As we come to the last quarter of another year in the insurance business, before we start to evaluate year-to-date results and begin to finalize our business plans for 2018 (you do have an annual business plan, don't you?), what are some of the major objectives other than revenue that you were determined to address this past year but never got around to?

I would bet that the subject of your agency producer contract would be one of those sticky issues that you desperately wanted to fix but did not get around to. Perhaps you have an old contract, or no contract, or a different arrangement for different producers, or whatever reason, that has become such an overwhelming and sensitive issue that you just can't get your arms around how to do it.

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

In this article I will share some ideas that might stimulate your thinking and serve to help standardize and provide uniformity to creating the right Agency Producer Contract for your organization.

This three-part contract is how we structured the formal agreement between our multi-line agency and our producers, and although it was modified occasionally it served us well for more than 25 years.

Part 1: Agency employment agreement

This section spells out the terms and conditions of employment between the producer employee and the agency, including employee benefits, the duties and responsibilities of the producer, ownership of the business produced, non-compete covenants, and reasons for termination. These are just some of the essential provisions of the employment agreement and should be tailored to your specific needs. We strongly recommend that every employee have an employment agreement.

Part 2: Agency compensation agreement

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

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

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

Any producer production bonus plans that the agency has should also be spelled out in this section. If agencies provide incentives to producers for becoming multi-licensed (P&C, Life, A&H or investment products) and reimburse producers for these and other educational or degree-designated achievements, the terms and conditions should be specifically defined.

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

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 when the producer leaves, whether the producer withdraws voluntarily, is fired, retires, dies or becomes disabled, will be governed by the provisions of this section of the Agency Producer Contract.

Almost every contingency can be provided for with careful planning. What worked for us was a carefully thought out vesting schedule that would pay the exiting producer a percentage of the annual commissions of the book of business based on the compensation factor in Part 2, and tied to the producer employee's length of service with the agency.

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

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

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

WARNING: Be sure to review any Agency Producer Contract with your legal advisor or attorney before executing any agreement.

Barry Seigerman is an independent broker/producer. Contact him at bmseigerman@gmail.com.

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