents in BMG’s 2002 survey. Additionally, agency growth moved from fourth place to second place during this time period, emphasizing the need to better align executive rewards with growth initiatives.

Long-term incentives. To retain the most senior personnel, more agencies today are offering long-term incentives in the form of stock redemption and deferred compensation plans.

Account trends. Another continuing trend was the focus on developing new and larger accounts. According to the survey, 24 percent of agencies were eliminating or reducing commissions on small commercial accounts. More agencies were also establishing small business units to handle sales and service functions and reduce operating expenses so their producers could focus on larger accounts.

Similarly, agencies were depending more on CSRs to sell additional products to customers and were structuring their compensation to reflect this trend.

Topics Agencies Talent Training Development