Managing Commission Reduction as a Personal Lines Agent?

This article originally published on, written by Howard Candage and edited by Taryn Haas.

What should Independent Agents do when faced with personal lines commission reductions? In Short: Fight for your position in distribution and add necessary value, even in the face of fear. It’s scary, as agents, to push back against our insurers, and our insureds.

If we look at the logic, cutting personal lines commissions is depriving the people who need the agent’s advice the most, the insureds, from the availability of that advice. Agents are driven by their commissions, as that is essentially their hourly salary. If they previously spent an hour explaining coverages to a customer with a 15% commission, that hour is well-paid. Cut that commission down to 10%, and now the agent has to get 3 accounts for every 2 they had before. It also means that, unless they want to work 33% more hours, they need to cut that hour of advice for each customer down to 40 minutes. You can see how this is a slippery slope that leaves the personal lines client behind. As commissions decrease the amount of time an agent can devote to each personal lines customer similarly decreases.

But why should we care? Personal lines policies are getting simpler with more comprehensive coverage in the name of competition, so why do consumers need advice?

Firstly, Clients do not understand the scope of coverage available, or the value of that coverage. Insurance policies are very difficult to read and understand.  As an expert I have shared the room with groups of attorneys and yet there is still contention over what policy wording actually conveys..    The client needs an advocate pre-loss and post-loss to ensure appropriate choices are made. These choices need to be made with full knowledge of the trade offs and impacts.

Secondly, Clients often don’t believe that that they may end up with a claim.Clients are absolutely sure the events covered by the policy are not going to happen to them !   They typically are not going to take adequate time or invest appropriately to assure the best possible outcomes.

Wanted an ostrich with its head in the sand, but couldn’t find a free stock photo…

Thirdly, pre- and post-loss thinking are not a focus of clients. I have a very broad education in insurance and risk management and. In all of my studies I have never encountered any education about the insurance agent’s role post-claim. Adjusters handle the majority of the claim and they are not there to hold the client’s hand. Should any customer service issues arise, that is going to come back on the agent. If they both do their jobs properly, the clients will feel good about the indemnification process. However, this is a large time commitment for the agent that they are not directly compensated for.

Additionally, unequal values are exchanged by the parties to the contract.

The insurance purchase is different than most other purchases. Let’s say I hire a contractor to build a 3000 sq. Ft. home  in Washington, DC. $99,000.00 – Of course I’m going to accept! It’s obvious that this is far below actual costs.  Why is it obvious? Because equity somewhere near denotes parity. You, or anyone with a basic amount of knowledge, can tell that my offer is not enough money to build this house.There’s an obvious picture of what you’re getting for your money, which is far different from the norm in this case.

In an insurance contract there is no logical relationship between the total premium paid and the outcome necessary to indemnify the client. Without a clear relationship, this invites the insured to make a very uninformed  purchase mistake and not even know it until after the claim. It is not obvious as to how premium correlates to potential payouts, as someone could increase rates without a broadening of coverages. It takes a person trained in insurance to make this determination as it will come down to policy language in relation to the premium.

Compoundly, the purchase of insurance is likely compelled by a third party which can create resentment and resistance, as opposed to the focus on financial protection..Because of this resentment and resistance, clients will continue to brush off the responsibilities of a purchaser until after the claim.  They often search for the lowest price regardless of lack of coverage. The agent has to push the insured to make good choices, both for the interest of the client and for the interest of the insurer.  

Lastly, clients are beholden to the contract they signed. When a trigger event occurs, it is too late to change anything. At that point the client is left with any bad choices that they made prior to the current claim.  If you find yourself here, it’s going to be incredibly frustrating, but hindsight is 20/20.    There is no post loss reformation available.

In summary, agents must make sure their  insurers understand their value and act in the interest of their client. If they realize how much they add to the insurance transaction and advocate for an improved compensation model for agents reflects this contribution. Finally, they should add all the value they can to the execution of the promise granted by a policy of insurance through customer service and insurance knowledge

About Howard Candage

I facilitate and act as an intermediary to insurance agencies in the areas of Mergers & Acquisitions, Insurance Sales and Technical Training, I am an established insurance practitioner and I assist agencies through Management Consulting and Agency Sale assignments. I am a problem solver for insurance agents with experience in the industry since 1979.

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