This post is part of a series sponsored by AgentSync.
Insurance agents want to get paid for the products they sell. They will ultimately choose to work with the insurance companies that get commissions paid quickly and accurately. On the other side of the relationship, insurance companies and MGAs must prioritize compliance at the point of an agency’s or agent’s commission payout. Add in the infinite number of commission hierarchy combinations that exist between different insurer, agency and MGA relationships, and you have a recipe for confusion.
The complex insurance commission hierarchy structure
If there’s one thing we can say with absolute certainty, it̵7;s that the insurance industry is complicated. Why should it be any different for insurance companies and MGAs who are responsible for paying commissions to their downstream agency and agent partners?
Insurance Carrier X has a long-standing relationship with Insurance Agency A, so it naturally provides a preferred commission to the large volume of insurance that Agency A sells with its hundreds of insurance agents. On the other hand, Carrier X is exploring new relationships with agencies B, C, and D, and has negotiated slightly different commission structures with each based on their geography, expected premium dollars sold, and the number of agents working under the agency’s umbrella.
Multiply this scenario by thousands and you can come close to imagining the complexity of insurance commission hierarchies that exist between each member of the insurance distribution channel. While insurance companies often have different arrangements and structures with the different agencies they work with, each agency may in turn have different commission splits with different agents they hire or contract with.
Problems with current ICM methods
The problem with current methods of incentive compensation management (ICM) is the same problem that plagues most processes in the insurance industry. It is manual, labor intensive, slow and prone to human error.
- Legacy systems include everything from pen and paper to multiple (typically dated) technology systems. Even when there is some “modern technology” involved, the systems do not connect with each other, leaving staff to spend time checking and cross-referencing information.
- Shadow accounting occurs when agencies and agents, due to legacy systems and human error, begin to doubt that they are being paid correctly and begin to do their own math. This works about as well as you’d expect. Instead of focusing on sales, insurance producers and insurance company executives spend time recalculating their compensation and comparing it to their paychecks.
- Audits and compliance checks may be more necessary and frequent if those in your distribution channel often wonder if they are getting the right commission payments. Not only are these audits inherently time-consuming, but if you’re working with legacy systems, the time drain is multiplied as people work to gather the information for an audit from many different sources.
- Trust vacuums arise from incorrect or slow commission payments. Payment errors or delays ultimately erode your working relationships and reputation.
Technology tools can ease the burden of complex commission structures in insurance
If you’re starting to have a panic attack when you think about how complicated it is to pay insurance companies the right commissions for every policy their agents sell on your behalf, you’ll be relieved to know that this isn’t something you have to do by hand. At least it shouldn’t be!
Like many parts of the insurance industry, insurance agency ICM is going from something Sally did on a spreadsheet (or, let’s be honest, a large number of different spreadsheets, browser tabs and PDF documents), to something Sally doesn’t even do. must think about. Instead, Sally can put her decades of experience to better use mentoring a new employee just discovering the insurance industry. Studies show that, when it comes to filling the huge talent gap facing the industry, the ability to learn from more established professionals is a big draw for the next generation.
So if you work at an insurance company or MGA that still spends far too much time manually solving the Rubik’s Cube that is incentive compensation management, it’s definitely time to consider the benefits of investing in technology to help.
Compliance risk in the ICM process
Implementing a solution to remove the manual effort from which agencies to pay, when and how much sounds good. But one risk with automating everything in a “set it and forget it” way is that someone will be paid a commission while in the middle of a breach.
Whether it’s an agency whose designated responsible licensed person (DRLP) has let their license renewal expire (often denying the validity of the licenses of any manufacturer selling under them), or an individual agent who hasn’t agreed to child support, these things happens! Checking for compliance red flags before commissions are paid should not be a “nice to have” feature of your ICM process. That is, unless you’re completely fine with the legal, financial and reputational damage your organization might suffer as a result.
Ensure compliance while simplifying commission hierarchies
The solution to the complex problem of paying insurance company commissions both correctly and in full compliance is simpler than you might think. The partnership between AgentSync and Varicent creates an end-to-end producer management platform with built-in checkpoints for real-time compliance everywhere from onboarding to commission payouts.
At AgentSync, we focus on simplifying producer onboarding and ongoing license compliance and management so operators can expand their distribution channels as quickly as they want without overlooking compliance along the way. Varicent is a leader in ICM, taking the pain out of paying multiple, variable commissions to any number of agencies your business works with.
The integration of these two solutions means they “talk” to each other, allowing carriers to see in real time the compliance status of each agency they are required to pay. And this includes the status of every single agent within that agency! In fact, you can stop non-compliant commission payouts before they happen. Both AgentSync and Varicent provide self-service capabilities to allow individual insurance agents to enter and update their own information in a single source of truth – instead of relying on multiple people across the insurance company and agency to obtain and validate producer information.
If you’re ready to see how the combination of AgentSync and Varicent can take the math (and compliance risks!) out of your incentive compensation management process, contact our team today.
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