Helping your producers validate more quickly
One of the biggest challenges for insurance agencies is calculating how long it will take a new producer to validate. A producer is validated (also called vested) when their production (as measured by commission) is at least equal to the cost of paying them. So, to protect the bottom line, agency owners should take steps to help a producer validate more quickly.
What is an insurance producer?
Insurance producers—also called insurance brokers, independent agents, captive agents, or insurance representatives—have considerable knowledge in their particular lines of insurance. Producers often work on a commission basis and sell insurance for multiple insurers. The amount of commission a producer makes may depend on the type of insurance they sell. For example, an agency may pay the producer 20 percent of a homeowners’ insurance policy but only 10 percent for selling an auto policy.
Suppose your producer’s annual salary is $50,000 and the renewing commission rate at your agency is 25 percent. When this producer hits $200,000 of renewable commission—which at 25 percent produces $50,000 paid to the producer—they are validated.
The road to validation
To develop a new producer, an agency absorbs a temporary loss to reap future rewards. With the right training and support, a new producer should validate in about three years, according to Independent Agent magazine. However, the minimum time needed to validate any compensation level is one year, according to Agency Consulting Group.
The company’s effective net unvalidated producer payroll (NUPP)—the agency’s investment in unvalidated producers and success rate in hiring producers—is expressed as a percentage of net revenue. According to Reagan Consulting, NUPP is the best overall measure of an agency’s effectiveness in recruiting and developing sales talent.
To assess an insurance producer’s growth and development, experts recommend evaluating both objective and subjective criteria:
- Objective Criteria, such as number of calls, prospects, and appointments, and new business revenue
- Subjective Criteria, such as cultural fit, work ethic, and professionalism
Experts say that, while it can take a few years for a producer to fully pay for themselves, if a producer can’t close a sale in a year and you don’t see the right behaviors and drive to believe that trend will turn around, it may be time to move on.
7 tips for accelerating producer validation
There are several steps you can take to help propel a producer to validation more quickly:
- Hire right
Take time to recruit and onboard producer candidates who possess the skills and temperament needed to succeed in insurance sales. This field—and role—isn’t for everyone. A robust hiring process should evaluate a candidate’s abilities and efficiency, and weed out those who don’t make the grade.
- Provide support
The most successful firms offer training, resources, and mentoring opportunities to new producers. An organized training and development program gives producers the tools they need to succeed more quickly.
- Develop your sales culture
Experts recommend fostering a culture where all producers are encouraged to beat the incumbent insurer, not just spit out quotes. Training, sales team meetings, goal setting, and value-adds should all support this sales-driven concept.
- Determine activity levels
Look at your agency’s data to identify the activity levels (number of calls, quotes, meetings, renewals, etc.) needed for a new producer to validate their compensation levels in each of the first three years of engagement with your agency. Then, while they build a book of business, they also move the needle toward vestment.
- Write it down
Put the producer’s goals (i.e., how much they need to close in sales to be validated) in writing and track measurable mileposts periodically.
- Keep them hungry
Some agencies pay producers a guaranteed salary the first year, plus the commission. The salary is reduced by a third in year two, but the producer gets their full commission. In the third year, the producer’s salary is again cut by one-third, with full commission. By the beginning of year four, the validated producer should be completely on commission-only compensation.
- Reward progress
When the producer trainee meets their revenue goal and sales call activity requirement, some experts recommend awarding a bonus commission on any sales that bring the producer’s total commission above their validation goal.
Because unvalidated producers impact your bottom line, helping them grow and be successful more quickly is an investment that will produce a positive ROI.
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