While some producers receive a salary, commissions provide the primary form of compensation for producers. Two types of commissions that producers typically earn are sales commissions and contingent commissions.
Sales Commission (or simply a commission) is a percentage of the premium that insurer pays to the agency or producer for the new policies sold or existing policies renewed.
The commission compensates the agency not only for making the sale but also for providing service before and after the sale. Service provided before the sale includes locating and screening the insurance prospects, conducting a successful sales solicitation, getting the necessary information to complete an application, preparing a submission to the insurance company and presenting a proposal to the prospect. To make a sale, an agent must also evaluate the prospects’ needs and recommend appropriate coverage for the client to sell it. After the sale, the agent often handles the paper work that accompanies policy changes, billing and claim handling among other things. While the policy is getting to be renewed, the agency must again analyze the coverage needs and consider any changes in the insurance coverage.
Contingent Commissions
In addition to the commissions based on a percentage of premiums, many agencies receive a contingent commission referred to as profit sharing. It is a commission that an insurer pays usually annually to an independent agency that is based on the premium volume and profitability level of the agency business with that insurer.
Marketing Management
An important function of marketing management is monitoring agency sales and underwriting sales to ensure that both the company’s and agency’s sales and profit objectives are met.
Producer Supervision
As insurance selling is a one to one activity that often occurs in the producer’s office and insurance companies do supervise their producers by using independent agents typically known as marketing representatives who visit the independent agents representing the company. They are employees of the insurer whose role is to visit agents representing the insurer, to develop and maintain sound marketing relationships with those agents, and to motivate the agents to produce a satisfactory volume of profitable business to the insurer.
Production Underwriters are insurance company’s employees who work in an insurer’s office in an underwriting position but also travel to visit and maintain rapport with agents and sometimes clients.
Producer Motivation
Insurance companies need to motivate their producers to sell the types of insurance the companies wants to sell. Motivation comes from the programs developed in the home office by way of financial incentives that producers receive for selling of insurance products. Different ways of motivation is payment of contingent commissions, Sales contest, awards, remunerations, holiday trips, etc.,
Product Management and Development
Insurance Production is most successful when producers have a desirable product to sell at a competitive price. Usually, Insurance Company’s marketing department strives to give producers the products and the pricing they need. As the producers are involved in the sales are often first to identify a need that could be addressed by either a new policy or modifications of an existing policy as they are actually aware of the competition in the market they recommend to the marketing department regarding the product management and development.
CHAPTER 4 - MARKETING
