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Exclusive Survey Shows Compensation Up, Benefits Up With a Cost
For the second year in a row, salaries and total compensation rose in independent insurance agencies across the nation. More agencies are offering health insurance and benefits offerings seem to be up – although at a cost to some employees.
According to Insurance Journal‘s annual Agency Salary Survey 2014, all levels of agency personnel averaged between a 2 percent to 3 percent salary raise in 2013, but managers and producers earned a 5 percent average increase in compensation as higher revenues triggered other forms of income.
Agency owners, principals and management reported salary increases of 4.3 percent in 2013, compared to 2.8 percent in 2012.
Producers/sales reported average increases in salary of 5.1 percent in 2013, compared to 2.9 percent in 2012.
Agency support staff reported a 2.5 percent increase in 2013, compared to a 2.2 percent increase in salary for 2012.
The 2014 Agency Salary Survey revealed even more positive trends in total income, which includes profit sharing, bonuses, and other income:
Agency owners/principals/managers reported a 7.2 percent bump in total income for 2013, compared to a 4.5 percent increase in total income for 2012.
Producers/sales reported the largest jump in their total income for 2013, which increased by 8.8 percent, according to the survey, compared to 5.5 percent in 2012.
Support staff reported a 2.8 percent increase in total income in 2013, just slightly up from the 2.3 percent increase in total income in 2012.
While salaries appear to be trending up, employee benefits such as health coverage for agency employees appear to be trending up was well, but at a higher cost to employees, according to the survey results.
More independent agencies are offering health insurance than in the previous six years of the Agency Salary Survey, says Paul Osborne, senior consultant for Demotech Inc., Insurance Journal’s official research partner who assisted with analysis of this year’s survey results.
“Generally, an agency needs to pass the $5 million premium volume mark before healthcare is covered more often than not,” Osborne says.
He adds: “While there are dramatic differences by region as to whether healthcare is offered, when it is offered, the survey revealed that agencies pay on average nearly 75 percent of premiums in all regions.”
The survey showed that many agencies that do not offer employees health insurance offer a subsidy or higher salary for the employee to purchase their own, Osborne says.
Shifting Healthcare Costs
According to the survey, the percentage of agencies offering group health insurance rose 3 percent: In 2013, some 80.6 percent of survey respondents said their agency offered group health, while in 2012 only 77.7 percent offered the coverage.
While more agencies now offer health coverage, agencies are shifting more of the cost to employees as well.
The survey showed that 15.1 percent of responding agencies shifted costs of health coverage to employees in 2013, while just 9.4 percent shifted costs in 2012.
Despite the rising cost of healthcare coverage for employees, most respondents to the Agency Salary Survey reported that overall benefits offered by agencies were stable or increasing. (See “What Benefits Agencies Offer” chart.)
Megan Bosma, senior vice president of MarshBerry, a national consulting services organization for independent agencies and brokerages based in Willoughby, Ohio, sees similar trends concerning health insurance in agencies today.
“There’s a lot more cost sharing plans, high deductible plans, and HSA plans where employees are being asked to pay for a larger percentage of the overall health insurance,” she says.
Al Diamond, president of the Cherry Hill, N.J.-based Agency Consulting Group, an independent agency valuation and consulting firm serving organizations nationwide, says prior to the economic recession benefits in agencies were out of control.
“The agents who paid health insurance were just taking a hit every time a rate increase occurred. In the last two or three years of tough times for the agencies many said: ‘We have to limit our health insurance costs to X number of dollars per employee,’ where previously agencies paid for all of it.”
Diamond expects healthcare costs to rise further as agencies feel the impact of the Affordable Care Act in the coming years.
“Obamacare hasn’t yet affected agencies but when it does what you can expect to see is a lot more part-timers in agencies than full-timers,” he says. “The industrywide response to Obamacare is going to be a collapse of 10 percent to 15 percent of full-time employees. It’s an impact that no one has yet understood. … It’s going to be way too expensive for companies, especially those with over 50 to 100 employees; they are going to have to do something.”
