How to Re-ignite Producers – and Other Employees – Who Have Lost Their Spark
Al Diamond is one of the country’s best known and respected agency management consultants. His firm, the Agency Consulting Group, is based in Cherry Hill, N.J. He deals with agencies across the country on issues ranging from operations to mergers to sales and compensation. He is also a Best Practices instructor for the Independent Insurance Agents & Brokers of America and author of the newsletter, “Pipeline.”
In this excerpt from a video interview with Insurance Journal‘s Vice President of Editorial Content Andrew Simpson, Diamond discusses how agencies can use a compensation plan to re-energize not only producers who have become de-energized but also non-producer employees. He also discusses how to find agency talent amid today’s recession.
Insurance Journal: Agencies are in the midst, currently, of both the soft market and the recession. How do you think they’re doing?
Diamond: Well, it’s a very interesting time. I know that a lot of my compatriots are talking about tough times, recessions, layoffs and all of the things that go with a business downturn. I’m afraid I don’t share that philosophy.
Every economy poses challenges to the insurance industry. This economy is no different. The economy is neither bad nor good for us; it is. We’re like the stock brokers of the world. There may be downturns in the market, or upticks in the insurance marketplace, but everyone still needs insurance. They’re going to buy it from someone. What we want is we want them to buy it from our clients, using the independent agency network and the good companies that support those independent agents.
So, the market right now is in turmoil. It’s causing a lot changes in the way insurance is marketed. But the really strong agencies are just getting stronger. The weak agencies are falling by the wayside, if they don’t make changes in the way they operate.
IJ: The most recent Big “I” Market Share Report looked look at how agents are doing in terms of market share and discovered there are actually more agencies starting up these days than there has been in the recent past. Does that square with your experience?
Diamond: Absolutely, but that’s not new. … There have been agents who have realized, six months to two years after they’ve left, that they shouldn’t have left the market. They come back and either buy back their own agency, or they start something new.
What is coming up now, because of the advent of wonderful technology that has made available to the insurance agency system and a number of insurance companies that are much more receptive to the advent of new agencies, is that we have youngsters who have had some experience in the insurance business saying, “I want to strike out on my own.”
Youngsters are getting back into the marketplace now, but the old-timers are realizing that they’re still not done, and just because they’ve sold an agency or two in the past, doesn’t mean they can’t start another one or buy one.
IJ: What can agency managers do with a producer who maybe is not producing like he or she used to? Maybe the person has gotten a little lackadaisical or just lost his or her momentum. How can agency managers, through their compensation system, get them back on track, especially in a soft market or a recession?
Diamond: Well, that’s a very big question. Producers are generally motivated by money. They like money.
IJ: That’s a pretty short answer.
Diamond: Yes, that’s a pretty short answer. There are some producers who reach their level of comfort, and once they reach their level of comfort, they’re no longer as motivated to go forward. We do producer compensation and producer contracts that reward producers, incentivize producers, and grow compensation for producers for growth, but disincentivizes them for shrinkage. In other words, if you grow your book of business, not only do you get commissions, whatever form of compensation, but the larger your book of business, the greater your economy of scale to the agency.
We have tiered compensation, so that at different levels of production, producers make ever-increasing percentages, back to the first dollar. So they’re making a lot of money if they’re generating many hundreds of thousands of dollars of commissions.
However, in order to get that, you have to have producers who are willing to say, “If I retire in place, if instead of being a producer I become an account executive and just take care of the customers I have, I can’t be called a producer any longer. I can’t be paid like a producer. I should be paid like an account executive.”
So we define a producer as someone who grows his book of business each year. I’m not talking about premiums or commissions, I’m talking about customers.
IJ: That’s a big difference — customers versus premiums — right? Because in a soft market, it is not really within the producer’s control whether premiums are going up or down.
Diamond: That’s exactly right. But he can keep all of his clients. And so he has to spend his time with his clients, as well as grow his business. If he goes backward in numbers of clients, in his percentage of his book of business, then he should expect to get paid less as well.
IJ: Does incentive compensation work for non-producers? What would something like that look like?
Diamond: It works extremely well and now is an excellent time to begin those programs.
Incentive compensation for non-producer employees is based on the premise that we can no longer pay for longevity. Just because you’ve been with me for 10 years doesn’t mean you deserve more every year.
What we pay for, instead, is productivity. Every job in an agency has productivity factors, whether it’s revenue per employee or customer count, or the number of claims you handle, or in an accounting department, how well you handle your receivables and budget. We measure that productivity factor for every job.
The more productive employees are, the more money they make the agency. The more money they make the agency, the more we’re able to pay them. So what we do is we target their productivity specifically to them, and we let the employees measure their own productivity every year.
It doesn’t mean that the employee is guaranteed a job. If they don’t do a good job, the employer or the agent can still terminate them, and they still go through a series of reviews every year. However, if they’re doing a good job, then it’s the employee’s productivity increase that determines their compensation.
Suddenly the employees themselves have their own compensation in their hands. It’s not a commission. They’re still getting paid a salary. But they can control their salary by showing their employer how much more productive they are every year in their job.
IJ: Are employees responsive to this?
Diamond: Absolutely. It’s a wonderful tool. It takes a few years to indoctrinate that into a business. But once they do, two things happen.
First, your marginal employees go away. That could be a positive or a negative, but those marginal employees that are just hanging on won’t stay.
However your good employees are going to get even better, and you are going to attract high performance employees to your agency.
IJ: Obviously there have been layoffs throughout the economy and in financial services. Is that, in any way, an opportunity for independent agents?
Diamond: Absolutely. We have been complaining for years that we can’t find qualified people. Well, there are qualified people out there now because all other industries are being shaken up.
They may not know insurance, and we may be specialists. I know there are people who are viewing this who are much more knowledgeable than I am in insurance products. But let’s face it folks, you don’t have to be a brain surgeon to be an insurance agent, you just have to be relatively knowledgeable, and we can impart that knowledge on other relatively intelligent people.
There are those people available in all industries, especially in those industries that you are targeting to insure. Pick people out of those industries, train them into the insurance products and you’ll have good, motivated people where the folks within our own industry may be worn down now.