Compensation Survey: Agencies Reward on Organic Growth, Profitability, Retention

With fewer large books of business changing hands recently, insurance agencies are relying on staff-driven, organic growth to expand their operations. Compensation packages and new recruitment and training strategies have shifted to reflect this trend, and also to address the shortage of trained sales professionals, according to the recently-published Business Management Group, Inc. 2006-2007 Owner, Executive and Producer Compensation Survey.

“With a shortage of sales talent in today’s market, hiring producers from outside the industry has become a key recruiting strategy for almost 85 percent of respondents in our survey,” said Suzy Hammett, vice president, Business Management Group and author of the study. “That means it’s even more important for agency principals to know how to attract and retain top performers with good training programs and competitive compensation packages.”

Survey highlights
BMG’s survey, which was last published in 2002, is a comprehensive 46-page report based on responses from 162 agencies and brokerage firms, categorized by line of business, six regions and 2005 total agency revenue. Conducted in March 2006, the survey provides a snapshot of how agencies stack up against their peers.

Some survey highlights include the following:

Producer Compensation. According to the survey, the level of compensation for agency producers was directly related to the agency’s size and individual earnings. For example, the smallest agencies, with less than $500,000 in revenue, averaged $55,000 in total compensation per multi-line producer, while the largest agencies, with revenues in excess of $25 million, averaged $192,400 per producer. Nationally, the average total compensation was $44,583 for new, inexperienced producers and $113,925 for seasoned multi-line producers.

Commission Rates. Producer commission rates at the largest agencies — those with revenues greater than $25 million — averaged 4 percent to 12 percent less than those in mid-size and smaller agencies. This difference may be due to the fact that larger agencies tend to provide additional resources such as sales centers, central marketing and account executives which increase the cost of acquiring and keeping business yet can help increase an individual’s productivity.

Benefits and Perks. Beyond commission, the benefits and perks offered by an agency were important components of a producer’s total compensation package. For example, 57 percent of the survey group provided reimbursement for travel and entertainment expenses, while 32 percent paid a monthly auto allowance which averaged $431 per month.

Executive Compensation and Bonuses. For executives, the most important factors in determining base salaries were management responsibility and the size of the book of business produced. Sixty-two percent of respondents ranked agency profits as the key factor for determining executive bonuses compared to 50 percent of respondents in BMG’s 2002 survey. Additionally, agency growth moved from fourth place to second place during this time period, emphasizing the need to better align executive rewards with growth initiatives.

Long-Term Incentives. To retain the most senior personnel, more agencies today were offering long-term incentives in the form of stock redemption and deferred compensation plans. For example, 36 percent of respondents were offering incentives to owners and 39 percent were offering plans to senior management, compared to just 25 percent in 2002. In addition, 27 percent of agencies were offering executives equity in their book of business while 24 percent were offering senior management stock options.

Account Trends. Another continuing trend was the focus on developing new and larger accounts. According to the survey, 24 percent of agencies were eliminating or reducing commissions on small commercial accounts. More agencies were also establishing small business units to handle sales and service functions and reduce operating expenses so their producers could focus on larger accounts.

Similarly, agencies were depending more on customer service representatives to sell additional insurance products to customers and were structuring their compensation to reflect this trend. For example, 65 percent of agencies were paying CSRs for writing new business, up significantly from 43 percent in 2002. CSR sales commission percentages, which varied by line of business, averaged 21 percent for commercial lines, 24 percent for personal lines and 22 percent for employee benefits.

The Business Management Group’s 2006-2007 Owner, Executive and Producer Compensation Survey is a national industry study with data analyzed by geographic region and revenue size. It is cited by the Independent Insurance Agents and Brokers Association as one of their best practices tools.

Business Management Group, a subsidiary of The Hartford Financial Services Group Inc., is an independent agency/broker consulting firm that has surveyed and published agency compensation studies since 1990. The survey is available from BMG for $175 plus applicable taxes. For additional information, contact BMG at (800) 772-0208 or visit www.bmgconsulting.com.

Source: The Hartford