INSURANCE agencies face a host of important questions right now in the face of a softening market. In any market, questions of fair compensation for producers and CSRs are near the top of the list. We recently had an extended conversation about compensation and other topics while meeting with one of our agency partners. We came up with several sets of questions that all agencies should ask themselves:

?Should we pay our producers on all accounts?
?Should we establish a "bare minimum level" of premium for accounts, below which we don't pay commissions?
?How do we get our producers to grow their books of business?
?Should we compensate CSRs for sales?
?What should be the split between agencies and producers?
?Where should we focus our efforts in 2005?

Agencies should be able to answer these questions, too. Use your responses to form a production-staff compensation plan, following the guidelines below:

1. Every agency is different, but everyone needs to set a "bare minimum level" for accounts on which you will pay commissions to producers. Calculate the dollar value of your agency's time and overhead needed to break even on a typical account, as well as the minimum level of commission the producer needs to break even. Add 15% to the break-even number, and you have your "bare minimum level." This number can be different for different producers, and it can vary between personal lines and commercial lines.

2. Anything below the bare minimum level is a house account. If you want to emphasize the importance of reaching the bare minimum level, purchase a box of thank-you cards. For every account your producers write below the bare minimum level, send them a nice card in the mail. You won't have to send too many cards before the producers understand.

3. CSRs are humans too! Agencies should reward their CSRs for their role in sales. By providing professional service on an account, a CSR allows the producers (or agency owners) to get out and sell. The larger the book a CSR services, the better his or her incentives should be.

4. You decide the split. Agencies must decide for themselves what split of commission with producers works for them. Sharing the wealth can include more than just the cash commission. Other considerations include cars or car allowances, country club memberships, expense accounts and the like. One thing is for sure: Successful agencies reward performers and make the lazy suffer.

5. Focus your efforts where they bring results. In other words, where does your revenue come from?

a. For each producer, run a production list by size of account. Draw a line on this list below the group of accounts that represent 80% of a producer's revenue (this is normally about the top 20% of clients). Anything below the line can become a throw-away or house account. These "below the line" accounts cost the agency and the producer time and money. Have producers shed any account below your bare minimum level.

b. Have producers focus on getting referrals from the top-20% accounts. We want our top 20% referring us to other "top-20" accounts. By focusing on top-flight referrals, your producers will quickly be compensated for any decrease in income after shedding the bottom 80%.

c. Identify your 2005 prospects now and prioritize them according to how well they match up with your carriers' appetites and fit your "top 20" criteria. Ask your current top 20 if they can give you referrals to any of your prospects.

For the last two years of the hard market we've seen below-average people making absurd amounts of money, holding clients hostage and taking high commissions to the bank. It was a fun ride, but now it's over.

Even top performers are realizing they did not invest enough in training during the good times, and now there is an all-out panic. When your agency renews enough accounts at today's decreasing rates, your revenues may drop by 15% to 20%. When that happens, you have additional questions to answer:

1. Have you made plans to increase sales skills, now that your "top 20%" know prices are coming down and have hit the street to look for a better deal?

2. Are you following a marketing and sales process that will enable you to increase your closing ratio in a softened marketplace?

If you aren't doing either of the above, you may have one last question to answer: Are you ready for your carriers to tell you the new rules about how much you need to produce to keep your contract, and to reduce staff and cut overhead and reduce your personal income in order to offset the upcoming 20% decrease in your revenue because you fell asleep at the switch?

We all have questions to answer; which ones you answer is up to you. Good selling!

Tom Barrett is president of the Midwest and Southeast regions of SIAA, Inc. SIAA is a partnering of 1,500 agencies writing $3.25 billion annually in property-casualty premium, making it the nation's 6th largest insurance entity. Tom also serves on the National Faculty for Dynamics of Selling and Marketing & Sales Ruble Seminars for The National Alliance. If you would like comments on your planning, e-mail Tom at tomb@siaa.net. For information on National Alliance programs, go to www.TheNationalAlliance.com.

Special Reports /

Strictly Sales: Agencies must ask producer-compensation questions

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