Comp Survey Reveals More Than Dollars

Each time we survey agency owners on their compensation practices, we see so much more than raw numbers. Embedded within the data is the story of how agencies around the country and of various sizes run their business--how they are growing organically, changing their sales practices or managing their various lines of business.

Compensation is certainly not the only motivator for agency owners and sales staff, but it is an important one, and can be used to shift producer sales activities to the more lucrative middle-market and large accounts.

The typical organic growth rate for agencies that have not changed their sales practices is 5-to-6 percent, but other agencies that are adopting best practices to focus on new business are hitting double-digit growth targets. It requires work and courage to do things differently--and we can usually spot it in the positions they fund and in their approach to compensation.

A telltale sign of a better-than-average-growth agency is the presence of a full-time sales manager. In fact, our research shows that 80 percent of agencies with revenues of $25 million or more employee such a person.

Only about one in four agencies with less than $8 million in revenues is likely to have a full-time sales manager, but many will have a part-time sales manager--or an owner who doubles in that role.

The sales manager can ramp up production dramatically in a number of ways--from recruiting, training and directing producers, to properly acknowledging good work.

On a day-to-day basis, the sales manager helps direct the producer to the right activities that will bring the biggest impact. They'll go along on sales calls with the rookie or the producer having an off-period, and help sales people figure out what part of the call is effective and where there's room for improvement. They'll guide, coach, bark, cajole, or do whatever else is necessary to bring forth that improvement.

The sales manager also helps qualify leads so producers use their time well. They'll teach the producer how to quickly determine who makes the insurance decision at a business, and whether the insured is serious about switching agencies--both important to know up front.

The sales manager will coach them on quickly assessing the specific type of risk a business presents and its loss history. That way the producer won't spend a lot of time with a business that is unlikely to fit the profile of the carriers the agency represents.

The sales manager often helps recruit new producers, which generally involves finding and training people who have no prior insurance knowledge and/or no prior sales expertise.

While it generally is too difficult to recruit experienced insurance producers from competitors, a very good solution may be to hire experienced sales people from other industries. The sales manager trains them in the particulars of insurance sales, and will also identify resources to provide insurance training.

As more and more agencies have hired noninsurance sales people, the need for good, basic insurance training has become so critical that The Hartford School of Insurance teamed up with The National Underwriter Company (parent of this magazine) to train new producers and certify them with the new Commercial Lines Coverage Specialist designation.

With the sales manager playing such a critical role in creating a sales-driven organization, it stands to reason that compensation be based in part on the sales being fostered. In our survey, we found that 60 percent of agencies pay sales managers a bonus incentive, with 30 percent of respondents calculating bonuses as a percentage of new business commissions.

Compensation also is being used by the most successful agencies to encourage producers to stay focused on selling middle-market and large business, and to pass on personal lines and small commercial business to customer service representatives.

The CSRs now have a greatly expanded role involving sales as well as service, so more of their salary depends on their sales skills, as well. In fact, 65 percent of agencies in our survey now compensate CSRs for writing business--up from 43 percent four years ago.

For many agencies, this change in business model and compensation is difficult, but it is important.

The owners of one agency, for example, were startled to learn just how unprofitable their small accounts were when they factored in the cost of middle-market producer compensation expense. Because they were not discouraged from bringing in small accounts, producers were not as productive as they could have been.

It took courage to take what felt like drastic measures, but they changed their organization and reinforced that change by adjusting their approach to compensation.

First they set up a Small Accounts Unit staffed by CSRs dedicated to cross-selling existing business and handling all incoming calls--both service and sales. Middle-market producers were no longer compensated for selling accounts with less than $1,000 agency commission, and were expected to pass on those accounts to the new Small Accounts Unit.

To encourage buy-in and minimize the initial negative impact on producer compensation, the agency temporarily paid producers a percentage of the new business they passed on to the new unit.

Since the agency was too small to hire a full-time sales manager, one of the owners assumed the role, training CSRs in their expanded responsibilities while coaching producers to spend their time profitably seeking out and selling larger accounts.

A few years later the agency was growing nicely, and the producers who had grown their books of business were actually better compensated and happy that the agency had made the change.

With the continuing soft market and the annual inflation of expenses, the handwriting is on the wall. Agencies that want to flourish in today's market must develop a sales culture and focus on new business. Those that do will reap the benefits of growth and stronger profits.