Table of Contents

• Introduction
• Overview
• Profile of Participants
• Base Commission Practices
• Contingent Commission Practices
• Agency Management Practices
• Agency Tiering and Segmentation Practices
• Agency Trips and Incentive Travel Practices
• Other Agency Benefits
• Direct Writer Benchmarks

Appendix:  Detailed Study Results

Overview

For most property-casualty insurance companies, expenses relating to the distribution system represent the largest expense component outside of loss payments. Ward Group conducted this study to assist companies in measuring their performance and establish benchmarks in this important area. This report presents the findings of an in-depth study of Agency Compensation and Management Practices for property-casualty insurance companies in the October – November, 2009 timeframe and focused on results for 2008 and 2009. The study was intended to update the Agency Compensation and Management Practices last published by Ward Group in May, 2007. The objective of the study was to collect information and establish benchmarks relating to the following major topics:

Base Commission Practices, including:

• Basis for payment calculation
• Modified payments and/or excluded lines of business
• Electronic payment capabilities
• Agency notification requirements
• Average base commission percentages by major line of business

Contingent Commission Practices, including:

• Basis for payment calculation
• Actual payments made and targets
• Modified payments and/or excluded lines of business
• Growth bonus options
• Loss ratio targets
• Stop loss provisions and catastrophe loss inclusion
• IBNR and Case loss reserves
• Minimum volume requirements
• Underwriting profit requirements
• Guarantee options
• Payment caps
• Anticipated changes to plan structure

Agency Management Practices

• Average number of total agencies/sales representatives for 2007 - 2009 • Agency terminations for 2007 - 2009
• Agency appointments for 2007 - 2009
• First, third and fifth year agency retention
• Agency termination premium volume thresholds
• Average agencies per marketing manager benchmarks

Agency Tiering/Segmentation Practices

• Average number of agency levels
• Criteria for determining top agencies (premium volume, loss ratio, retention and growth targets)

Agency Trips and Incentive Travel Practices

• Use of agency trips and conferences
• Percentage of qualifying agencies
• Average annual trips costs
• Location of agency trips

Other Agency Benefits

• Co-operative advertising participation rates and annual amounts per agency
• Company paid medical, retirement and health benefits
• Company paid rent, facility and other office benefits

Direct Writer Benchmarks

• Support staff reimbursement practices
• Bonus plan offering
• Average compensation per sales representative
• Average new premium and policy benchmarks per sales representative

Profile of Participants

We collected an extensive amount of information from study participants focusing on current agency management and agency compensation practices. This report presents the findings from a diverse group of 99 property-casualty companies ranging in size of annual premium volume from below $20 million to approximately $28 billion. In order to maintain the confidentiality of the data, the names of the participants have not been disclosed. Results are calculated using the total number of participant responses to each survey topic. To further analyze the survey responses, we developed various benchmark groups. The following briefly summarizes the primary benchmark groups used for the study:

• Distribution system companies were designated as independent agency, captive agency or direct writer based on the primary distribution system utilized. Companies with multiple distribution systems were placed in their corresponding benchmark group based on the largest distribution system used in terms percentage of total agents. 
• Independent agency companies are defined as those companies in which the agent is a contract agent representing multiple insurance companies. Captive agency companies are defined as those companies in which the agent is a contract agent representing one insurance company.
• Direct writers are defined as those companies with a direct writer or direct response distribution system in which sales representatives are employees of the company. Business Mix Companies were designated as either personal lines writers or commercial lines writers based on their predominant mix of business.

The majority of the following written analysis focuses on the total and distribution benchmarks. All business mix benchmarks are provided in the appendix of this report.