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Agency Management Compensation Plans
How to Re-ignite Producers — and Other Employees — Who Have Lost Their Spark Incentive Compensation Focused on Customers, Not Premiums, Works, Consultant Says
A
l Diamond is one of the country’s best known and respected agency management consultants. His firm, the Agency Consulting Group, is based in Cherry Hill, N.J. He deals with agencies across the country on issues ranging from operations to mergers to sales and compensation. He is also a Best Practices instructor for the Independent Insurance Agents & Brokers of America and author of the newsletter, Pipeline. In this excerpt from a video interview with Insurance Journal’s Andrew Simpson, Diamond discusses how agencies can use a compensation plan to re-energize not only producers who have become de-energized, but also non-producer employees. He also discusses how to find agency talent amid today’s recession. Insurance Journal: Agencies are in the midst of both the soft market and the causing a lot changes in the way insurance is recession. How do you think they’re marketed. But the really strong agencies are doing? just getting stronger. The weak agencies are Diamond: Well, it’s a very interesting time. I falling by the wayside, if they don’t make know that a lot of my compatriots are talkchanges in the way they operate. ing about tough times, recessions, layoffs and all of the things that go with a business IJ: What can agency managers do with downturn. I’m afraid I don’t share that phia producer who maybe is not produclosophy. ing like he or she used to? Maybe Every economy poses challenges to the they’ve gotten a little insurance industry. This lackadaisical or just economy is no different. There are some lost their momentum. The economy is neither producers who How can agency manbad nor good for us; it is. agers, through their We’re like the stock broreach their level compensation system, kers of the world. There of comfort and … get them back on track, may be downturns in the market, or upticks in the they’re no longer especially in a soft market or a recession? insurance marketplace, as motivated to Diamond: Well, that’s a very but everyone still needs big question. Producers are insurance. They’re going go forward. generally motivated by to buy it from someone. money. They like money. What we want is we want them to buy it from our clients, using IJ: That’s a pretty short answer. the independent agency network and the Diamond: Yes, that’s a pretty short answer. good companies that support those indeThere are some producers who reach their pendent agents. level of comfort, and once they reach their So, the market right now is in turmoil. It’s 28 | INSURANCE JOURNAL-WEST REGION June 1, 2009
level of comfort, they’re no longer as motivated to go forward. We do producer compensation and producer contracts that reward producers, incentivize producers, and grow compensation for producers for growth, but disincentivizes them for shrinkage. In other words, if you grow your book of business, not only do you get commissions, whatever form of compensation, but the larger your book of business, the greater your economy of scale to the agency. We have tiered compensation, so that at different levels of production, producers make ever-increasing percentages, back to the first dollar. So they’re making a lot of money if they’re generating many hundreds of thousands of dollars of commissions. However, in order to get that, you have to have producers who are willing to say, “If I retire in place, if instead of being a producer I become an account executive and just take care of the customers I have, I can’t be called a producer any longer. I can’t be paid like a producer. I should be paid like an account executive.” And so we define a producer as someone who grows his book of business each year. I’m not talkwww.insurancejournal.com