Michael serves as Lead Specialist of Innovation & Product Development at ReSource Pro.
Calculate your carrier contingent commissions
Previously, we looked at the importance of carrier contingent commissions to agency profits and discussed a few strategies for maximizing them. Now, we’re going to dig into the real nitty-gritty: how to track your agency’s ongoing performance in achieving carrier contingency eligibility requirements.
The best way to evaluate a specific contract is to plug in the numbers. That means reviewing the terms and conditions of each carrier contract and translating them into formulas that will calculate supplemental income based on the monthly production reports you receive from the carrier. These formulas will include eligibility variables, such as the written premium volume, adjusted loss ratio, premium growth, stop-loss limits, and coverage lines.
The results should show you the monthly and contract year-to-date supplemental income your agency has generated, as well as what income you can still achieve before the end of the contract term. The goal is to earn your agency’s full incentive capture rate (ICR), which equals your total projected bonus divided by your total eligible premium. Another key performance indicator (KPI) to follow is your premium efficiency rate: the percentage of eligible over total written premiums.
Where to go from here?
These metrics should give you clear insight into the next steps you need to take: What policy types should your producers focus on writing? What carriers offer the greatest remaining income potential, and which ones may be nearly tapped out? How should you be focusing your marketing efforts?
While these steps will vary from agency to agency and even month to month, there are a few broad strategies you can take to maximize contingency income:
- Take a risk-management approach. Minimizing your agency’s loss ratio is one of the best ways to increase your contingent revenue. How? By making sure your producers take a leadership role with policyholders—understanding and communicating their level of risk, as well as introducing risk management programs to mitigate it, rather than simply matching their current coverage at the lowest price. With this approach, everyone benefits. Policyholders get the right level of coverage, your agency writes more business, and carriers reduce loss.
- Match carriers to lines of business. Many carriers specialize in specific lines of business and incentivize producers who write them. Thus, matching an insured’s business with a carrier that specializes in it is an effective way to bring in more supplemental income. This is also an opportunity to specialize in a specific type of market or coverage. In a highly competitive and increasingly commoditized market, this has advantages that go far beyond maximizing contingent revenue. Read our white paper, The Threat of Being a Generalist Agent In a Specialist’s World, to find out more.
- Consolidate your carriers. The fewer carriers you represent, the more likely you are to reach their premium volume goals. This requires a clear understanding of how competing carriers compare. Beware of falling into the apples-to-apples trap, particularly for commercial lines. Simply put, no two policies are identical, so make sure you choose the carrier that meets your clients’ needs.
Carrier Insights ties it all together
As you can see, tracking contingency income is no small task. Your agency may be working with tens, even hundreds of carriers, each with its own contract with dozens of thresholds and incentives.
ReSource Pro’s Carrier Insights helps you understand your contracts and ensure that they are working for you throughout the year. Our solution provides easy-to-use dashboards regularly updated with your monthly carrier production data, allowing you to model different scenarios, including acquisition.
Throughout the year, you’ll know where you stand with all your carrier partners with automatic notifications that show you where you should place your sales efforts to maximize your agency’s supplemental income. Carrier Insights offers your agency multiple benefits:
- Informed decision making. Armed with understanding and information, you’ll be able to make better decisions for your business and clients.
- Accurate forecasting. With up-to-date information, you’ll be able to accurately forecast revenue.
- Proactive revenue management. Predictive capabilities help you capture value that otherwise might be lost.
- Greater transparency. Maximize performance relative to contract incentives and empower agency leaders to strengthen carrier partnerships.
Contingency income is critical to the success of your agency, so you should be doing everything you can to ensure you’re getting the most from it. With the right automated tools, you can direct your agency’s efforts toward maximizing incremental profit while also doing what you do best: providing clients with the coverage they need to protect their property, family, and business.
Visit our Carrier Insights page to learn more.