Producer compensation can be a sensitive topic with no perfect solution. Every agency seems to set these up in a unique way. Attempting to create the perfect formula for every producer can be a futile effort. Choosing the cookie-cutter approach rather than analyzing and evaluating each producer book based on individual merit can lead to frustration.
While the desire for simplicity and consistency can be a valid concern, a one-size-fits-all system does not necessarily work. Here are some things to consider before implementing significant changes to producer compensation structures.
1.) Examine Specifics of Each Book –
Some producer books are very niche-specific, while others contain a more diverse set of business types. In the same regard, some books are very low maintenance, and some are very labor-intensive.
The general level of service required for a book directly correlates to the profitability of a book. A book that demands a high level of service requires a lot of back end work by an account manager to ensure client needs are taken care of. Books of business of this nature tend to be less profitable. A lower renewal commission in a less profitable book makes sense, especially given that an account manager is handling the service rather than the producer. However, those books that are lower in maintenance and higher in profit may validate higher commission splits. Evaluate characteristics of each book and consider necessary modifications based on specific criteria like profitability.
2.) Find Room for Consistency and Flexibility –
Not all books are created equal and attempting to fit all of them into one commission structure can be detrimental to the producer and, eventually, the agency. Attempting to modify a well-established compensation plan in a way that reduces the producer’s income can put the agency at risk of losing producers who can find a more favorable split elsewhere. Creating a compensation structure that is too rigid may also leave the agency unable to attract producers who are being paid better at their current agency.
If the goal is greater consistency, formulate a plan that works towards this on a go-forward basis rather than going and making changes that can generate negative consequences to the existing book.
3.) Evaluate Technology –
Managing multiple commission schedules for multiple producers can present a host of challenges and will be increasingly challenging to handle if the agency is not utilizing the right software to manage the information.
If the system available requires a very manual, hands-on process to keep commissions accurately coded in the system, it is time for an upgrade. A more modern setup will manage new and renewal percentages by producer and distribute those percentages through all transactions in the Agency Management System. A system with these types of automatic defaults will reduce human interaction, human error, and human frustration involved in the process and should only require updating if the percentages ever need to be changed.
The need for consistency will always be front and center within the operations of an agency. Applying this to producer compensation may not be in the best interest of the agency or the producer.
For more on this topic, check out the complete episode of The Independent Agent here.
About the Author
Justin Goodman has spent the past 20 years in insurance. He is the co-founder and CEO of Total CSR and co-founder and Managing Director of Project 55. By the age of 29, he was recognized as one of the top five construction insurance experts nationwide by Risk and Insurance Magazine. He also was named to Insurance Business Magazine’s Hot 100 and most recently the 2024 Insurance Journal Agent of the Year. Justin has trained over 50,000 CSR’s, account managers and producers through his work at Total CSR. He has a passion for developing the next generation of insurance professionals. When not with his family, he devotes his free time to speaking engagements and advising agency owners across the country.
