Ward Group Study Shows Use of Agency Tiering Programs on the Rise at Property-Casualty Carriers in 2013


CINCINNATI, OH--(Marketwired - Jul 12, 2013) - Based on a study of agency compensation and management practices at property‐casualty insurance companies conducted by Ward Group, the number of companies that reported maintaining an agency tiering program has increased 7 percent from 2011. The comprehensive study focused on commission practices, agent incentives and other agency management practices and includes aggregate results from 2011 and 2012 for a diverse group of 59 companies. Independent agency companies represented 78 percent of the participants. Key findings and observations were presented to participants in a webinar hosted by Ward Group.

"It's not surprising that more companies are implementing agency segmentation programs and applying a more analytic approach to the distribution channel," noted Jeff Rieder, partner and head of Ward Group. "Agency tiering programs provide an objective measurement of a company's entire agency force and can be an effective strategy to help align commission expense with the top performing agencies. Companies may favorably impact the loss ratio by implementing agency rehabilitation programs more quickly."

For most property‐casualty insurance companies, expenses relating to the distribution system represent the largest expense component outside of loss payments. Ward Group conducted the Agency Compensation and Management Practices Study to help companies measure their performance and establish meaningful benchmarks in this important area. Highlights of the study results and general observations follow.

The study identified several notable trends for agency compensation practices, including:

  • Contingent Commission Payment percent of premium is up slightly and may be an indication of improving market conditions

  • About half of the companies offer a guarantee option in their Contingent Commission Plan

  • Fewer companies plan to modify their contingent plan in 2013

  • Loss ratio eligibility requirement for contingent commission plan increased slightly to 56 percent

  • The number of independent agency companies that have separate field marketing staff or contingent commission contracts for personal and commercial lines has steadily declined since 2007

  • The average capped loss amount for stop loss thresholds has increased substantially since 2009 and 5 percent of companies increased the amount for 2012.

  • Minimum premium requirements for contingent commissions increased 14 percent since 2011. Seven percent of companies added growth requirements in 2012 to their contingent formulas and 5 percent added retention requirements

  • The number of carriers expecting to host an agency trip is expected to increase in 2013

Ward Group also observed that comparing historical results, the average number of agency appointments per company has increased and agency appointment rates are expected to outpace termination rates for 2013. Both new agent appointments and agency terminations are lower. However, despite fewer agency terminations, five-year agency retention declined for both the independent and captive agency benchmarks.

"With more companies seeking agency appointments, carriers will be pressured to find new ways to distinguish themselves amongst competitors. Carriers need to be able to differentiate themselves by providing superior service and innovative products and working with agents to meet both the company's and the agency's growth goals," said Rieder.

Ward Group also has several predictions about agency management practices for 2013. Total agency compensation is expected to increase slightly, largely due to the improved market and economy. Agency trips and conferences continue to be smaller and less costly than pre-recession years and are likely to be re-evaluated if economic conditions continue to improve.

To obtain complete results of the Agency Management and Compensation Practices study, including detailed benchmarks by distribution channel and business mix, visit www.wardinc.com.

About Ward Group

Ward Group, a McLagan/Aon Hewitt company, is the leading provider of benchmarking and best practices studies for insurance companies. The firm analyzes staff levels, compensation, expenses and business practices for all areas of insurance company operations and helps companies to measure results, optimize performance and improve profitability. For more information about Ward Group and the Ward Research Center, visit www.wardinc.com.

About Aon Hewitt

Aon Hewitt empowers organizations and individuals to secure a better future through innovative talent, retirement and health solutions. We advise, design and execute a wide range of solutions that enable clients to cultivate talent to drive organizational and personal performance and growth, navigate retirement risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability and wellness. Aon Hewitt is the global leader in human resource solutions, with over 30,000 professionals in 90 countries serving more than 20,000 clients worldwide. For more information on Aon Hewitt, please visit www.aonhewitt.com.

Contact Information:

Ward Group Media Contact:
Betty Cornelius
Ward Group