1. How to Attract and Retain Good Agents Agency Compensation Trending & Methodology Kurt Eaves, CPCU, ARM Vice President, Direct Division

2. Forms of Agency Compensation Revenue is the “life blood” of an agency – Companies talk in terms of premium – Agencies talk in terms of revenue Base Commissions Incentive Programs Incentive Trips Co-op Advertising Contingent Commission

3. Base Commission New/Renewal – Same level? – Enhanced override for new business?

4. Base Commission Producer/Agency split – Need to know how agency compensation is set-up – “Ok” to ask how the agency compensates producers

5. Base Commission Minimum revenue accounts – Producer may not be paid for small accounts

6. Commission/Incentive Programs Who gets paid? You need to ask – Principal – Producer – CSR Bonus commission incentive Prize incentives “Training” incentives – Compensation for using on-line system

7. Commission/Incentive Programs Book rolls – Replace a market – Consolidation of markets – Can be a very lucrative payout-front end – Maximize contingency levels-back end – Negotiation can include transfer support

8. Incentive Trips Top producers/agencies Spouses included Access to company leadership Recognition in local media

9. Co-Op Advertising Win-Win form of compensation Reimbursement for specific advertising

10. Contingent Commission Programs What to reward? – Growth – Profit – Both Profitable Growth-the goal

11. Program Structure Structure – Minimum Thresholds – Payment Tiers Structure to reward higher levels of production – Matrix approach – Minimum retention level

12. Program Structure Structure – % of net profit – Term-annual versus multiple years – Stop Loss – Lock-in feature

13. Contingency contract pays the agent on the basis of a net underwriting profit. Minimum threshold is $50,000, and the agent writes $100,000 of earned premium. This production level would qualify the agent for 10% of net profit per the terms of the contract. Assume the company expense ratio is 30%. The agent’s net incurred losses for the year were $75,000, ($25,000 in losses plus one $50,000 large loss). Earned commissions were 15%, or $15,000. Profit sharing does not pay on commission paid to agent, so subtracting earned commission from earned premium results in “net earned premium”. No stop-loss feature: The net underwriting profit would be net earned premium-net incurred losses-expense ratio- earned commissions. $100,000-$75,000-$30,000-$15,000 =($20,000), i.e. no net profit was earned, no profit share payout to agent. $25,000 Stop loss: Using the same formula, but limiting the impact of the large loss to $25,000 ($50,000-$25,000 stop loss). $100,000-$50,000-$30,000-$15,000= net underwriting profit of $5,000, agent earns 10% or $500. $50,000 stop loss: $100,000-$25,000-$30,000-$15,000= net underwriting profit of $30,000. At 10% payout, agent earns a profit share of $3,000. SSSSStop-Loss Scenarios

14. Program Cost Depends on many factors – Base commission cost – Advertising Expenses – Company expense ratio-only so many $ available – Stabilization Factor

15. Program Cost Depends on many factors – Most carrier programs will pay out in the 2-3% range in total, measured as commission expense – Individual agency payouts can be smaller or larger, depending on profitability

16. Maximizing Effectiveness Sales Planning is key – Can Plan any time – Mutually agreed upon goals – Specific Tactics/Initiatives to hit goals – Monitoring Progress

17. Q&A What questions do you have?