In Diamond’s opinion, by 2015-2016, agency owners will begin cutting down on full-time staff. “What they’ll do is desk share, and hire part-timers, instead of full-timers,” he says.
Another area where MarshBerry’s Bosma sees benefits taking a hit in agencies is in retirement plans.
“Ever since the downturn in the economy we are seeing lower contributions to 401(k) and other retirement plans on the part of the agency,” Bosma says. “Agencies haven’t necessarily changed their matching programs; it’s just that profit sharing contributions typically made in the past are lower.”
Diamond sees retirement and pension plans remaining stable and “sacred,” but says travel and entertainment (T&E) and auto expenses are dropping steadily.
“T&E has taken the most hit,” Diamond says. “If an agency is not doing well they just basically tell their folks no T&E.” When it comes to auto expense, many agencies are choosing to pay a monthly stipend, or pay “as used” for auto to trim costs down, he adds.
According to Diamond, education reimbursement benefits remain steady, but most agencies just pay for the minimum.
“Most agencies budget just enough for education to get their people re-qualified and renew license requirements and that’s all they pay for,” he says. “But the smart agents expand their education because it makes their employees better.”
According to the 2014 Agency Salary Survey, education reimbursement jumped from 28.0 percent of agencies offering the benefit in 2012, to 32.8 percent of agencies offering the benefit in 2013. (See “What Benefits Agencies Offer” chart.)
Hiring also appears to be another bright spot in the independent agency world with nearly half of all survey respondents (42.8 percent) – this includes all personnel – reporting that their agency’s staff size increased in 2013.
Agency managers responding to the survey reported increases in hiring as well.
Managers in 34.3 percent of the agencies responding to the survey said they increased hiring in 2013, while only 24.2 percent of managers reported increased hiring in 2012.
Some 47.3 percent of agency managers expect to increase hiring again in 2014, according to the survey.
Salaries, total compensation and hiring trends are up thanks to growth in both personal lines and commercial lines almost nationwide, Diamond says.
The result: “Owners can pay themselves a little bit more and producers are getting more by virtue of the commission rates,” Diamond says.
Incentive-based compensation programs for most positions in an independent agency – not just producers or sales staff – are helping to drive the trend of “across the board increases in salaries,” according to Diamond.
Diamond says in agencies where incentive-based compensation programs have been implemented, increased productivity by individual agency employees, not just producers and owners, is pushing compensation up further.
However, incentive-based programs do not work in every agency. Only about 10 to 20 percent of agencies “qualify” for an incentive compensation program, according to Diamond. That’s because the culture of management and owners do not fit well with the philosophy of an incentive-based pay environment for all employees.
“We have disqualified a lot of agencies (for incentive compensation programs) because we have said to them, ‘the way you are set up this won’t work here.’ In many cases it’s the owner that wants to get their employees to do more but they don’t necessarily want to pay more for them to do it,” Diamond says. “It’s a big change in the thought process.”
Diamond believes that as more agencies transition to new owners the buy-in for incentive-based compensation models will grow.
According to Insurance Journal‘s annual Agency Salary Survey 2014, 39.7 percent of agencies do not offer incentive compensation for CSRs. Of those that do, 28.8 percent base incentive compensation on new business commissions, while 12.5 percent based it on the number of policies sold. (See “Incentive Compensation for CSR” chart.)
“In a majority of agencies, we are not seeing a lot of incentive compensation in service or support functions,” says Bosma. But there’s one caveat to that observation – the account executive role, she says.
“More progressive agencies are providing incentives at the service and support level,” Bosma says. “These agencies are providing an incentive to cross-sell and retain books of business. However, this is not the norm.”
One of the most difficult areas in agency compensation is producer pay, the experts say. The biggest concern over producer compensation is nothing new, but it’s also the most challenging to fix.
“Producers are a world unto themselves,” says Chris Burand, founder and owner of Burand & Associates LLC, a consulting services organization for the property/casualty industry, based in Pueblo, Colo.
