Strategic Resources for Your Insurance Agency

Producer Compensation


The producers have generated a sufficiently large book of business that:

  1. They are earning a compensation level that they consider comfortable -or-                                    
  2. They spend most of their time with their existing client base and have little  time left for new business -or-
  3. They don’t have to hustle for new business any longer, letting whatever flow of referrals support replacement of lost business.

We have forgotten that the primary purpose of compensation programs is to fairly compensate producers for their productivity AND TO CONTINUE TO MOTIVATE THEM TO GROW the agency’s book of business.

The Million Dollar Question is, “How do we provide a fair compensation for producers that influences and motivates them to continue to grow the books of business that they produce for us and that supports their financial needs?”

The short answer is to provide the “carrot” of proportionately growing earnings tied to the growth of the books of business for which the producer is responsible.  The rest of the answer is to also provide a “stick” that penalizes producers for stagnation and declining books of business.

The average producer in the P&C industry in the U.S. earns between 30% and 35% of the commission dollar.  New and smaller producers earn less and some producers still earn more.  Some higher compensation programs are warranted by the economies of scale evolved by larger produced books of business.  But most high level compensation plans are not warranted and result from producers sharply negotiating with agency owners who feel that they don’t have a choice.  Remember, once you have negotiated high commission rates for producers without a just return to the agency through continuing growth it is nearly impossible to go back.  You will lose producers who refuse to return to logical and profit-generating compensation plans.

Producers with little experience or books of business

Young producers with little or no books of business should be paid the minimum required to support their families until they generate sufficient books of business to properly support themselves.  It is important to cover the producer’s family expenses because the pressure of insufficient compensation to meet expenses will translate to desperation when they face sales proposals.  We all know that the client can sense desperation and will refuse otherwise adequate proposals if they feel the producer is pressuring the client.

Producers on stable compensation to pay for their expenses should be expected to generate one times their earnings in their first year, two times their earnings in their second year and three times their earnings by the end of their third year. At that point they fit into the commissioned compensation program that pays 30% to 33% of revenue to the producers.

Tiered Compensation

Experienced producers still need incentives and goals.  These are derived from the specific agency budgets that determine when a producer’s book of business has achieved the economies of scale to make higher profits for the agency.  We typically analyze an agency’s financials and create three or more TIERS of production each of which is substantially more profitable for the agency.  At each tier the producer’s compensation is increased in increments of 3% to 5%, and since the book has achieved the needed economies of scale, the increase IS FROM THE PRODUCER’S FIRST DOLLAR.  This is a great incentive for the producer to grow his/her book of business.  Some agencies have doubled the number of tiers and increased the producer’s compensation a smaller amount at each level to provide between six and ten levels of commission increase based on the producer’s growth and success.  Of course, rules and exceptions exist such as when a producer’s book of business decreases through a tier, and those are taken into account within the tiered compensation program.


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