Posts Tagged ‘Insurance Connecticut’

Commission Compensation

Commission Compensation

One of my colleagues recently postulated to me, “Maybe a homeowner’s product should be more like life insurance and pay a higher up front commission with a lower renewal commission. Perhaps that would provide an effective incentive for agents to do a better job of initial placement.” My response, “I do not think that will work. Most agents will just take the higher up front commission and still not do the work properly.”

I still remember one of my early consulting projects. This occurred many years ago. A competitor came to me with a non-profit entity and asked me to do a risk assessment and to recommend changes. I said, “Why don’t you do it yourself?” He said, “There is not enough commission to make it worth the time and effort.” If I remember correctly, the risk assessment cost about $ 7,500.00. In the initial part of the process, the agent asked for my hourly rate and I said $ 100 .00 per hour. He raised his eyebrows and said… “Hmmmmmm a hundred dollars an hour?????… Guess I am in the wrong business!” I did a professional risk assessment and generated a comprehensive report, and the agent restructured the program. If I remember correctly, the agent made about $ 12 ,000 .00 in COMMISSIONS, EVERY YEAR! And HE’S in the wrong business??????

In my mind, simpleton though I may be, commission compensation makes almost as much sense as hourly pay! You and I both know that we have employees that we could pay
$ 3.00 an hour and they would be overpaid, we have other employees that we could pay
$ 100.00 an hour and they would still make money for BOTH OF US!

Likewise, we write policies for $ 5,000.00 in PREMIUM and have to issue 300 certificates of insurance. We write other polices where we get $ 50,000.00 in COMMISSION for just submitting an application. I am not so sure this is an appropriate use of a consumer’s premium dollars, or reflects proper compensation for a distribution entity.

If we go to a fee based structure, commissions and fees would likely shrink as we would only get paid for our true effort. It would also force each of us to add value AND make it apparent to the client we are adding value AND illustrate the types of value we add (not so easy)! In fact the commission incentive is often contrary to the interest of the agent, the client, or the insurer. In one case, over a six year period I took a large marine account, who had considerable resources at their disposal, from a fully insured plan to a reasonable retention program saving the client over $ 300,000.00 in annual premium. The process of reducing the client’s overall cost of risk by this amount, reduced my commission income as an agent from over $ 55,000.00 to less than $ 17,000.00 in annual commission. What kind of perverse incentive is that??? Most of us would not endure a fee based structure. We would fold under the increased fee/commission scrutiny by the client.

The real reason most insurance carriers would like to nuke agents (and they would nuke agents If they could figure out a way to do it) is that in the macroeconomic analysis, insurance is an expensive way to finance risk, and agents commissions are a big slice of that expense. Commission compensation is, however, the only way we can find that is efficient and manageable.

I am a zealous proponent of agents. I feel risk bearing is a commodity. However, risk bearing without the benefit of competent, trustworthy and CARING risk management advice, is nearly useless.

I am of the opinion that insurance is one if the few products you can purchase where it is impossible to evaluate your purchase decision until it is too late to do anything to modify your previous decisions. One of my mantras is, “Buying insurance over the internet is like buying an old fire extinguisher at a yard sale and putting it in your kitchen in case you have a fire. You never know if it is going to work until it is too late to re-evaluate.” Flood insurance is the only line of business I have experienced that allows a post-loss evaluation of any of the pre-loss work done on behalf of the client.

So… I think commission compensation is necessary, but the underlying problem is, commissions are in no way linked to agent performance except as to the volume of premium dollars generated by the agent. Contingent commissions are nearly the only form of incentive influencing performance, and contingent commissions have been attacked as creating unfair bias. The inverse relationship of commission compensation to the goal of reducing the cost of risk to consumers generates a clear conflict of interest among the parties… consumer, agent and insurer.

Am I wrong or am I disillusioned?

Are Dog Bites a Homeowners Problem for Insurers?

Check out the following Insurance Journal article if you wonder if dog bites are a problem for insurers:

The Insurance Company “Bluffing Letter”

Have you had a client whose claim was denied but you felt really uncomfortable about the coverage determination?

I have been working on quite a few denied claims in the recent future.   It have become apparent to me  that Insurers are using a strategy to issue a “bluffing letter”.    It looks like a denial and will discourage all but the most resolute Insured or Agent.

The letter basically says, “We don’t this covered and gives a litany of reasons.”   We will not indemnify or defend this claim….!”         The Insured files it and basically goes away without questioning it.    Some of these claims should be covered.  I have gotten several paid recently and in some we have filed suit.   (Of course, there are also many legitimate denials.)

Agents…  Don’t let your Insureds be taken advantage of this way.  ALWAYS follow up and when you need to involve an insurance expert such as myself, call us!.    “My business is knowing your business”. Let us help you protect your Insureds!   We can likely keep you out of an E & O claim!



The practical need to visit a client.

As time goes on, it is clearer and clearer to me that there is a need for an Agent to visit a client at the time of sale and a need for an Adjuster to visit a client at the time of claim (as well as the  Agent). I am fighting my way through a half million dollar liability claim (as an expert witness) attempting to get the Insurer to reverse a denial from three years ago.   The claim was wrongfully denied and the Agent did not step into it until now!   The only reason for a denial was that the Insurance Company Adjuster chose to do no investigation at all.   Even a conversation with the Insured would have uncovered facts rendering some insurance coverage. This is absurd.   It does not even meet the basic obligations of the Insurance Company upon notification!   They simply did not have adequate information to make an informed decision.   We simply cannot handle these complicated transactions totally over the phone or on the internet!    WE NEED TO GET BETTER!

CGL Discontinued Operations

If you discontinue the purchase of General Liability Policies due to retirement or going out of business, among other reasons, be cautious if the insured still has products in the marketplace.    Canceling the General Liability will terminate coverage for occurrences that happen in the future due to your insured’s products.

At termination you need to have your client purchase discontinued operations coverage.   The coverage is no longer even in the ISO manual, and I think I must be one of the few who still remembers how it was rated.   Insurance Agents…  Plug this potential E & O Gap by offering the coverage and documenting the offer in your insurance file!