Paying agents full commission who don’t offer quality guidance to consumers is too expensive. Many carriers are now paying agents more than 50% of all their expenses. There is nothing left to cut and yet, my very detailed research shows a high correlation between strong growth and low expenses. In other words, if you have nothing else left to cut internally and your expenses are still too high, agents’ commissions are all you have left if you want to succeed.
And why might cutting commissions lead to faster growth rather than reduced growth? Because these kinds of agents sell price and they’d rather sell a low price rather than fail to sell anything at a high commission. A half load is better than no loaf.
These agencies don’t polish your image, and technology is bringing the day of reckoning earlier. Do you want to break out of this historic but losing model?
Many carrier executives already know the future and just are not confident of taking action now. As one carrier executive recently told me, they know predictive modeling eliminated a critical purpose of agents, especially agents of mutual companies. Upfront underwriting now gets in the way of growth and profitability.
And for expense control, why do carriers pay three entities to do one job? Why pay underwriters, agents, and your predictive modeling company all to underwrite the same accounts? Are you really that rich?
Additionally, given the huge consolidation in the industry and how carriers now pay agents through their networks where loss ratios are merged, these large entities are going to achieve your loss ratio. They won’t likely achieve any material difference, unless they are one of the sloppy entities and then your loss ratios will be bad, but on scale. Paying these entities based on loss ratios makes no sense.
If you want to achieve lower costs while paying your top agents even more, in other words, having a true merit-based system, call me. I’ve been doing this since 1995 and until now, most carriers were too rich to care. Great savings exists in eliminating subsidies to lousy agents.
NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.
None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.
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