Who’s Worth What?

Agency Salary Survey: Agencies Trim Payrolls and Raises

Independent insurance agencies remain reliable employers even in these rocky economic times, but even they have to cut back occasionally.

Whether due to efficiencies from technology, the lingering soft market, the continuing economic downturn or all three of these, the number of agencies cutting staff rose in 2008 — and still more have plans to cut payroll in 2009. A quarter (25 percent) of all agencies reduced staff size in 2008, while 11 percent indicated they would downsize in 2009, according to the annual Insurance Journal Agency Salary Survey.

The good news is that overall, far more agency jobs and paychecks are being spared than eliminated. More than half (54 percent) of all agencies’ staff sizes remained the same in 2008 and two-thirds (66 percent) plan to remain the same in 2009. (See charts on this page.)

The IJ Agency Salary Survey generated 1,453 responses from independent insurance agencies nationwide, providing insight into who’s worth what in the independent agency system. Demotech Inc., IJ‘s official research partner, provided analysis and input again on this year’s survey results.

Julie Brown, founder and talent manager of San Diego Insurance Staffing (SDIS), has witnessed the effects of staff downsizing up close. “There are a lot more unemployed people than I have ever seen,” Brown said. “There’s been a lot of changes, some mergers and acquisitions in the industry, and so when you used to have one candidate for six openings, you now have six candidates for one job opening.”

Service staff — including customer service representatives (CSRs) and account executives — appear to be bearing the brunt of staff reductions, according to Brown, who founded SDIS 14 years ago to provide staff to southern California insurance organizations.

As recently as a year ago, there were plenty of jobs and not enough candidates. Account executives were able to negotiate better compensation packages, including bonus options. But that’s not always the case today, according to Brown. “Agencies still have some kind of bonus or profit sharing in place, but CSRs are not demanding wages as high as they used to be because right now there are a lot of them unemployed,” she said “We’ve seen the salaries come down a little bit because of the marketplace changes. Clients [employers] are feeling that they have a lot more choices today so they might be able to pay less.”

The downsizing in 2008 comes as no surprise to Madelyn Flannagan, Independent Insurance Agents & Brokers of America’s vice president of education and research. Flannagan says agencies are feeling the effects of the economic recession and the soft market, and some of their commercial clients have reduced their own payrolls or even gone out of business.

The IIABA’s Agency Universe Study 2008 reported that more agencies are experiencing revenue reductions than in the past. More than half (57 percent) of agencies saw revenue increase from 2006 to 2007, while 23 percent reported decreases. That’s a big shift in reported revenue changes from 2004 to 2005, when 73 percent reported revenue increases and just 10 percent reported decreases, the study said.

According to Flannagan, while smaller service staffs might suggest more work for each staff person, and higher salaries due to that workload, technology may be keeping this from happening.

“We haven’t seen support staff salaries increase according to what is being perceived as an increase in workload because many agencies are really using technology to offset the decrease in staff sizes,” she said. “The workloads per employee, if you look at the number of accounts they are handling, they are going up but they are also able to use technology to service those clients, as well as [carrier] customer service centers, which have taken some of that everyday burden off support staff.”

To Raise or Not to Raise

Given declining commissions and the stark economic conditions, holding down costs is a top priority for agency managers. Since personnel is one of the biggest agency expenses, payroll is where agents are doing what they can to contain costs, the IJ Salary Survey shows.

Nearly half (47 percent) of agencies postponed hiring in 2008 and 48 percent said they would postpone hiring in 2009. (See charts on page N9.)

Salary raises also suffered. Some 42 percent of agencies postponed salary raises in 2008 and 47 percent plan to postpone salary raises in 2009, the survey revealed.

According to the IJ survey, more than half of agency employees in management (51 percent) and sales staff (52 percent) received no salary increase in 2008, while 30 percent of support staff received no salary increase last year.

One survey respondent wrote, “Due to economic conditions, management has basically reduced staff and commissions. No raises but most salaries remain unchanged.”

Another wrote that his agency “will give no raises in 2009” and will not replace lost positions or add new staff in 2009.

IIABA’s Flannagan believes agencies are doing what they must to stay afloat. “I think a lot of people are making concessions to keep their employees, like asking them to take a smaller cut in order to keep their job,” she said. “Especially in small town America, where many of our members are, we’ll begin to see agencies looking for ways that they can keep their great support staff but maybe find ways to more creatively work with them. Everybody wants to keep their job,” she said.

Flannagan said the Agency Universe Study 2008, which is produced by IIABA every two years, did not show a correlation in decreased revenues and decreased staff size, but she thinks 2010’s study may tell a different story.

