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Research Firms Predict a Banner Year for Incentive Compensation Management Adoption

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2008 was a good year for Insurance Incentive Compensation Management Application vendors, and 2009 forecasts similar, if not better results. A paper by Gartner on the MarketScope for InsuranceIncentive Compensation Management (ICM) Applications sheds some light on the direction the Industry is heading.

With 18 to 22 ICM deployments projected for the next 12 months in the Insurance industry, the coming year looks promising to ICM vendors and Carriers alike. And vendors must be prepared to provide best-in-class ICM applications.

In comparison with other industries, incentive compensation for insurance entails complex contract and commission structures, hierarchies, and regulatory compliance requirements. The challenge for vendors is to understand the industry and the Carriers’ business requirements thoroughly to deliver the most effective solutions. Though there are companies who are fast learning the tricks of the trade and developing their own incentive compensation solutions, companies already equipped with the required domain and industry expertise stand a better chance to design the most suitable applications to impact clients’ (carriers’) bottom lines directly.

The following article emphasizes the importance of reorganizing compensation practices.

In their article “Executive Compensation in a Troubled Economy: Different Thinking for Different Times”, DolmatConnell & Partners suggests two fundamental shifts in thinking relative to bonus plan design for a time (i.e., now) when there is little visibility into where the economy or even individual firm financials are headed over the next six to twelve months.

From the article:

  • Consider using two six-month plans or even quarterly plans instead of an annual plan.  This shortened window provides both increased visibility and the ability to reforecast and reset targets.
  • Consider a lessened focus on financial metrics and more emphasis on the achievement of key non-financial objectives that will improve the health and competitive positioning of the firm.  With financial visibility nearly unknown, there is a way to provide a focus on necessary strategic accomplishments in order to be well-positioned when economic recovery happens.

The above points reconfirm the importance of flexible yet robust compensation plans. There is greater stress on talent retention and performance appreciation, the right way, in tough economic and financial situations. Designing a precise compensation plan and deploying it through conscientious compensation management is imminent now, more than ever. Additionally, heavy data-based calculations are processed in no time through automation, so staff can focus on their primary interests in the organization, rather than on tedious shadow accounting.

There is an equal focus on maintaining higher levels of visibility in compensation calculation. The greater the transparency in the process, the stronger is the trust and loyalty between the employee and employer. This fortified relationship ends up motivating workforce to perform to its highest potential given the current scenario of tight competition.

Considering the trend forecasts of companies to transform their processes to reap more benefits and impending deployment of ICM applications by various Carriers, 2009 may reveal   greener pastures for ICM vendors.

Incidentally, Insurance Networking News reported of a Deloitte report that delves into the operational inefficiencies of life insurers adds another dimension to the current situation.

An excerpt from the article:

Indeed, as the economic slowdown ushers in a sustained low-growth environment, insurers would be well served to explore measures in cost containment and efficiency, according to Deloitte. “Cost containment in all aspects of the annuity business remains paramount” the report states. “A low-growth market requires disciplined cost control to enhance profitability.”

While this is all well and good, where do insurers start?  Traditionally, ACES has focused its cost metrics on key operations such as customer service and new business, this year it added analysis on corporate overhead and marketing, product, and distribution (MPD). It found that companies wanting to attain competitive advantage need to tackle overhead and MPD, which represent 74% of total annuity expenses. “With the downturn in the economy, executives need to look at MPD and corporate overhead in the same structured way they evaluate new business and customer service expense,” it states.

The growing focus on Incentive Compensation Management amongst insurers, as reported by Gartner, coupled with Deloitte’s report on cost-cutting for MPD suggest that Incentive Compensation Solutions are crucial to making the insurance sales force perform to their highest potential while successfully satisfying company objectives in the current turbulent economy.

There is great significance in competitive sales performance that achieves excellent results while keeping a healthy check on the compensation paid. For this functionality, companies need to embrace robust and seamless Incentive Compensation Management Applications.  Those who don’t will surely suffer the consequences, as this excerpt from the article points out:

“Thus, the impact of inefficient processes and obsolescent technologies will take an increasing toll on those companies that simply maintain the status quo.”



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