Posted on 07 Jan 2010
Ward Group, a consulting firm specializing in the insurance industry and the leading provider of benchmarking practices, recently published its findings from an in-depth study of Agency Compensation and Management Practices for property-casualty insurance companies. The study focused on commission practices, agent incentives and other agency management practices and includes aggregated results from 2008 and 2009 for a diverse group of 99 companies. Independent agency companies represented 80% of the participants. Key findings and observations were presented to participants in a webinar hosted by Jeff Rieder, President of Ward Group, on December 15, 2009.
For most property-casualty insurance companies, expenses relating to the distribution system represent the largest expense component outside of loss payments. Ward Group conducted the Agency Compensation and Management Practices Study to help companies measure their performance and establish meaningful benchmarks in this important area. Highlights of the study results and general observations follow.
Plans to lower agent compensation in 2010 outweigh plans to increase compensation by nearly a 3 to 1 margin. The study identified several notable trends for contingent commission planning, including:
* 40% of companies plan to modify their contingent plan in 2010
* 10% of companies plan to increase premium volume requirements compared to 4% that plan to decrease the volume requirement
* 6% of companies plan to increase the stop loss thresholds compared to only 1% that plan to decrease the amount
* 12% of companies plan to change their contingent formulas to pay less contingent commission compared to 4% that expect to pay more
* 6% of companies plan to add growth requirements to their contingent formulas and 5% plan to add retention requirements
* 3% of companies are considering eliminating their contingent commission plan completely
Mr. Rieder observed that the top performing companies in the study (based on Ward’s 50 criteria) did not pay excessive commission. “A common misperception is that companies must pay higher commissions to generate more premium,” noted Mr. Rieder. “Top performers focus on ease of doing business and assertive agency management practices to drive new business results. These companies target compensation to be fair, but not excessive.”
Ward Group also found that top performing insurance companies achieved 34% more premium than average per agent. Key agency management business practices adopted by this group suggest that they:
* Are more likely to modify base commission by line of business
* Are more likely to modify base commission by new and renewal business
* Are less likely to have separate plans for personal and commercial lines
* Have 20% fewer agents per manager than average
* Require their top tier agents to demonstrate exceptional characteristics and proven commitment to the company. This benchmark had 50% fewer agents in their top tier and had implemented more challenging criteria for their top agency selection (in terms of higher production and lower loss ratios requirements).
In his closing comments, Mr. Rieder made several predictions about agency management practices for 2010. Total agency compensation is expected to decrease slightly, largely due to contingent commission changes. Agency trips and conferences are expected to be smaller and less costly than 2009 and prior years. Agency recruitment appears to be more aggressive as companies appoint more new agents in efforts to expand their sales force. However, most companies 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 the best operating results.
To obtain complete results of the Agency Management and Compensation Practices study, including detailed benchmarks by distribution channel and business mix, visit www.wardinc.com.
About Ward Group®
Ward Group is a consulting firm specializing in the insurance industry and the leading provider of industry benchmarking and best practices services. Ward Group analyzes staff levels and expenses for all areas of insurance company operations. The firm’s professional staff is uniquely qualified to help companies measure results, optimize performance and be more profitable. Headquartered in Cincinnati, Ohio, Ward Group has worked with hundreds of insurance companies throughout North America. For more information about Ward Group and the Ward Research Center, visit www.wardinc.com.