Still emerging from a difficult economy, insurers are rapidly realizing the need to bolster their reach. Given the high stakes, industry analysts point to organic business line growth as the No. 1 corporate mandate in 2010, yet carriers know they can't achieve this in a vacuum.
Claudia McClain knows this, too. As principal of McClain Insurance Services, a small, successful personal lines agency in Everett, Wash., McClain takes a straightforward approach to growing her business, and the four carriers she represents, PEMCO, Progressive, Safeco and Travelers, appreciate this.
"We are fortunate," says McClain, "because our carriers are fair and supportive, and show that support in a variety of ways."
Like hundreds of other agencies of similar size, McClain chooses the carriers she represents based on best fit for her agency's growth path, and for the support they provide. In kind, the carriers with which she works choose McClain based on the agent's consistent ability to produce.
This seemingly straightforward recipe for success is actually quite complex, but achievable, says Jeff Rieder, president of Cincinnati-based Ward Group, especially when compensation is but one component in the insurer's value proposition. And although a carrier's fair and equitable compensation is an important ingredient in building a solid distribution strategy, it's not the key to improving producer performance.
"We have almost never seen a company that has been able to prove that increasing agency compensation garners more revenue," Rieder says. Rieder backs this claim by pointing to the distribution strategies of carriers that made the Ward Group's 2009 "Top 100" ranking. Representing property/casualty as well as life and health, these insurers report slightly lower compensation base and lower contingent commission plans than their peers.
McClain, whose agency represents two of the companies on Ward's list, says that compensation is important, but so are product pricing, consistent and reliable service levels and the technology that makes it efficient to conduct business.
"Our performance is evaluated by policies in force (PIF) rather than by premium volume or loss ratio caps," she says, "and our PIF growth is set based on agreed-upon goals with the individual carrier."
This arrangement is less restrictive for many agents, she says, because market conditions are working against them. "Agents are fighting a flat market in terms of premium growth, and even some rate decreases."
Carriers also are experiencing the pains of a flat market. Rieder maintains that carriers are responding to economic restraints by reducing salary increases and reducing benefits, and some are now pushing that same logic out to their agents.
"Carriers are getting more aggressive in their expense management techniques, cutting back on travel, entertainment and nonessentials, while increasing their agents' minimum premium volume required to earn contingent commission." (See 'Contingent Commissions 2010 Planned Changes')
According to results of Ward's recent "Agency Management and Compensation Practices Study," overall agency compensation is expected to actually decrease in 2010.
Ron Agypt, VP of broker sales at Aflac, the Columbus, Ga., provider of voluntary supplemental insurance, reports being "on the other side of that fence;" Aflac is investing in the broker market.
Agypt claims that his company's aggressive sales strategy precludes Aflac from holding its 20,000 brokers to premium volume minimums or loss ratio caps, which, for Aflac, can run as high as 70%. Instead, Aflac is aggressively building out its distribution network by actually lowering participation requirements and increasing compensation nationwide.
"Admittedly, voluntary is not a mandated offering, and we have a long way to go," says Agypt, "but with today's increased pressure on clients and their business practices, coupled with the increased cost of medical, we believe voluntary is more in vogue."
Thanks to the October 2009 acquisition of Continental American Insurance Co., Aflac brokers can also now offer a host of additional group products.
To support the company's plan to build market share, Aflac recently hired 15 marketing VPs who are officers of the company, and rolled out an initiative dedicated to providing brokers and their clients with value-added services, such as Aflac for Brokers, an online support mechanism that provides tools, techniques and key information.
STRATEGY IMPLEMENTATION
Obviously, what may incentivize 20,000 brokers selling supplemental insurance, may not appeal to 450 agents selling personal and commercial auto and homeowners' coverage. Boston-based Plymouth Rock Assurance, which writes and manages $1 billion in such coverage in the Northeast market, recognizes this, and takes a very different approach to helping its distribution network grow.
"Some think in the short term they are supporting growth if they provide additional commission dollars," says Mark Sweeney, the insurer's chief agency officer. "This really is not doing much for the agent - and it's not looking at long-term growth."
That's not to say the efforts to compensate its agents aren't streamlined. Because of the size of its distribution network, Plymouth Rock's compensation program is managed through the company's accounting and agency commission technology, and bonus plans are calculated and managed by the carrier's marketing team.
But Sweeney, a 30-year insurance veteran, has learned to broaden beyond the more accepted, traditional means of agent support.
"For example, we've made a number of introductions possible over the years, and if one agent opts to investigate the potential acquisition of another," says Sweeney, "we may consider loan guarantees, bonuses, production plans, or other unique ways for buyer, seller and our own company to come together for the greater good."
The performance of its 450 agents is measured on loss experience over time, growth patterns and volume of business, making Sweeney a big believer in producer development.
"We understand the limitations faced by most agents trying to talk a 22-year-old college graduate into making insurance sales a career choice, so we encourage agents to recruit new personnel, then we support that decision with Caliber training and, based on production targets, may contribute funding for this individual for up to three years. If, during a certain amount of time, the candidate hasn't met those goals, the deal is over, and Plymouth Rock, rather than the agent, becomes the bad guy."
The company has seen many successes as well as a few individual failures using this technique. "It's relatively black and white," Sweeney says, "but it empowers the agent to either groom their employees or cut their losses."
