Insurance Agents Don’t Care About Commission Income

This is a dangerous post that could be explosive if put in the wrong hands.  It’s for insurance agent’s eyes only.  Company people should pass on this one.

Insurance agents don’t care about commission, new business overrides, bonuses, contingencies, or any cash incentive.  Elliot Spitzer should have read this post.  If you are an agent I hope you are screaming by now, because this is a bold and damaging claim, that needs to be proved wrong.

Here’s my evidence.  As stated before I spent many years with Progressive Insurance.  Progressive is notoriously known for paying some of the lowest commissions in the industry.  While most carriers pay 15-12%, Progressive pays 10%.  At one time a large majority of their agent only were paid 7%.  As a marketing person for Progressive, we would yell at management all the time, that we could increase new business if only we would increase commission to industry standards.  Management would calmly come back and say commission did not matter, rate and ease of doing business drove an agency’s decision to place business.  We argued, and argued and got no where.  Then something mind blowing and shocking happened.  Progressive picked a state to do an experiment.  They rolled out a product that gave multiple commission levels for agents to choose from.  This was outside their normal 15/10/7 choices.  Obviously the lower the commission picked, the cheaper the price.  They took commission as low as possible to see how low they could go and still have agents sell the product.  Sadly, they discovered that they could offer 2% and still have a significant amount of sales made.  This reinforced their belief that rate and ease of use drove sales, and our argument was shattered.

Upon leaving Progressive for more mainline, standard IA companies, this awful truth continued to persist.  Many, many times I have given agents overwhelming new business overrides, and it had no impact on production.  This made it difficult for me to get future monies for the agency, because I had no proof that money made a difference.  Recently a good friend that works for a large national carrier told me that she is giving a 9% new business to an agent in order to help the agency roll a book they are losing.  This makes total commission at 23%.  The agent has almost written nothing with her.  He is placing almost all the business with a company that is paying only 12%.  He could double his revenue but is not.  When pushed as to what is driving the decision, he claims rate and ease of use.  Upon digging into the numbers, she found that she was often cheaper than the company they are losing, but the 12% company was cheaper still.  The agency only needed to beat the current carrier in price, not find the cheapest in the agency.  This is further degrading the revenue.

So what conclusions can be drawn from these anecdotes, and painful stories.

First, determine whether this is true of your agency.  Who’s controlling where your business is going and why?  What is it doing to your overall agency revenue?

Second, and most important, when given extra money incentives from your companies milk those things for all they are worth.  If so, you are sending a message that revenue matters!

Multiply Yourself

Delegate. This is old advice but its hard.  Delegate to multiply your efforts.  You can’t do it all.  You probably know this and I am not saying anything new. So why is it so hard?

The biggest reasons I see why people don’t use this tool is perfection and control.  Nobody will do it better you.  If someone else does it, they may mess it it.  There are a lot of items that take time from your strengths, and even if they are not done perfectly, nothing will suffer.

The big thing about delegation is that no one will ever do it  like you would do it. Sometimes better sometimes worse but always different.  Get comfortable with this and multiply yourself.

Negotiate Personal Lines Insurance #4

This should be it for a while.  The last post based Ed Brodow’s negotiation book.

8.  Acceptance.  The example Brodow gives on this is utilities companies warning of a rate increase far in advance.  Then when it hits, the customers expects it and is not bothered by it.  To be honest, I would love to see some experiments to see how this might work in an agency.  Here’s some suggested scripts.  Often you will quote a customer and will blow their current rate away.  You do everything you can not to leave to much money on the table such as increase coverages, add an umbrella, a term policy, or even remove discounts, but you are still dramatically cheaper than their current carrier.  Usually this means that your current rate is really underpriced.  The company will figure this out and will probably increase it dramatically over the next couple years.  It may be helpful to alert the customer up front, that this rate is unusually good and don’t be surprised if the company increases the rate next year.

9. Change sales people.  You have been working on a multi-line account that stands to generate 5-8000 in wp for the agency.  The customer has been working with you and things look good, but then for some reason they turn sour.  It may be time to hand it off to someone else in the agency and play the good cop/bad cop game.

10.  Humor.  Pepper your sales strategies with humor.  Diffusing an objection with humor is sometimes a great way to lighten it up and get the customer to accept and like you.

Customers for the most part think personal lines insurance is negotiable like most products.  If they are business owners, they may have experienced this with commercial insurance.  As we know, prices are fixed; and you have more negotiating power than you think if you are an independent agent.  Never start with your lowest.  Don’t give away the store the first time out.  Don’t panic at objections, they are probably just negotiating tactics.

Comments on this one are welcome.

Negotiate Personal Lines Insurance #3

Negotiate your way to greater PL sales.  We’ve discussed the need to negotiate in your sales and use the power of multiple price points and companies.  We’ve given a handful of tips that buyers use and sellers can use.  This post will give further tips on becoming better at negotiating with your customers.

4.  The Nibble.  The buyer’s tactic on this would be to ask for more, if the price is not negotiable.  A good example is when you go to a mechanic to have tires changed and after you and he agree to terms you ask him to throw in a free oil change.  As a seller this is a helpful tactic that you can use if you can not find any lower price.  Give other options that don’t cost you anything such as bill plans, help with house inventories, free analysis of other risk areas.  It is a good idea to come up with other features that the agency can do for customers that you can through into the negotiation to create value without costing the agency much money.

5.  Deadlines.  This works great for sellers.  Create a deadline.  This quote is only good for a limited time (which is true for most companies).  Most carriers only honor a quote for 30 days.  Others give advanced quoting discounts which can disappear if the customer does not act.

6.  Walkout.  When a customer keeps pushing for lower premiums or other concessions, you may need to say: “I am sorry, I would like you as a customer but it appears it is not the right time.”  If the customer really walks away, you did not burn any bridges and you can resolicit without any hard feelings.  It may put an end to the back and forth and force a commitment.

7.  Assumptive close.  We all do this.  “Here’s the rate, do you want to may this effective on the 15th or 30th?”  “Here’s the rate, are you more comfortable paying in full or EFT?”  Assume they are buying and close it.  Years ago when working for Progressive, we did mystery shopping where we would call our agents and ask for a quote.  Primarily we were looking to understand how they positioned Progressive in the agency, but we learned a lot more.  Soon we developed a checklist of sales tactics and strategies the quoter used.  After thousands of calls made over several years, only 1% ever asked for the sale.  As an insurance person, just doing this will make you better than most of your competitors.

There’s more to come. Look for part #4 soon.  For more detail check out the source for these thoughts: Negotiation Boot Camp: How to Resolve Conflict, Satisfy Customers, and Make Better Deals