Agency Compensation Expected to Rise in 2012: Ward Group

January 30, 2012

Contingent commission payouts to insurance agencies are estimated to be 12 percent higher in 2012 than 2011, a new study says.

The study by the Ward Group also found that carriers are continuing to increase their volume and premium requirements for agencies and both agency appointments and terminations have slowed.

The Ward Group study of agency compensation and management practices at property/casualty insurance companies focused on commission practices, agent incentives and other agency management practices and includes aggregated results from 2010 and 2011 for a diverse group of 69 companies.

The study identified several trends for agency compensation practices, including:

  • Electronic fund transfer for commission payments has become more widely adopted.
  • Base commission plans have not changed significantly over the past three years.
  • 39 percent of companies plan to modify their contingent plan in 2012.
  • The average capped loss amount for stop loss thresholds has increased substantially since 2009 and 5 percent of companies increased the amount for 2012.
  • Minimum premium requirements for contingent commissions have increased since 2009 and 11 percent of companies increased premium volume requirements for 2012.
  • 7 percent of companies added growth requirements in 2012 to their contingent formulas and 5 percent added retention requirements.
  • 17 percent more agents attended trips in 2011 compared to 2010.

Ward Group said that comparing historical results, both new agent appointments and agency terminations are lower. However, despite fewer agency terminations, five year agency retention declined for both the independent and captive agency benchmarks.

“The economic downturn over the past three years has made agency expansion more difficult,” said Jeff Rieder, president of Ward Group. “Companies may be unable to appoint enough agents to accomplish growth goals and agents are not necessarily willing to move business from an existing carrier relationship.”

Ward Group offered several predictions about agency management practices for 2012. Total agency compensation is expected to increase slightly, largely due to contingent commission changes. Agency trips and conferences continue to be smaller and less costly than pre-recession years but appear to be regaining more use.

Independent agency companies represented 78 percent of the participants. Key findings and observations were presented to participants in a webinar hosted by Ward Group, on January 26, 2012.

Ward Group, which was acquired by insurance broker and consulting firm Aon last July, said it did the study because for most property/casualty insurance companies, expenses relating to the distribution system represent the largest expense component outside of loss payments.

Complete results of the Agency Management and Compensation Practices study are available from Ward Group.

Source: Ward Group

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