Ward's Rieder says that the notion of carriers releasing additional funds to empower a top performer proves that the insurer desires a true win-win business partnership. "We also see carriers offering flat office allowances and an array of marketing support, including co-op advertising, Internet marketing, regional co-branding, local media broadcast, e-mail marketing, and Web site development and social media efforts."
McClain is encouraged by the more creative ways insurers are helping her build her agency business, pointing to the benefits of training classes that may include a low- or no-fee sum, Safeco's "Bricks and Clicks" classes, and Progressive's efforts to help agents adopt a fuller Web presence with social media.
Beyond marketing, she adds, Travelers has a history of agency management support that includes helping agency owners develop their business plans and learning to run the business. "Most of us started as technical or salespeople, and so learning about metrics, capacity, when to make adjustments, etc., is important. To me that's a forward-thinking approach."
The approaches these carriers are taking appear to be working. Results of a recent study conducted by the Independent Insurance Agents of America ("Big I"), Alexandria, Va., points to some surprising growth in smaller agents. "Many of these agents have worked hard on productivity, and we are seeing some exclusive agents becoming independent," notes Jeff Yates, director of the Big I's Agents Council for Technology, "but these agents need more arrows in their quiver."
Yates asserts that by automating as much as possible, the agents are better positioned than ever to handle a tough market, and technology is the key to helping them manage productivity, freeing up time to cross sell and go after new business.
A few hold-out agents, however, have yet to overcome a culture of technology resistance, notes Karen Pauli, research director in the insurance practice at TowerGroup, Needham, Mass. "When success is the result of a few "champions" in the agency doing the bulk of the selling, there will be an aversion to technology upgrades because those producers only understand revenue and compensation," she says. "They don't understand the cost of not automating."
Pauli says carriers need also be aware of the need to provide technology support (See 'Time is Money'). "There is a widening gap between the carriers who "get it" and the ones who don't," she says. "Carriers need to think like the agent, i.e., make it as easy as possible to conduct business, because in the coming years, some carriers will suffer from adverse selection due in part to a lack of technology support."
Yates points to the need for all parties to embrace Real Time and Download capabilities (the Big I is a participant in the GetRealTime campaign). "Real time can work with agency management systems and comparative raters, so built out, it can support inquiry, rating, and quoting functions."
For McClain, the key elements of her agency's success still revolve around a balance of fair and equitable compensation, ease of doing business, and products that sell.
"They are all important, but, having gone through some challenges five years ago with one of our carriers, we realized that if the technology isn't there, ease of doing business isn't there, so nothing else matters."
Time is Money
When it comes to growth, independent P&C agents don't hang their hats on compensation; rather, they point to technology that enables "ease of doing business" with insurers as the keystone in the bridge to their success. Such is the conclusion reached by a study conducted by Deep Customer Connections, Acton, Mass., and commissioned by iter8, a Toronto-based provider of P&C insurance and agency interface software and portals.
Conducted in the fourth quarter of 2009, the study surveyed 405 independent agents and brokers in the United States and Canada to learn their perspectives on carrier technology. The survey was designed to determine a ranking of specific functionalities important to the agents' ability to compete, but not provided by the carriers they most frequently represent. The survey reports significant differences between agents' technology needs and what carriers currently offer.
The report also revealed that agents are frustrated by many technology issues that cost them significant time in tasks - often clerical and repetitive in nature - and diminish their capacity to sell and service business.
Not surprising, what agents want most in carrier technology is ease of use, including ready access and reliability of performance, according to the report. Agents also desire carrier technology that can integrate with their agency management system and offer real-time upload and download capability, along with single entry, easy information access, and effective, reliable quoting, notes the research.
Agents ascribe much of the cause of poor ease of use to companies' varied proprietary technology, ineffective use of technology, and the implementation of technology that does not adequately take their needs into account, notes the report. In addition, they are of mixed minds about carriers "offloading workload to agents;" they may appreciate the greater speed, accuracy and control that comes with their doing more of the work at point of sale, but feel exploited by taking on that work without additional compensation. They want expedited transaction capacity that starts and ends in their agency/brokerage management systems.
Independent Marketing Firms Play a Role
Regardless of line of business, recruiting and retaining powerful producers is a challenge, and some insurers are not just competing for agents and brokers that can produce. Instead, these insurers are acquiring independent marketing firms (IMOs) that will help push product out the door. Regardless of whether it's a company representative, agent, broker or IMO, expert management of the distribution network's compensation structure is vital to the company's success.
With $2 billion in revenue and a growing product set of life and annuity products that inherently breed complexity, The Phoenix Cos. Inc., Hartford, Conn., had to re-evaluate the value proposition being offered to its network of nearly 4,000 independent representatives.
Because of the long-tail structure of what's sold, producers are not managed to premium volume or loss ratio minimums; rather, the company manages the force by looking at overall mortality experience, and annuities around surrenders, notes Matt Robertson, second VP, responsible for strategic initiatives and distribution administration.
"We have a unique compensation structure for each new product launched, and we often take a core product and customize it for a particular distributor," Robertson says.
Deborah Zawisza, Phoenix Cos.' SVP of IT and CIO, says that to manage and maintain the complex hierarchies of how compensation is calculated and tracked, the company works with Cary, N.C.-based CSC's PerformancePlus platform, which acts as the primary database for producer information and compensation processing. With the recent addition of 20 IMOs under the umbrella of Saybrus Partners, a newly defined distribution arm that will help address the needs of middle-market customers, support for those hierarchies is at a zenith.
"Our goal is to develop relationships and support sustainable growth," she says, "and to do that, technology is critical."
