The Case For Level Worksite Commissions

Second, the renewal commissions from worksite life insurance sales can create large commission payments after the initial worksite sale is made. As a producer recently commented when discussing this, "It is great when January 1st rolls around each year and I find a big check in the mail."

Third, the commission pattern is more like that found in the property-casualty industry among agents who often sell in the same worksite marketplace. These p-c agents achieve success in this market by focusing on keeping the business on the books through service to the clients. Life insurance producers could have similar success.

Producers should be aware that, should commissions be levelized in some manner, the first-year commission will be greatly reduced from the level to which they have become accustomed.

However, this change fosters greater persistency, as noted earlier. This will, in turn, be in the best interests of producers as well as insurers. For example, the producer will receive the higher renewal commissions through a levelized commission pattern, and the company should receive additional profits.

By contrast, should the producer receive only small renewal commissions, as occurs under the 60% first-year commission plan, the producer may have little incentive to see to it that the products persist.

Worksite life insurance products are prime candidates for levelizing the commission pattern. These products often have higher than normal lapse rates, making it necessary for producers to work hard to keep the insurance in force. The levelized commission structure would provide a valued incentive to perform this work.

Further, the levelized structure should be an incentive to producers to bring the most desirable cases, from an underwriting standpoint, to the worksite insurer. After all, the products in the worksite market often have only limited underwriting. This means the producers have quite a bit of control concerning the mortality and morbidity risks they bring to the insurer. When they bring groups with good risk profiles, this increases the likelihood that persistency will be strong.

Finally, if the worksite product has a portability feature, the producer can encourage the continuation of insurance as employment changes, thus keeping the renewal commissions going.

In short, the long-term gains of shifting to levelized commissions for worksite life insurance may outweigh the short-term loss of high first-year commission.

Kent C. Scheiwe, FSA, MAAA, is a principal in the Indianapolis office of the Milliman USA actuarial consulting firm. His e-mail is [email protected].

Reproduced from National Underwriter Edition, March 24, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.