Is your producer compensation method outdated? Is it possible that there’s a bettter way? This document by Chris Burand provides an interesting alternative that might meet your needs.
I was recently reading some old insurance articles about producers and producing sales. They emphasized cross-selling, identifying needs and fears, and selling efficiently — just what most sales articles stress today.
The difference I noticed is that most agencies were much smaller 30 years ago. Many were one-man (and they were almost all men) shops. These producers could sell because they had to sell. They relied on no one else because there was no one on whom to rely. The house books were a product of the blood and sweat of the sole producers: the agency owners.
Agencies today are larger and usually have multiple producers. However, most of their producers aren’t very good at generating new business. Yet they hold the same title — producer — as their predecessors. They also earn the same compensation as those producers who can sell.
It’s time for a change. Not all producers are created equal. There are two kinds of producers: Servicing Producers (inside producers) and Selling Producers (outside producers). These two types deserve different titles and different compensation. Many agents have told me that most producers find it easy to keep business but difficult to write new business. My experience and industry statistics support this. Most agencies have 86%-93% retention (partly because no other agencies are writing new business successfully) and less than 5% policy growth. The vast majority of producers are Servicing Producers.
Servicing Producers are reactive. They’re great at retaining business and satisfying client requests. Selling Producers are proactive. They go out and find the business, make new contacts, and ask for the sale. These are two distinct personalities, with two different skill sets.
Paying Servicing Producers as if they were good Selling Producers is expensive. They have low 'hit' ratios, which wastes an agency staff’s time. Often, a good CSR/account manager/account executive is better at handling accounts than a Servicing Producer. In these cases, the producer is also often a complainer, which drains morale. This adds up to a very expensive employee.
Two producer job descriptions are appropriate. A Servicing Producer could service accounts that require more attention and knowledge than a regular CSR can provide. Pay them a commission on their book. Focus expectations on high retention, high customer satisfaction, and low E&O exposure. Don’t expect growth beyond standard rate increases (although if they sell something new, great). Since they’re not responsible for new sales, make their books larger. Pay them in proportion to their responsibility — probably 20% of the commissions they service.
Expect your Selling Producers to produce, and pay them well for doing so. You’ll have more money to spend on good producers because you’re no longer subsidizing poor ones. Eliminating these subsidies will allow you to attract better producers and to pay for more sales training.
A two-tiered producer compensation system offers other rewards. Profits increase because you’ll require fewer people. Producers not qualified to sell won’t waste their time trying and you’ll pay lower commissions on renewals. Morale will improve because your staff won’t waste time on new business they’re unlikely to write, and because expectations will be more reasonable. You’re less likely to become frustrated that your producers don’t sell. You’ll have the best of both worlds: better morale and higher profits!
The need for change is obvious, but culturally, such a change is difficult to implement. How do you demote a producer? What if a producer leaves? What if all of your producers are Servicing Producers?
To implement such a division of labor, bear in mind that:
- Some producers will leave. Provided you have good trade-secret agreements, your agency won’t be any worse off. After all, if the producers were strong, you wouldn’t have demoted them.
- Morale of the Servicing Producers who stay will be shaken. If they believe that they should be Selling Producers, let them prove it. If they succeed, reward them accordingly.
If you can’t bring yourself to implement a two-tiered program, acknowledge this up front. Write out this affirmation: 'I hereby sacrifice profits and growth in order to maintain the prestige of having producers.' This way, you’ll minimize your expectations — and your frustrations.
If you decide to create a two-tiered system, you’ll be on your way to greater success. You’ll have more money to hire better people and to provide them with better training. After all, this is a 'people' business, and the better your people are, the more success you’ll have.