Contributed Article by Jacquelyn Connelly, Senior Editor of IA Magazine.
If you’re like most independent agencies, you’ve got commercial lines producer compensation down to a science. But chances are you can’t say the same about personal lines.
Al Diamond, president of Agency Consulting Group, Inc., works with myriad agencies on the issue of personal lines producer compensation. “Every place I go, they’re sort of mystified and stumped,” he says. “They have no idea how to pay personal lines producers.”
Wondering what your options are for developing a successful personal lines producer comp plan—and sticking to it? Here are a few things to keep in mind.
Pick Your Poison
Typical payroll for personal lines producers amounts to about 30% of their book regardless of agency size, according to the 2014 Best Practices Study. But firms arrive at that 30% in a variety of ways. The Reagan Producer Recruiting & Development Study outlines three examples:
COMMISSION WITH DRAW BASED ON PERCENT OF PRIOR YEAR’S PAY
Diamond suggests paying validated personal lines producers 30% commission on the retained book of business for which they are the producer at the end of the previous year, plus a benefit in the form of increased compensation of 40-45% of growth beyond what they did last year. “If they lose business because people drop off, they may not get a raise next year,” he points out.
York International Agency, LLC in Harrison, New York grows personal lines at a minimum of 15% a year by focusing exclusively on high net-worth clientele, refusing to write mono-line policies or work with clients who have not been formally referred, and treating personal lines like commercial lines.
As a result, the agency doesn’t have any purely personal lines producers—all salespeople produce all lines of business. “Why not incentivize the producer to completely round out the account and get all lines of coverage?” says Justin Moundas, executive vice president and principal.
That “ability to pivot” is crucial for York’s validated producers, who receive commission based on a business percentage and a set renewal percentage, regardless of line of business. “We’ve had plenty of times where someone goes out and they think they’re going out with the commercial, but they come home with the personal policy, and that’s how we win the account,” Moundas says.
Five personal lines producers work with entrepreneurs and affluent families at Swingle, Collins & Associates in Dallas, where personal lines makes up about 15% of business. The personal lines comp model is simple: draw vs. commission, same as commercial lines.
Although the margins are different, “the producers love it,” says Frank Swingle, founder & CEO. “Before we hire somebody, we make sure they’re on board with that type of structure. We’ve lost candidates to people that are offering salaries, and that’s fine. When you’re in the commission business, commission’s ultimately how you get rewarded. If you’re on a salary and you don’t sell anything, you’re not going to have a salary very long.”
The same holds true for Baldwin Krystyn Sherman Partners in Tampa, Florida, which employs a pre-specialized private client group consisting of niche “advisors” (the firm’s nomenclature for “producer”) that focus exclusively on assisting high net-worth individuals and families with their personal insurance and risk management needs.
Inside that group, 12 advisors receive either a draw with pure commission or a base salary plus commission. They also receive renewal commission on their book, because “they’re expected to be involved in the renewals and work with the clients on an ongoing basis,” explains Trevor Baldwin, partner.
BASE SALARY PLUS INCENTIVE FOR NEW BUSINESS WRITTEN
Personal lines makes up about 18% of the agency book at PayneWest Insurance, a $100 million-revenue agency with about 30 locations throughout Idaho, Montana, Oregon and Washington. The agency divides 111 personal lines producers into two roles: sales executives, who are responsible for bringing in new relationships, and account specialists, who focus on proactively nurturing and developing client relationships.
For a validated producer, PayneWest’s personal lines compensation plan includes a base salary plus 40% new business incentive. The benefit? “Instead of having people plateau and limiting the new business they could write or limiting the amount of business they could grow, we have personal lines producers that will produce north of $100,000 of commission revenue in a given year,” explains Stephen Smelley, COO. “You can’t do that if you’re focused on trying to personally service everything you’ve built over the last three or four or five years.”
By the same token, “when you’ve got somebody assigned to a client and the client knows that’s who’s going to be handling their business, that specialist is going to be very proactive,” Smelley explains.
SALARY PLUS DISCRETIONARY BONUS BASED ON ACHIEVEMENT
Baldwin Risk Partners has multiple subsidiaries that operate as standalone insurance agencies, including The Villages Insurance—a predominantly Main Street personal lines agency in The Villages, Florida that employs about 75 staff members, 24 of whom are advisors.
There, the agency pays a base salary based on licensure level, experience and skillset and utilizes a bonus program based on number of new sales and type of new sales by policy type. Producers in this model do not receive renewal compensation.
Baldwin says the differing comp plans make sense since the two types of insurance require a different sales skillset. “At the end of the day, we’re trying to design a compensation plan that motivates and incentivizes our advisors to source and generate new business in the areas we’re focused on,” he explains. For the private client group, that means personal lines accounts that generate north of $1,000 of commission revenue. For Main Street business, it’s about cross-selling and upselling mono-line policies.
In addition to the base salary and new business incentive, PayneWest also offers its personal lines producers a 10% bonus. “We’ll give them 50% new business basically back to dollar one if they produce more than $50,000 in new business in a given year,” Smelley explains. Account specialists, who are required to manage a book of business, enjoy additional incentives for retention and account rounding, while sales executives have more incentives for pursuing new relationships.
Although some of PayneWest’s personal lines producers would prefer a comp plan that more closely mirrors that of commercial lines—commission based on a percentage of the book, plus commission for new business—the agency created alignment to focus on the client by creating even more incentives within the two specialized tracks.
“If you’ve got somebody who’s comped on new-new sales, and they’re very good at it, we need people to mentor other people to be very good at that,” Smelley explains. “We can add on additional comp for mentoring, being team leads and focusing on new client acquisition and/or client retention specifically, so they can increase their compensation by doing what they do the best and sharing that with others.”
But how can you hold producers accountable for getting the job done? “What I count on is some competitive pressures between producers, and what I measure is sales activity,” Diamond says. “I want to know how many times these producers are swinging the bat.”
Measuring sales activity works for PayneWest, where each salesperson has a personal business plan and specific monetary- and activity-based goals and adheres to a “5×5 for prospecting,” which requires creating five new relationships, five days a week for a total of 25 new personal lines relationships each week.
The agency measures progress through both management and reporting details as well as peer accountability, including regular calls with the personal lines teams and personal lines-specific management staff that Smelley says “gets right into the mix of things and helps out.”
But York doesn’t rely on quantifiable measurements of any kind. “We tried it in the past, but we find that when someone’s getting compensated just because they scheduled appointments, it doesn’t drive the right behavior that’s necessarily producing good results,” Moundas says. “Sometimes people are making appointments just to make an appointment.”
Instead, the agency holds weekly sales meetings and utilizes a mentoring program that matches each new producer with a senior-level individual “who has a vested interest in seeing that person succeed,” Moundas says.
Baldwin Krystyn Sherman Partners distinguishes accountability processes between new and veteran producers. “Before an advisor’s considered to be validated, where their book of business justifies the compensation we’re paying them, then we have more qualitative measurements around prospecting, activity, center of influence meetings, things of that nature,” Baldwin says.
But post-validation, “accountability really becomes focused on sales outcome results,” Baldwin says. Every advisor puts together a yearly business plan including set new business and retention goals, “so we measure both pure new business and what we call net new business on a monthly basis, and then compare that to goals for every advisor.”
The most important driver of accountability? “Hiring the right people—the right people are going to look at their reports and they’re going to be self-motivated to get the job done,” Swingle says. “If we hire people that require constant management, we’ve hired the wrong people under our system.”
Jacquelyn Connelly is IA senior editor.