Producer Validation and Management

Most insurance agencies would like to be driven by a regular flow of new business from their producer force. However, most agencies find that their producers (owners or not) spend most of their time caring for existing customers, with production relegated to a secondary position. They only have time to prospect and sell when they can break away from service tasks.

However, the producers feel that they should be making more money, whether for non-sales tasks they perform for the agency, for servicing existing customers, or from sales to new customers. Unfortunately, if an agency isn’t growing through the efforts of its producers, it has little additional income available to further compensate these key employees.

For many years Agency Consulting Group, Inc. has designed producer validation and management programs that are triggered by and attuned to producers’ need for compensation. When you begin a conversation with "How much would you like to earn next year?" and continue with, "Our job is to permit you to earn as much as you desire from your primary sales efforts," there’s little doubt about how a producer can earn more money.

Many agencies pay producers a base salary or a draw against expected commission levels, with incentive commission for achievement beyond salary or draw basis. When designing a Validation Schedule, base all measurement categories on the producer’s desired compensation level, which includes their base compensation.

The Validation Schedule applies a producer’s historical performance to their production expectation to determine how many Sales Calls, Proposals, and Sales the producer needs to achieve the new business required. This figure, combined with projected renewal commissions, will give the producer the compensation level they desire.

Here’s an example:

• Desired Compensation = $100,000 (how much the producer wants to make)
• Compensation Base = $75,000 (the existing salary or draw)
• Commission Baseline = $225,000 (the amount of commission needed to validate the compensation base)
• Commission beyond Baseline Validation = 40% (the commission rate that the producer achieves for business in excess of their compensation base)
• Total Commission Required to Achieve Desired Compensation = $287,500 (baseline compensation plus additional commission needed to achieve compensation goal)
• Commissions Expected from Existing Accounts = $240,000 (projected renewal book)
• New Business Commission Required = $47,500 (remaining goal is new business)
• Producer’s Average New Business Account Size = $2,250 (commission based on producer’s history)
• New Account Requirement = 21/year = 1.75/month (New Business divided by average commission per account)
• Producer’s Average Proposal to Sales Rate = 66% (from producer’s history)
• Estimated Proposals Required = 32/year =2.7/month (derived from new accounts and Proposal/Sales Rate)
• Producer’s Average Number of Sales Calls to Proposal = 33% (from producer’s history)
• Estimated Number of Sales Calls Needed = 97/year = eight/month (derived from required Proposals and ratio of Sales Calls to Proposals)

Creating a Validation Schedule makes it easy to determine if the producer’s expectations are in sync with their historical performance. For example, the Schedule will make it clear if the number of Sales Calls required is far above historical performance or realistic possibilities - as is the case with many new producers whose average commission per account would require a huge number of Sales Calls to achieve their goals. To remedy this situation, the producer would need to either hone their sales skills to increase the ratio of Proposals to Sales Calls or raise their Hit Rate (Sales divided by Proposals) to lower the number of Sales Calls needed for their goals. The agency or producer might also concentrate on larger accounts that would generate more premium through fewer sales calls.

If the goals are reasonable, the next step is to measure the results in four categories on a weekly and a running year-to-date basis:

• Sales Calls - Number of visits to prospects
• Proposals - Number of visits to provide a viable quote and to ask for the sale
• Sales - Number of successful sales
• Commission - gross annualized commissions for sales mad

The agency manager, owner, or producer can use this tool to determine whether the producers’ efforts are yielding the desired results and, if not, to determine where the problem lies. If the producer isn’t making enough sales calls the responsibility lies with them - as long as the agency provides enough time and leads for the producer to meet expectations. If the problem is a lack of proposals or sales, the producer needs sales training (or the agency might not have the right markets or products to sell). If all activity is high, but the results don’t meet expectations, the producer isn’t targeting the right types of accounts to achieve the desired results.

You can design Validation Schedules and Management Programs yourself in Excel or manually. Or you can use the Agency Consulting Group, Inc. Producer Validation and Management Program - software tailored to your market, agency, and, producer needs that provides all of the information discussed above, together with a management tracking device that will show you and your producers if their activities are providing the desired results. For more information, call us at (800) 779-2430 or visit our Web site (www.agencyconsulting.com).