Producer Compensation and the Impact on the Agency

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On this episode of The Digital Broker, Ryan Deeds examines producer compensation. By listening to this episode, you will learn:

• How producer compensation is typically structured.
• Which adjustments to producer compensation are likely to influence producer behavior.
• Why a universal compensation structure can’t exist, but what to keep in mind when designing a producer compensation structure that makes sense for your insurance agency.

Historically, producers have been trusted with generating new business, while the service team (account managers, account executives, etc.) would take care of the renewals. But we all know that things have gotten more complex than that. Today’s agencies are sometimes capable of generating new business, or at least attracting leads, without a producer being involved all the time. Likewise, it is unfair to shut producers out of the renewal process, where they can and should continue to add value.

Still, producers should remain focused on bringing in new business—but not so focused that they lose sight of renewals and their own role in that process. A producer compensation structure should be designed with that balance in mind.

Generally, producers receive a higher compensation percentage on new business and a lower compensation percentage on renewals. This is fine in order to keep producers focused on new business, but if the compensation on new business is too high, it could bias producers too heavily toward new business and discourage them from dedicating an appropriate amount of time to renewals, where they’re not getting paid anywhere near as much. This could end up hurting the agency’s bottom line, if the agency is paying producers an exorbitant amount of money on accounts that do not renew.

It makes more sense to encourage producers to take a greater interest in renewals, thereby upping renewal success rates all around. But this usually means adjusting the compensation percentages so that they’re closer to one another. This has its own risks. Just as producers need to focus on new business, the service team needs to focus on renewals, and they need to be paid fairly to do it. If you’re adding points to a producer’s renewal percentage, are you taking that compensation away from the service team? Furthermore, just how much should producers be involved in the renewal process? At what point might you be taking them away from time they could be putting toward attracting new business?

The best way to settle these issues is to clearly define responsibilities for producers, whether they’re working on renewals or chasing new business. If a producer is to take a greater role in the renewal process, what are that producer’s responsibilities going to be? To keep in touch with the customer? To share information with the service team?

Answers to those questions will vary, making it impossible to design a universal compensation structure that will work for every agency. Some agencies might need their producers to be very involved in the renewal process; others might not need them to be involved much, if at all. But producer compensation structure is likely to influence producer behavior, and probably everyone else’s, so it is important to take the time to think it through and have the appropriate conversations with the producers and the service team.

Generally, the most successful agencies are the ones that have taken the time to define everyone’s roles. Once you have a clear idea of what a producer is supposed to do, it becomes easier to build a compensation structure based on that.