Who in the insurance business is not anxious about the future? We are at a point in time where market forces may forever change the way we serve our clients, as well as our compensation rates.
Some agents may be waiting for the effects of one big change as the federal government moves toward implementing the health care reform bill signed into law in March. Regardless of the outcome of such reform, many other trends may be equally disruptive to agents.
- New, deep-pocketed competitors such as payroll giants ADP and Paychex may steal increasing market share from the “little guys.”
- Commissions will continue to evolve from a percentage of premiums to lower, per-employee/per-month structures.
- Education-intensive, commission-reducing consumer-driven health plans (CDHP) will continue to become more popular.
- Emerging state-specific reforms will drive additional change.
Instead of guessing what will happen in the near future, producers would do better to stay focused on the most likely and most far-reaching outcome of any government or free-market changes:
- Agent commissions in the small-group arena will likely decrease.
- Competition for these lower commissions will likely increase.
Any attempt to embrace these predicted outcomes does not stem from a masochistic desire to work harder for the same or less amount of money. Instead, acting on this scenario can help drive solution-oriented thinking that may increase revenue and enhance competitiveness in virtually any economic or political environment.
There are a number of reasons to assume that commissions will decline. First, none of the government proposals include commission increases for agents. Second, the growing CDHP market already delivers lower commissions. Third, we would be naive to expect “per-customer” raises for delivering escalating prices on a product so crucial and costly to our society. Finally, consider our profession’s relative pay ranking. According to Payscale.com, we are among the 10 highest paying occupations in America — yet an insurance license doesn’t require nearly the same investment as a medical education.
In light of this dreary outlook, is it contradictory to think that competition in the small-group market will increase? Not if lower commission structures (as opposed to no-commission structures) give rise to very strong, committed specialists — those with the scale, systems, and focus that enable them to efficiently and profitably manage a very large number of small, low-commission groups. While there may be fewer competitors, if there is a dollar to be earned, competition is likely to be tougher than ever.
What does all of this mean to most health insurance producers? Basically, you must decide how to profitably grow your business faced with these compelling trends and dynamics. Let’s take a look at some possible ways to drive new revenue, compete against the best, and ascertain whether you should consider selling to or partnering with a stronger player to ensure a vibrant future.
Driving revenue growth in an era of decreased commissions
As daunting as it can be to drive new revenue, when you break it down, there are only three strategies to pursue as antidotes to declining commissions:
- Find new customers
- Sell new products and services to existing customers
- Charge existing customers more for your services
Focus on the first option: Finding new customers is crucial to any agent’s continued success. Agencies grow by creating leverage — one producer to many relationships. Here are two ways, then, to increase your leverage, selling time, and results.
- Developing centers of influence. Because we are all inundated with complexities and time constraints, a traditional networking mentality no longer works. Meet-and-greet events and full-day one-on-ones — such as baseball or golf outings — might drive a few sales, but they don’t create leverage in and of themselves. Most networkers meet someone and exchange business cards. The card then sits on a desk, or is perhaps entered into Outlook, Facebook, or LinkedIn.
Regardless, 99 percent of the time, nothing will happen. A more strategic approach — developing centers of influence — involves a commitment to identify, cultivate, and tactfully reward a “freelance sales force” that motivates your contacts to refer business to you. It also means that you must execute this plan as thoroughly, thoughtfully, and aggressively as you would manage an internal sales team. Maximizing results requires you to create a budget and measurements, and to regularly review the results. You’ll also need a marketing plan to tactfully and creatively remind your “expanded team” how they and their contacts will benefit from your services.
- Review and revise your strategies. Another way to accelerate your quest for new customers is to take a fresh look at your daily diaries and logs. By changing behavior and adding support where needed, producers could realistically double the time they spend selling. If small-group commissions will be cut in half, that kind of production is exactly what you’ll need just to stay even. How would your sales results change if you were able to perfect the sales-to-service hand off?
As we look to the future, producers have a choice: become confused by uncertainty or stay focused on predictable outcomes such as decreasing commissions and increasing competition. Those who embrace this reality now will be in the best position to adapt and thrive as our industry changes.
Brett Rosen is senior vice president of the small-group benefits broker Digital Insurance. He can be reached at brosen@digitalinsurance.com or 770-250-3006.