As we come to the last quarter of another year in the insurancebusiness, before we start to evaluate year-to-date results andbegin to finalize our business plans for 2018 (you do havean annual business plan, don't you?), what are some of the majorobjectives other than revenue that you were determined to addressthis past year but never got around to?

I would bet that the subject of your agency producer contractwould be one of those sticky issues that you desperately wanted tofix but did not get around to. Perhaps you have an old contract, orno contract, or a different arrangement for different producers, orwhatever reason, that has become such an overwhelming and sensitiveissue that you just can't get your arms around how to do it.

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For certain, there are probably as many producer contracts outthere as there are insurance companies — captive, career orotherwise, agencies and brokerages, selling agreements, handshakes,and so on. There is no real uniformity or standardization withproducer contracts and it's a real struggle for companies, agenciesand the producers themselves to grapple with.

In this article I will share some ideas that might stimulateyour thinking and serve to help standardize and provide uniformityto creating the right Agency Producer Contract for yourorganization.

This three-part contract is how we structured the formalagreement between our multi-line agency and our producers, andalthough it was modified occasionally it served us well for morethan 25 years.

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Part 1: Agency employment agreement

This section spells out the terms and conditions of employmentbetween the producer employee and the agency, including employeebenefits, the duties and responsibilities of the producer,ownership of the business produced, non-compete covenants, andreasons for termination. These are just some of the essentialprovisions of the employment agreement and should be tailored toyour specific needs. We strongly recommend that every employee havean employment agreement.

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Part 2: Agency compensation agreement

This separate section clearly states the commission levels to bepaid to the producer, both new and renewal. It covers all lines ofbusiness as well as the period of time over which commissions arepaid, including P&C, Life, A&H, Employee Benefits,Retirement Plans, Investment Products and Consulting Fees.

It should always state when commissions are paid and whenreconciliations are done under a draw/commission arrangement.Standardized commission schedules and compensation uniformityprevent many issues down the road like jealousy, distrust andarguments, and they're a good practice for overall morale.

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For new producers, who may initially start off on salary, thensalary + commission, then draw/commission, this should be clearlystated in terms of revenue expectations and milestone objectives,cross-selling, prospecting, retention and so on.

Any producer production bonus plans that the agency has shouldalso be spelled out in this section. If agencies provide incentivesto producers for becoming multi-licensed (P&C, Life, A&H orinvestment products) and reimburse producers for these and othereducational or degree-designated achievements, the terms andconditions should be specifically defined.

Lastly, specify what business expenses, if any, will bereimbursed to the producer.

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Part 3: Vesting provisions

Sooner or later, every agency-producer relationship will end.That is a fact. But how it terminates, and what is triggered whenthe producer leaves, whether the producer withdraws voluntarily, isfired, retires, dies or becomes disabled, will be governed by theprovisions of this section of the Agency Producer Contract.

Almost every contingency can be provided for with carefulplanning. What worked for us was a carefully thought out vestingschedule that would pay the exiting producer a percentage of theannual commissions of the book of business based on thecompensation factor in Part 2, and tied to the producer employee'slength of service with the agency.

Our agency agreed to pay the producer a quarterly payment of theannual business retained by the agency, not to exceed 100% of thevalue of the annualized commissions valued at the last date ofemployment.

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A producer with four years of service or more would be vestedshown in the following chart. 

If all of the business was retained over four years, theproducer would be paid (vested) for 100% of the value of thebook.

WARNING: Be sure to review any Agency ProducerContract with your legal advisor or attorney before executing anyagreement.

 Barry Seigerman is an independent broker/producer.Contact him at [email protected].