Transparency and Trust: The Keys to Successful Compensation Conversations in Insurance Recruiting

Setting the Stage

As an insurance recruiter, one of the most important yet sensitive topics you must navigate with potential candidates is their production numbers and compensation. It's crucial to understand how a producer's revenue generation aligns with their total employment costs in order to determine if they would be a good fit for your client's agency. However, challenging a candidate's stated production figures can be a delicate matter.

For producers, having your production numbers scrutinized can feel like a personal affront, leading to defensiveness and stress. But it's important to recognize that this is a necessary part of the hiring process and not a judgment of your worth as a person or a professional.

In this article, we'll explore some soft approaches to having this conversation from both the recruiter and producer perspective. We'll provide context on typical industry benchmarks, discuss the psychological impact of quantifying one's value to an organization, and offer insights to help producers understand why agencies need them to hit certain targets.

Understanding Industry Standards

Before diving into a discussion about a candidate's production, it's important for both recruiters and producers to have a solid grasp of the industry norms. While there is some variation across different agency sizes and regions, a standard benchmark is that an insurance producer should generate $80,000 to $100,000 in new business per year to justify their total compensation package (Senior Marketing Specialists, 2021).

According to a 2021 study by Reagan Consulting, the average total compensation for a commercial lines producer was $109,505, which included a base salary of $61,041 and average incentive pay of $48,464. The study found that top performing agencies required new producers to validate nearly 100% of their compensation in new business revenue by the end of their second year (Reagan Consulting, 2021).

For producers, it's helpful to be aware of these benchmarks not as a source of pressure, but as a way to assess your own performance and growth trajectory. Understanding what's typical can give you a clearer sense of where you stand in your career development.

- Key Point: Industry benchmarks suggest an insurance producer should generate $80,000 to $100,000 in new business annually to justify their total compensation.

Soft Approaches to Discussing Production

When it comes time to discuss actual production figures with a candidate, recruiters should approach the topic gently to avoid putting the producer on the defensive. One way to naturally segue into this discussion is to first ask the candidate to describe their responsibilities in their current role and the types of clients they typically work with. This can provide valuable context for understanding their production capacity.

You might say something like, "It sounds like you have a lot of experience working with [client type]. In order to find you the best fit with an agency, it would be helpful for me to get a sense of your typical annual production numbers. Would you be open to discussing those figures?"

If the producer states a revenue number that seems low relative to their compensation, you can gently press for more details in a non-judgmental way. For instance, you might say, "Thank you for sharing those numbers. To help me understand, is that figure the annual new business you write yourself, or does it include renewals and business serviced by your support staff? I want to make sure I'm getting the full picture."

For producers, remember that the recruiter isn't trying to trip you up or diminish your accomplishments. They're simply trying to ensure that your next role will be a strong mutual fit where you'll have the resources and support you need to thrive. Being transparent about your production can help you find an agency that aligns with your current stage of development.

Analyzing Production vs. Compensation

To demonstrate why an imbalance between production and compensation can be unsustainable from a business perspective, it can be helpful to break down the numbers. Let's return to the hypothetical example from the beginning of a producer who states they bring in $100,000 in annual revenue but also earn $100,000 in total compensation.

On the surface, it may seem like this producer is "paying for themselves." However, the agency has additional costs beyond just that producer's compensation. There are expenses related to support staff salaries, office space, equipment, marketing, and more. According to an expense analysis by WPA Intelligence, non-producer personnel expenses at a typical agency can range from 18-26% of net revenues, depending on the agency size (WPA Intelligence, 2022).

This means that for every $100,000 in revenue, around $20,000 may go towards supporting that producer in the form of administrative staff and other infrastructure. So a producer bringing in $100,000 but costing $120,000 is not a profitable situation for the business. A good rule of thumb is that a producer's book of business should generate at least 3-4 times their compensation within a few years to be seen as a strong long-term asset to the agency (Senior Marketing Specialists, 2021).

For producers, understanding this bigger picture can provide valuable insight into the economics of an agency and why your production numbers matter beyond just your personal paycheck. It's not that the agency is being greedy, but rather that they need to maintain a certain level of profitability to stay viable and provide you with the resources you need to serve your clients and grow your business.

- Key Point: A producer's revenue generation should be 3-4 times their total compensation to be considered a profitable asset to the agency.

Psychology of Production and Self-Worth

It's important to recognize that for many producers, having your worth to an organization reduced to a dollar figure can take a psychological toll. In a survey by The National Alliance for Insurance Education & Research, 44% of producers reported struggling with impostor syndrome, the feeling that they haven't truly earned their success and are at risk of being "found out" as a fraud (The National Alliance, 2021).

Producers may feel immense pressure to continually increase their numbers, leading to fears that they could be fired or have their compensation cut if their production slips. This stress can actually become counterproductive, sapping motivation and job satisfaction.

One way to combat this is to remember that your value as a producer goes beyond just the revenue you generate. Your product knowledge, client relationships, teamwork, and other essential skills are all part of what makes you an asset to your agency.

When discussing your production with a recruiter, it may help to highlight these other strengths as well. For example, you might say something like, "While my production numbers were lower than I would have liked last year due to [specific circumstance], I'm proud of the fact that I was able to retain all of my key clients and even deepen some of those relationships. I also took on a mentorship role with a new producer and helped them close their first big account."

By focusing on your holistic contributions, you can paint a more well-rounded picture of your value and potential.

Aligning Expectations and Incentives

Another key element in the production conversation is having a clear understanding of the agency's expectations and compensation structure. Agents are more likely to stay with an agency long-term when they feel supported in their career growth and understand what they need to do to increase their earnings (Horton, 2022).

For recruiters, it's essential to be transparent about the agency's production targets and how the compensation model works. Provide specific examples of what a producer's expected ramp-up period looks like, what support and resources will be available to them, and what kind of commissions or bonuses they can earn by hitting certain milestones.

For producers, don't be afraid to ask detailed questions about these expectations during the interview process. Gaining clarity on what you need to deliver and what you'll get in return can help you determine if the role is a good fit and set you up for success.

Some specific questions you might ask include:

• What are the expected production targets for a new producer in their first year? Second year? Beyond?

• What percentage of my compensation will be base salary vs. commission?

• Are there any bonuses available for hitting certain production levels?

• What kind of training, mentorship, and marketing support will I receive to help me grow my book of business?

• How often will my performance be reviewed and my compensation adjusted?

By having an open dialogue about these topics, recruiters and producers can ensure they're on the same page and reduce the risk of mismatched expectations down the line.

- Key Point: Transparency about production expectations and compensation models is crucial for aligning the goals of the agency and the producer.

The Bottom Line

Discussing production numbers and compensation can be a challenging conversation for both insurance recruiters and producers. But by approaching it with transparency, context, and a focus on mutual benefit, it can be an opportunity to build trust and find the right fit.

Recruiters should aim to understand the nuances of a producer's experience and contributions beyond just the raw revenue figures. Be transparent about the agency's expectations and compensation model, and frame the conversation around helping the producer find a role where they can thrive.

For producers, remember that your production numbers don't define your self-worth. While they are an important metric, they're just one part of your overall value as a professional. Be honest about your experience and ask questions to ensure the role aligns with your goals.

Ultimately, the most successful agencies are those that balance financial viability with investment in their people. By creating a culture of transparency, support, and fair incentives, they can attract and retain top producer talent for the long haul.