Insurance agencies should not be surprised to see less compensation from carriers in the year ahead as many companies reassess their payment arrangements and require more business from them in a difficult economy.
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 insurance companies from 2008 to 2009 found that plans to lower agent compensation in 2010 outweigh plans to increase compensation by close to three-to-one. Ward Group said that 80 percent of the companies surveyed were independent agent companies.
Among some of the other findings:
o Forty percent of companies plan to modify their contingent commission arrangements in 2010.
o Twelve percent plan to change contingent formulas to pay less commission, while 4 percent said they will pay more.
o Six percent plan to add growth requirements to their contingent formulas, while 5 percent plan to add retention requirements.
o Ten percent plan to increase premium volume requirements, while 4 percent intend to decrease their volume requirements.
o Three percent plan to totally eliminate commissions.
Jeff Rieder, president of Ward Group, said the top 50 companies in its study did not pay excessive commissions.
"A common misperception is that companies must pay higher commissions to generate more premium," he said in a statement. "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-per-agent than average. The key agency management business practices adopted by this group suggest that they do the following. Such companies:
o Are more likely to modify base commission by line of business.
o 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 three-to-five 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.
Infographic, with money shot–either changing hands, or cutting a stack of bills:
Flag: Show Me The Money!
For more information about the Ward Group's study on "Agency Management and Compensation Practices," go to www.wardinc.com.
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