There is More to Insurance Compensation Management than Writing a Check
A few odds and ends recently crossed my desk. Most of the flotsam and jetsam was just interesting reading and not much else; however, I did notice a few things that revolved around commissions and compensation management.
One item that jumped out was how much insurance companies pay in commissions to producers. Every so often, you see articles that are designed to scare the populace. A good example would be the headline: “What if Amazon or Google or Walmart or [insert your worrisome company name here] decided to sell insurance?” That headline ought to scare people to run for the hills and otherwise think the apocalypse is right around the corner.
Well, for the faithful readers of VUE Software Blogs, articles, and white papers, we’ve already covered this topic. About three years ago, we published a paper on this very topic. The net-net of “what if” was that Amazon, Google, and Walmart (AGW) don’t go into low-margin businesses like insurance where profitability is relatively uncertain based on a lot of external factors. Additionally, insurance technology is difficult to master and the business is highly regulated.
Trust me, AGW has looked at insurance and quickly backed away. Do you want to know why?
Across the board, commissions in insurance have a historic average rate of 10%. That’s for life and annuities, property and casualty, and health. Typically, when a company is looking to expand their business, they look for fat margins with a lot of inefficiencies. If you find that industry, it is relatively easy to enter into that line of business and it’s off to the races. But, at commission rates of 10%, there isn’t any room for a company wanting make a quick buck. Then, there are the small matter of catastrophes and subsequent attendant losses and claims. The risk-reward isn’t all that great. Keep that 10% in mind the next time some enterprising media-type starts claiming insurance is ripe for the taking.
Next up is the new thing in commissions. How would like your commissions, Mr. Agent? Would you like them paid monthly, bi-weekly, weekly, or daily? That’s right: sell a policy on Monday and get the commission check on Wednesday. Because we are in the business of calculating and paying commissions, we started getting this type of inquiry from clients and prospective clients a couple of years ago. Naturally, we looked to see if we could do it. It took some time, and today we can help a carrier be the Ben & Jerry’s of commission payments to its agents. On a serious note, this approach to commissions can be a significant differentiator for the carrier to acquire new agents and agencies.