news & trends
Effective Compensation Plans
Do your carrier’s arrangements work for you?
If you’re wondering whether your
carrier’s compensation plan
measures up to that of other
companies, you might want to check
out Compensation Practices Can Make
Your Plan Perfect, a snapshot of current
marketplace practices and procedures
based on a survey of 42 companies.
The new LIMRA report discusses
features and components of compensation plans for affiliated and independent
agents, including annualization practices,
internal replacement compensation,
frequency of commission payments,
new-agent financing plans and requirements to maintain a contract. Carriers
can use the report to determine whether
their practices are competitive.
Here are some of the most significant findings, according to LIMRA:
Companies operating an independent-agent distribution channel pay
their producers commissions more
frequently than companies with
affiliated agents. Thirteen out of 18
independent-agent companies pay
producers weekly, and two other
companies pay commissions daily.
Nearly half of the affiliated-agent
companies surveyed ( 11 out of 24)
pay their agents twice per month.
Fixed and variable training-allowance
plans are the most prevalent types of
inexperienced-agent financing plans.
Fixed and variable training-allowance plans are the most prevalent
types of inexperienced-agent
financing plans, with 75 percent of
the companies surveyed offering
one of them.
Most companies check financed
agents’ performances monthly or
quarterly, depending on the financing plan’s validation schedule. In
most cases, validation schedules
use a “new sales” criterion to gauge
performance, such as net annualized first-year commissions, policies
sold or cash FYCs.
About 80 percent of the companies
surveyed annualize life FYCs for
primary producers. Most affiliated-agent companies annualize 100
percent of the FYC, regardless of the
premium mode or type of policy.
Most companies that annualize FYCs
use a pro-rata charge-back schedule
for policies that lapse during the first
In 2007, internal replacements accounted for 5 percent to 10 percent
of new life sales.
Seventy-five percent of the affiliated-agent companies surveyed have
an annual performance requirement
for agents to maintain their contract with them. Only one-third of
the independent-agent companies
also have a performance requirement to keep a contract.
Developing new talent
Recruiting and training new agents
are priorities for companies operating
an agency-building or a multiple-line
channel. Most of the companies have
new-agent financing plans that give
inexperienced agents additional compensation during their first few years
on the job, LIMRA says. Companies
consider these subsidies an investment
in developing new agents. Validation
schedules state the level of production
a financed agent needs to achieve to
get the full subsidy or training allowance. If the agent doesn’t meet his
goals, he could be paid less, paid no
subsidy or be terminated.
In 2007, the most common initial
monthly financing level ranged from
$1,000 to $6,050, with a median of
$2,000, LIMRA says. Plan duration ranged from 3½ months to 60
months, with a median of 36 months.
Fourteen of the companies check
financed-agents’ performance either
monthly or quarterly. Monitoring
performance is a critical responsibility
of agency-management staffs, LIMRA
says. Twenty-seven companies use
a pro-rata charge-back schedule for
policies that lapse during the first
policy year. Two of these companies
do so for some products, but not for
all. Six companies use a charge-back
schedule that is not pro-rata for first-year lapses.
Thirteen companies have a per-policy limit that applies to all types
of life policies sold, according to the
report. The limits range from $1,500
to $20,000, with a median limit of
$3,000 per policy. Four affiliated-