A new study by Reagan & Assocs. finds that only 56 percent of producer hires in the insurance distribution system in the past five years are successful.
In a baseline survey of 562 agents and brokers, the survey determined that while success rates were significantly more successful for top-performing firms (84 percent), most agencies and brokerages are still struggling with hiring, typically identifying it as the biggest challenge they face in their businesses overall.
While the overall success rate was 56 percent, employee benefits success rate was 53 percent, commercial lines success rate was 56 percent, and personal lines success rate was 59 percent.
Most firms hired new producers from inside the industry: 55 percent hired experienced producers, and 10 percent in the industry but not in a sales role. For the 35 percent of hires coming from outside the industry, only 6 percent were college hires.
Not surprisingly, producer success rate varied dramatically based on the success level of the firm, according to the Reagan Value Index. Firms in the bottom 25 percent saw producer success rates of only 22 percent, compared with the 56 percent average and 84 percent success rate for the top 25 percent of firms.
In drilling down with a supplemental survey and subsequent follow-up interviews with the firms most successful in recruiting, Reagan identified six critical factors for firms that were successful in producer hiring.
Read on to learn their recommendations.
For a copy of the report, contact Reagan Consulting at [email protected].
1. Defining hiring needs
The Reagan study found that 55 percent to 60 percent of agents and brokers are under-hiring.
"The top 25 of these firms will hire 10 producers to end up with 8 successful hires," the survey notes. "To end up with 8 successful hires, the bottom 25 percent will have to hire more than four times as many producers."
Reagan identified three key measurements firms can use to establish an appropriate level of hiring: sales velocity, generational capacity, and producer investment.
Sales velocity is calculated by dividing this year's total new business by the prior year's total commissions and fees. For example, an agency with $10 million in total commissions and fees in the prior year that generates $1 million in new commissions and fees has a sales velocity of 10 percent. Agencies can use sales velocity and its relationship to growth to calculate the number of producers they need to hire.
Generational capacity relates to the number of producers in each age band (up to age 35, 36-45, 46-55, and over 55), and the contribution to new business by each age band.
Producer investment centers on the Net Unvalidated Producer Payroll (NUPP) metric, which is a mesure of an agency's investment in developing producers. NUPP is the difference between what an agency pays its developing producers in direct payroll versus what the producers would earn under the agency's normal commission schedule A NUPP of 1.5 percent to 2.5 percent fo net revenue represents a healthy level of producer hiring.
2. Determining who to hire
The most successful firms are strategic in who they target and are willing to make necessary investments in their recruiting, hiring and development efforts to ensure the success of those hired.
Although hiring experienced producers is preferred because they need little training and frequently come with their own books of business, the long-term success of an agency — and the industry — lies with attracting new people.
The Reagan study found that most producer hiring is still primarily male: 79 percent of all producers, 85 percent of personal lines, 74 percent of employee benefits, and 45 percent of personal lines producer new hires were men.
However, hiring varies widely by age, with most new producers in their 20s or 30s; more than 60 percent of producers in the supplemental survey were hired before their 40th birthday. The survey found that the success rate increases with the age of the producer hired; approximately three-quarters of all producers hired with a book of business were 40 or older.
