Compensating The Cross-Sell

COMPENSATING THE CROSS-SELL

A simple method for cross-selling employee benefit coverages to Property/Casualty clients is to establish a disciplined program for the P/C producer and benefits producer to make joint sales calls at renewal of the P/C coverage. But how should these two producers be compensated on the resulting benefits sale?

The principles of producer compensation are simple and remain unchanged in nearly all circumstances:

1. The agency must generate 20% pretax profit on the business written in each renewal year.
2. A maximum 50% commission is payable to in-house producers the first year a policy is written.
3. A 30% maximum commission is payable to in-house producers on renewals.

When the agency has an in-house benefits producer or department, the standard commission splits on the referred cross-sold benefits coverage should be:

• New business: 20% to referring P/C producer, 30% to producer writing benefits (If a 40% first-year commission is used in your agency, a 20/20 split is used.)
• Renewals: 10% to referring P/C producer, 20% to producer servicing benefits

If an outside employee benefits firm or specialist is used instead of an internal benefits department or producer, remember that the agency's goal is to generate the equivalent of 20% of the gross benefits commission as a net profit to the agency. As a result, the 100% gross benefit commission generated from the cross-sell can be split as:

• New business: 20% to referring P/C producer, 10% to agency, and 70% to outside benefits producer/agency
• Renewals: 10% to referring P/C producer, 20% to agency, 70% to outside benefits producer/agency

Since the P/C agency has no expenses for sales, service, administration, or office facilities, the 20% retained on renewal drops to bottom-line profit.

For many agencies, using an outside benefits agency is far more successful and profitable than starting an in-house benefits department. The 70% commission split and volume of disciplined referrals is generally lucrative enough to attract the highest-quality benefits firm in the region into a strategic alliance. The high-quality benefits firm and its trained producers will probably be more successful than the benefits producer most P/C agencies could hire. Also, the outside strategic alliance can have an immediate impact with no start-up costs, and a high potential to cross-sell P/C insurance to the benefit agency's clients probably exists.