Commission, Bonuses, Fees – Oh my!

Kevin Trokey on March 26, 2018

Even though I’ve worked my entire career in insurance either as a producer or with producers and agency owners, it’s been a while since I was a producer myself. It’s amazing how much has changed during that time.

  • Back then, we actually called one another instead of texting.
  • Healthcare reform meant a failed attempt by Hillary.
  • The only Kardashian we had ever heard of had been part of O. J. Simpson’s “Dream Team” (I really miss that part of the good ol’ days)

Some things never change

However, as much as some things have changed for insurance agencies, there are way too many things that haven’t. I was recently reminded of this fact when I met a new-to-her-agency producer.

She told me she really admired the owner of the agency in most ways, but was struggling with his insistence to steer business to just a couple of carriers in order to maximize contingency bonuses.

I remember when the carrier reps would show up all excited about their new bonus programs. “If you will move a block of business; or write a certain amount of new business; or keep a percentage of existing business with us, look at the huge bonus you can earn!”

I had a standard response. “I really hope I earn that bonus and, if I do, I’ll gladly accept your bonus check. But, you have to know, your bonus program will never influence the recommendations I make to my prospects or clients. As secure as I am in my relationship with them, I can never be so arrogant as to think that there won’t be someone coming in behind me who gives them the advice I should have given. And, if that happens, not only will I not earn your bonus, I won’t have them as a client any longer.”

I shake my head that that arrogance still exists today and is still being rewarded. This is one of the things that definitely should have changed over the years.

Maybe you’re saying, “Of course!”

I felt it was easy to take this position on the contingency income, maybe you do too. Not only was it the right thing to do for my clients, it allowed me to more predictably protect the base commission income.

Back then, it was easy enough to protect that base. All you had to do was go to all of the carriers, request all the options, and load all of it into a spreadsheet.

It worked back then because there were limited options. There were only a handful of carriers in a given market, they offered the same plans/rates to all brokers, and most accounts were fully-insured. If you did this, you could be pretty certain of not being blindsided by another broker recommending something you missed.

Sure, there were those larger accounts where getting more creative with self-funded plans became an option, but that was reserved for much larger groups. And, even for those that were self-insured, it was a pretty simplistic structure that was put in place.

  • You might say you still protect your client relationships by going out to all the carriers, requesting all their options, and loading it up into a spreadsheet.
  • You might say any self-funding you do is a pretty simplistic structure.
  • You might say you also have to protect that base commission income; without it, you have no revenue.

You might say those things but, if you do, you are in a world of hurt. This is something you have to figure out how to change for yourself, and soon.  

Can you really give the right advice?

If you have already taken the position that you will never make a recommendation to a client based on a bonus program, you need to recognize how critical it now is for you to take the next step. The next step means that you won’t make recommendations to a client based on the base commission either.

You are not in the product business, you are in the advice and results business. Some of your competition is now giving advice and delivering results with benefit programs built around elements that have no commissions included and have little, if any, to do with an insurance product.

They are introducing direct primary care, helping clients negotiate with stand-alone surgical centers, finding cost effective pharmacy solutions, cutting through the façade of carrier network discounts, and eliminating the mismanagement and fraud of fully-insured programs.

Advisors are disassembling plans and creatively re-assembling them in ways many have never even considered. I can see a day, not so far away, when the current fee-for-service models you likely depend on have taken a significantly diminished role. There may be a day when benefit programs are put together without a carrier or network in sight.

The possibility and, increasingly, the likelihood of being blindsided by creative advice from competitors has never been greater.

There may be situations where that’s already happening and you just don’t know it yet. Remember, just because you haven’t seen it, doesn’t mean it doesn’t exist. Your market is not exempt from these solutions, regardless of what you may think. And, just because it may have been a slow evolution to get to where we are today, I advise you to buckle up because this thrill ride is about to pick up speed. And, it won’t be long until your prospects and clients will be demanding you be able to punch their ticket.

Are you starting to sweat?

This should scare the hell out of you.

Why?

You already have competitors who have positioned themselves to give advice that is in the best interest of their (and eventually your) clients; they are delivering results that make an impact on the business of those same clients.

I’m not talking about delivering a less bad renewal. I’m talking about enhancing the level of benefits their clients provide while drastically cutting the cost.

They are only able to make these creative recommendations because they have broken their dependence on commissions and bonuses. They are genuinely in the advice and results business. And, as long as you depend on the carrier commissions and bonus programs, you are still in the product business and you are compromising your ability to serve the best interests of your clients.

I know, I know! You’re asking, “Well, how the hell are they getting paid?!”

Get this, they are being paid fees by their clients! Beyond that, some are putting a portion of their compensation at risk by tying it to the improved results they are helping deliver and establishing performance-based compensation fee structures. Talk about going all in with a client!

Holy crap, things have changed

For you to survive, you will need to do the same, but you won’t be able to do so until you break your dependence on the carrier’s commission. You must do this, not just for the sake of your clients’ business, but for the sake of your own as well.

Don’t be overwhelmed by how far away this might seem for you. Take a simple first step. Go to your clients and have a basic conversation about how much they are paying you via commissions, but, more importantly, what you do in return. Let them know your job isn’t to sell a product for the carrier’s benefit but to give advice and results for their benefit.

Regardless of whether or not you have ever discussed your compensation with your clients, they know you are getting paid. Once this discussion is out in the open and you explain how moving to a fee structure is in their best interest, you will both be more comfortable.

I said earlier, there may be a day when benefit programs are put together without a carrier or network in sight. If that day is tomorrow, how are you going to get paid?

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