Agency contingency bonuses and underwriting profit sharing can significantly add revenues to your agency. This is why it is so important to strategically plan for this. Here are 6 ways you can strategically grow your bonuses:
- Become Part of an Agency Aggregator Group. This is the best way to instantly increase profit sharing for a small to medium size agency. Because most of these master agency groups have twenty or more agencies, with some regional and national groups having hundreds of agencies, profit sharing is based on the combined volume of all agencies in the group. These groups can participate in the most generous top tier profit sharing bonuses because of a higher combined volume. While membership in these groups can cost thousands a year in either fees or commission splits, in most cases, the pooled profit sharing returned to agency members are well worth the return on your investment.
- Acquire an Agency. With an acquisition, one plus one can equal to three when it comes to profit sharing. The reason why it works this way is because of minimum profit sharing volume requirements. If a carrier has a 500k minimum requirement to participate in profit sharing, an agency with 200k of premiums and another agency with 300k of premiums would not make profit sharing on their own. However, combining these two books gives a production volume of 500k. If both of these agencies combined have 150k of underwriting profit at a 6% bonus, the new ownership would get a 9k bonus that they would have never received on their own with just the carrier alone. When the acquiring agency combines all their carriers with the acquired agency, the combined profit sharing gains can be significant collectively. This is why insurance agencies sell for a premium, because when added to an existing agency, an agency can build up their volume with a carrier and achieving additional profit sharing that none of these agencies achieved on their own.
- Merge with another Agency. A merger will do the same things as described under “Acquire an Agency.” Volume is the key to increasing an agency’s profit sharing.
- Loss Ratio Management. While production is important, there is no profit to share without a profitable book of business. This will only happen by managing the agency’s book of business and writing quality business. One way to do this is by working with the carrier and their underwriters by reviewing each account. Another way to do this is to have rules in place that attract the more profitable type of business. For example, multi-line accounts tend to be more profitable. You can do this by putting together a program to target multi-line accounts. Again this is an just one example. Many carriers and agency aggregators can help you manage your loss ratio and tell you what you can do to improve your numbers. Take advantage of this, it will mean more revenues for your agency.
- Add a Producer. A producer with a book of business can instantly add to your profit sharing production requirements, as well as a producer without a book who is motivated to build one.
- Invest in your Agency. Increasing your agency production to meet profit sharing goals requires you to market your agency. Look at marketing as a return on investment rather than as an expense. If you are spending about one year’s commission for each quality client you are bringing in, you are doing well for several reasons. First, you will help your profit sharing goals. For example, if your profit sharing requirement for a certain carrier is 400k in premium and you only have 300k, it will be well worth spending approximately 15k to bring an additional 15k in commissions. Chances are, not only a good percentage of that will renew in one year, but if you are profitable by 200k and your profit sharing bonus is 10%, you bring in an additional 20k. In some cases, it may be worth spending more than one year’s commissions in marketing if you have a very favorable loss ratio. The bottom line is growth equals more profit sharing and the only way to do this organically is to spend money on effective marketing.
Looking to start an Agency? Get detailed information by reading our Guide to Starting an Insurance Agency