NU Online News Service, Jan. 7, 12:15 p.m. EST
Insurance agencies can expect to receive less carrier compensation in the future as companies reassess their payment arrangements and require more business from them.
That was one of the findings in a survey by Ward Group, a Cincinnati–based consulting firm specializing in the insurance industry.
A survey of 99 diverse property and casualty insurance companies from 2008 to 2009, found that plans to lower agent compensation in 2010 outweigh plans to increase compensation by close to 3 to 1.
Ward Group said that 80 percent of the companies surveyed were independent agent companies.
Among some of the other findings in the survey:
o Forty percent of companies plan to modify their contingent commission in 2010.
o Ten percent of companies plan to increase premium volume requirements while four percent intend to decrease the volume requirements.
o Twelve percent plan to change contingent formulas to pay less commission, while 4 percent said they will pay more. Six percent of companies plan to increase the stop loss thresholds, which is the individual cap of loss placed on an agency for contingent commissions. Only 1 percent plan to increase the threshold.
o Six percent plan to add growth requirements to their contingent formulas while 5 percent plan to add retention requirements.
o Three percent of companies plan to totally eliminate commissions.
In a statement, Jeff Rieder, president of Ward Group said the top 50 companies in its study did not pay excessive commissions. The top 50 companies is based on Ward Group's analysis of 3,100 P&C companies domiciled in the United States.
"A common misperception is that companies must pay higher commissions to generate more premium," he said. "Top performers focus on the ease of doing business and assertive agency management practices to drive new business results. These companies target compensation to be fair, but not excessive."
According to the survey, the top performing companies achieved 34 percent more premium than average per agent. The key agency management business practices adopted by this group suggest that they do the following:
o Are more likely to modify base commission by line of business.
o They are less likely to have separate plans for personal and commercial lines.
o Have 20 percent fewer agents per manager than average.
o Had stronger requirements for top tier agents, which included higher production and lower loss ratio requirements.
Mr. Rieder said he expects total agency compensation to decrease slightly in 2010, largely due to contingent commission changes. Agency trips and conferences are expected to be smaller and less costly than in 2009 and prior years.
Companies appear to be recruiting new agents more aggressively in an effort to increase their sales force, he said.
On the issue of contingent compensation, most companies, he said, have not made "effective changes to their contingent plan design over the last 3-5 years and some plans will not be in line with current market conditions and corporate objectives.
Companies with assertive agency management and effective communication practices appear positioned to achieve best operating results, he noted.
The study "Agency Management and Compensation Practices" is online at www.wardinc.com.
This story was updated at 12:48 p.m. EST
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