Producers and insurers tend to view theirrelationship much like legendary Chicago Bears Head Coach MikeDitka once described his own with quarterback Jim McMahon: “We havea strange and wonderful relationship—he's strange, and I'mwonderful.”

As with members of any team, that does not mean producers andinsurers always agree with how the other approaches the game. Andplenty of examples, from shifting responsibilities to producercompensation to new business development, according to industryobservers, show that. Many agents have the same criticism aboutinsurers they have had “for the last 50, 100 years,” said JohnWepler, president of industry consultant Marsh, Berry & Co. ofWilloughby, Ohio. “It's the perception that carriers, in general,don't understand their business.”

But that opinion isn't shared by agents who find ways to adaptto evolving market dynamics, said Tim Cunningham, a principal atOPTIS Partners LLC of Chicago. Overall, those agents' relationshipwith insurers has “gotten better” over the past several years, hesaid. The “old-school guys” who resist change have the poorerrelationships with insurers, he said.

The Evolving Agency Model

A significant change has been the additional work and servicethat insurers demand from agents, such as more underwritinginformation—although the differences in carrier systems create datauploading inefficiencies for agents. Insurers also expect agents togenerate policies for clients, provide loss-control services andshoulder additional claims-handling responsibilities.

“The days of just handing a policy to people are over,” said KenA. Crerar, president of the Washington, D.C.-based Council ofInsurance Agents and Brokers, which represents producers ranging insize from $10 million of annual revenue to the world's largestbrokers. “Consolidation at the smaller end of the industry is aboutnot being able to make the investments” to deliver those services,he said.

Although some agents negotiate “an additional override” fromclients for providing services such as loss control, “goodproducers do that on the front end to present a risk in the bestlight to an underwriter,” Cunningham said. “I see that as goodagents being proactive.”

Related: Read “Agencies Seek Technology Support fromCarriers“

But agents do not have to resign themselves to more work for thesame compensation, Cunningham said. Agents can negotiate additionalcompensation by presenting sound data that demonstrates an agency'sincreased workload and effectiveness. For example, show how theagency expanded its producer team and premium volume, committedsubstantial additional hours to client loss-control services andreduced policyholder losses.

Conflicting Agendas

As agents cultivate premium and compensation growth, insurers'cost-cutting and profit-enhancing measures jeopardize the agents'efforts.

For example, after contending for years with soft market ratesand reduced commission income, agents have seen rates firm over thepast year, Wepler said. While that's good news for compensation,agents are frustrated that many insurers are focusing rate hikes onexisting clients while wooing new business with big discounts.

“Carriers expect the agent to be able to pass on rate increasesand that the agent should have allegiance to the carrier,” Weplersaid. “It's not a fair and equitable way of dealing with an agent'sbook of business.”

Some insurers might not understand that their strategy hascaused tension, Wepler said. In other cases, insurers' regional andfield office representative are fully aware of the problem but willnot address it because of their own premium growth dictates.

Meanwhile, rumblings of a move by insurers to rework agents'personal lines commission structure have raised concerns at the BigI. The idea that insurers have floated over the past 6 to 8 monthsinvolves revising the commission structure to provide incentive towrite more new business and depend less on renewal commissions,said Madelyn Flannagan, vice president of agent development,research and education for the Independent Insurance Agents &Brokers of America Inc. in Alexandria, Va.

“If this happens, it would have a negative impact” onagent/insurer relations, she said. But now, there is no way to tellwhether this idea will manifest or exactly how it would take shape,she said.

Related: Read “Agent/Insurer Relatiionships: Build StrongFoundations”

New, Sustainable Business

Insurers, meanwhile, are frustrated that most agencies do nothave a predictable and sustainable new-business plan—a producerreinvestment strategy of recruiting and training additionalproducers, Wepler said. “So growth is lumpy.”

In turn, insurers are hiking current policyholders' rates todrive up premium volume while aggressively pursuing new business,Wepler said. “So there's a disconnect between the two” grievancesthat producers and insurers have lodged against each other.

Insurers cannot avoid this problem by restricting agencyappointments to those with producer reinvestment strategies becauseso few agencies have them, Wepler said. Insurers would prefer to,but they cannot afford to jettison so much of their business alongwith those agencies, he said. Insurers “have the foresight but notthe fortitude.

Related: Read “Agent Satisfaction with Carriers Drops: IA&BSurvey“

“The real issue at the end of the day is growth” for insurers,and they cannot grow if they cut loose all appointed agencieswithout producer reinvestment and perpetuation plans, Weplersaid.

With so few agencies investing in producers, “most carriersdon't have programs to help agencies develop a better business,”Wepler said.

Insurers that do have agency business-development programsgenerally restrict their offerings to better performers—the fewwilling to invest in producer recruitment and training—“so thatdoesn't solve the problem,” he said. Those insurers typically areregionals, which are more selective in their agency appointments,Wepler noted.

But that is not always the case. For example, CNA runs twoproducer schools that focus on sales and technical training: onefor new producers, and the other for experienced agents. CNA plansto launch by year's end a program designed to assist agenciesdesign perpetuation plans, said Roger M. Nulton Jr., theChicago-based senior vice president for producer and productdevelopment.

Agency representatives say the lack of producer recruitmenthinges on minimal recruitment material and a lackluster industryimage, according to agent representatives.

Flannagan noted that although 10,000 people retire from theindustry every day, only 2,500 college graduates with riskmanagement degrees enter the workforce annually.

“Generally, one reason that young people are not coming into theagency business is that insurance is not sexy,” said AugustoRussell, president of the Professional Insurance Agents Connecticutand a partner at May, Bonee & Walsh in Glastonbury,Conn.

Both the Big I and the PIA are working on promoting the industryas a career path for young adults.

Compounding the problem in insurers' eyes is that most agenciesdo not have a perpetuation plan. As a result, insurers are not surewhat will happen to key pieces of their distribution system afterthose agencies' senior managers have left the business.

Of the nation's approximately 38,500 agencies, only about 30percent have perpetuation plans, Flannagan said.

To enter the Assurex network, agencies are required to have “amulti-sided perpetuation plan,” said James Hackbarth, president andchief executive officer.

“But the best perpetuation plan, without the talent, probablyisn't worth the paper it's written on,” because growth in talentand premium volume feed a perpetuation plan, Hackbarth said.

The Road Ahead

How can producers and insurers ease any tensions they might havewith each other?

Assurex's agents “want the carrier to come in and ask, 'What isyour plan, and how can we support it?'' If the agency's andinsurer's plans do not align, they might not be a good match andshould consider splitting, Hackbarth said.

Part of that plan should include how the agent will modify itsbusiness to account for the upcoming changes in its benefitsbusiness, Crerar said. About 70 percent of The Council membersproduce both P/C and benefits business. Although P/C accounts for60 percent to 70 percent of their total books, benefits businessgenerates a stronger profit margin, Crerar noted.

Related: Read “Survival of the Brightest“

“All that is changing,” he said. Insurers likely will want toknow about an agency's new business model in the nation's newhealth insurance marketplace.

“The role of brokers on the benefits side will be more of aconsultant, as it always has been on the P/C side,” Crerarsaid.

How wonderfully that works out for producers is too soon totell. But at least it will not be a strange position for agents tobe in.