“I think in the 2010 study we will see a decrease in agency revenues, and probably a corresponding decrease in employees, and probably a decrease in their pay,” she said.

Stagnant Salaries

Not surprisingly, average salary increases in 2008 were minimal, according to this year’s IJ Agency Salary Survey. Average salary increases for those lucky enough to receive them were: 2.2 percent (management); 2.3 percent (sales staff); and 2.7 percent (support staff). (See chart on page N9.)

Most salaries stayed the same in 2008 compared to 2007 (48 percent), while 26 percent reported lower salary increases and another 26 percent reported higher increases than the previous year. (See charts on N7 and N8 for average salaries by region and agency size.)

Marty Murphy, senior vice president of The Jacobson Group, an insurance staffing and executive search firm, says salary increases will not be much better in 2009. “I am not sensing that companies are planning on giving huge increases to individuals,” he said. “I think that what they are hoping for is that the general overall increase — whether it is incentive comps or other perks — will keep people happy at their positions. I think a lot of people are concerned about their jobs and whether or not they are going to have one in one, two or five months.”

Murphy’s prediction is supported by the IJ survey, in which 48 percent of agents said they would postpone hiring in 2009 and 47 percent plan to postpone raises in 2009.

Sales Staff

Even when they may be reducing staff or postponing hiring in the service sector, agencies are always looking for good sales professionals.

The Jacobson Group’s Murphy says there has been an uptick in firms looking for sales professionals. “We’re getting a lot of requests for that,” he said. “I would say we’ve probably had an increase in agencies in distribution organizations that are trying to find sales people.”

Murphy suspects the uptick has to do with current market competition and the possibility of a firmer market in the near future. “They feel they need to grow because they are hoping the market is going to turn and in anticipation of firming they are able to capture up more market share,” Murphy predicts.

On the west coast, SDIS’s Brown sees a similar trend. “There are a lot of agencies looking to hire people in the producer role because they are trying to build up a bigger book because the agency needs to grow,” Brown said.

The tough marketplace may also be forcing agencies to reevaluate how non-owner producers are being compensated, at least in California, says Brown.

A year and half ago, newer producers placed by SDIS could pick through offers that compensated via base pay for a few years. Now, Brown sees few agencies willing to offer new producers base pay at all.

“I have one particular candidate where a year ago he was made an offer from one of my clients and they were looking to develop new producers in the agency, so they were willing to do a base pay for three years and eventually go full commission,” Brown. Such a structure afforded the new producer ample time to build up a book of business. “But today that same client is saying, ‘I can’t. It’s got to be 100 percent full commission. We’re not paying any bases because times are tough.'”

IJ‘s Agency Salary Survey differs slightly from Brown’s perspective on non-owner producer compensation structures. According to the survey, 77 percent of agencies did not change their commission structure, however 8 percent reported a change and 16 percent said they plan to change commission structures in 2009.

Some 31 percent of agencies reported offering salary plus commission in the IJ survey, while 24 percent paid commission only; 12 percent paid a draw against commission and 15 percent paid only a salary in 2008.

Premiums are down so commissions are down, Brown said. “Most of my clients looking for producers right now are looking for someone who already has a book of business to bring over, or they are looking at commission only candidates. They are not looking at bases. They are even trying not to pay a draw if they don’t have to pay a draw,” she said.

Murphy is somewhat surprised that despite rising unemployment, there has not been a significant increase in job applicants from the property/casualty industry. “I know there are a lot of candidates on the street looking and actively searching but I don’t think that has dramatically increased over the last eight to 12 months,” he said. “I think we are getting more calls from outside the P/C industry, on the life side and from the investment side.”

P/C candidates could be taking a wait-and-see approach, even for those not pleased in their current position. “Maybe they want to wait to see what happens next,” he added.

Strategies for the Future

The Jacobson Group’s Murphy said in times like these, communication is critical.

“What I think agencies need to do for their current staff is to make sure that they’re communicating very clearly with everybody inside the organization as to what is going on,” Murphy advised.

The IIABA’s Flannagan advises agencies to be creative in their cost-cutting efforts and to make sure to maximize the use of technologies. “Technology has done so much for agencies to help them be more efficient,” she said.

While new hires will probably be few and far between and pay raises might be smaller, or non-existent, Flannagan feels confident agencies will rebound once the market stabilizes again .

And even though times are tough right now, Murphy says agents should remember “this isn’t the first time we’ve gone through cycles like this” and as most agencies know, it will probably not be the last.

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