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ARE YOU PENNY WISE AND POUND FOOLISH?

Posted by Courtney Ferrara on July 2, 2020

Understanding compensation costs for your firm

Strong organizations value high service standards and performance, and they are willing to pay for it.

Most agencies and brokerages don’t sell enough new business. Let’s face it, without a baseline level of new business, most won’t survive in the long run. Many firms have not addressed the lack of new business and instead rationalize that their firm is a “Service Organization.” The fact is, you need to be both a “Sales Organization” AND a “Service Organization.” They not only relate to one another; they are dependent upon one another.

To help producers write more new business, and at the same time increase your margin, you should hire better, more expensive and more professional people. Firms that hire service personnel that are more professional, and less clerical in nature, pay more. A lot more. In fact, the firms that are in the Top 25% of book size handled pay on average almost 50% higher than the Bottom 25%. But, while the average wage is greater, the cost is less (pay as a percentage of book handled). In addition, the workload that the staff pulls off the backs of producers enables them to write more new business. The result? Greater organic growth. Unfortunately, many firms try to hire on the cheap and are frankly, penny wise and pound foolish.

According to MarshBerry’s 2020 Insurance Brokerage and Compensation Study, higher performing (faster growing and greater service productivity) firms pay their service staff more than those slower growing firms. And larger firms (greater than $20M in revenue) have a greater percentage of their staff categorized as service personnel.


The Total Commissions & Fees per Service chart breaks down the data set into three buckets: Top 25%, Average 50% and Bottom 25%. Those with the lowest average book size, roughly $225k, pay their service staff the least (almost 50% less than the Top 25%), but it’s the most relative to the book size (~24%) and are also the slowest growing (average 4% organic commission and fee growth).

Said another way, the firms with service staff handling the largest books (average of $425k) are growing the fastest (more than 10% organically). And while they are paying more in dollars per person, these firms are paying significantly less as a percentage of the book handled. Those in the Top 25% are averaging less than 20% of the book size in service payroll. Productivity, growth and arguably sophistication of the staff, based on ability to handle greater commission dollars, are all higher at the firms that are paying more per person.

Whatever your compensation target is, you should know your numbers. What does it say about your organization? Are you getting the quality and value you’re paying for? If not, it may be time to look at your incentive or comp structures differently.

If you have questions about Today’s ViewPoint, or about creating a compensation strategy for your firm, please email or call Courtney Ferrara, Vice President, at 440.392.6586.

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Topics: Financial Advisory, insurance, agents, brokers, sales, insurance distribution, compensation, service

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