If service staff is doing all the work, most notably on renewal accounts, why aren’t they getting paid part of the commission? That’s a common question Burand hears from many in the industry. But fixing the problem means agency owners must address producer accountability, and that’s a difficult task for some, Burand says.
“In a lot of agencies the staff is 100 percent correct; they are doing all the work and producers get all the pay,” Burand says. “There is no question that that is a very valid point made by the staff.”
But according to Burand, unless there is someone in the organization willing to have the crucial conversations necessary to create producer accountability, and willing to create a correct and responsible compensation plan, the problem will not go away.
“The right way to ask that question is to reverse it,” he says. “That is, why pay the producer for doing nothing? It’s not why pay the CSR more for doing the work.”
The solution is simple, but many agency owners can’t have the necessary conversation regarding accountability, he says.
“It’s a true problem,” Burand says. “Owners know it needs to be done but psychologically they just can’t do it. They are people pleasers and they can’t have a negative conversation. They can’t have people that would be upset at them.”
MarshBerry’s Bosma agrees that the idea of changing producer compensation models is challenging. “It’s a hard topic to tackle so a lot of agency owners just don’t want to have those difficult conversations to change it even though most of them know it’s probably what they ought to do.”
Results from IJ’s Agency Salary Survey reveal that most agency owners do not change (79.8 percent) producer commission structures. Only 6.4 percent noted changing commission structures in 2013 while 13.8 percent plan to make changes in 2014.
“Most agencies probably don’t change their commission structures and don’t review them as often as they should,” Bosma says. She advises agencies to review producer commission structures annually or at least every couple of years to compare what others are doing in the market.
Owners should ask: Are the commission structures competitive or not in the market? Is the agency generating enough profit to meet their goals, both the owner return goals for the shareholders as well as for goals for reinvestment for the agency, she asks.
“A lot of times when they look at that second piece, is the agency driving enough profit to satisfy the owners, the answer oftentimes is no,” she says. “And because compensation is one of the largest expenses for an agency, that’s usually the area that needs to be adjusted or changed.”
Bosma sees many of her clients waiting until the time of a potential sale to start making tough decisions on compensation.
“When clients are approaching the potential sale of an agency that’s when they will make the hard decisions and make compensation changes,” she says. “But we would recommend making those changes earlier so that you drive the profitability that your firm needs to make investments in the future of the agency and be more sustainable.”
As much as possible, agency owners should strive to implement employee performance management into their agency culture, Bosma says.
“People are more satisfied with their job if they know what they are supposed to do and if they know that if they hit performance metrics they will earn a bonus or a higher salary – then they are going to be happier,” Bosma says. “Laying out clear goals and objectives, and tying those metrics to an individual’s performance to drive both salary and incentive compensation, can lead to more productive and satisfied staff.”
Accountability is the one area in compensation that can make the most impact to the agency’s bottom line, the experts agree.
“For CSRs you can look at productivity in terms of the book of business that they handle and how that lines up with industry averages and metrics,” Bosma says. “If they outperform the industry average – you can give them an incentive. This applies to producers also. Hold them accountable to meet their sales goals and reward them if they achieve and exceed their goals, but have consequences in place if they fall short.”
Diamond advises owners to investigate whether or not incentive-based compensation will work in their agency.
“If it fits you, it will benefit you tremendously because it will make your employees more productive and drop more money to the bottom line,” Diamond says. “Even if you are not an incentive compensation agency, pay your employees based on what they do for you; don’t pay them an equal amount under any circumstances. The good guys won’t like you and even your lousy employees will think they are being cheated.”
One of the best rewards to implementing a culture of accountability – morale improves. “Wherever my clients introduce accountability to the producers, agency morale improves,” Burand adds.
Insurance Journal’s Agency Salary Survey collected 1,970 responses from independent insurance agencies and brokerages nationwide via an online survey. Demotech Inc., Insurance Journal’s official research partner, assisted with analysis of this year’s survey results. For more information, contact email@example.com.
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