ICM Technology Considerations for the Insurance Industry

Distribution Management & Incentive Compensation Challenges

ICM TECHNOLOGY CONSIDERATIONS FOR THE INSURANCE INDUSTRY RELATED TO DISTRIBUTION MANAGEMENT & INCENTIVE COMPENSATION CHALLENGES

Incentive compensation in insurance requires an integrated solution that supports producer management, customer/policy management, and transactional and summary level compensation capabilities. General purpose solutions are often challenged to handle the unique complexities of insurance compensation which may limit the number of viable options available.

Managing incentive compensation in the insurance industry has very specific challenges that often tie back to the agents/producers. These challenges include regulatory considerations (validation of licensing, appointments, certifications, etc.) as well as general service level considerations (accuracy, transparency, ease of doing business). For example, it is not uncommon for a single transaction to pay 10 (or more) levels of hierarchical compensation at unique rates while, also accumulating summary performance metrics and validating compliance profiles for each producer being paid. Within each of the areas, the insurance space stands out from other industries as it directly impacts what options are available to firms when they are looking to automate these programs.

Given the need to meet agent/producer service level expectations as well as managing regulatory and compliance requirements, this document will take a closer look at these areas while sharing feedback and guidance as it relates to the potential selection and deployment of an SPM solution.
In this paper, we highlight five prominent challenges to sales incentive compensation in the insurance industry and offer insights into how Sales Performance Management solutions can help address those challenges as well as considerations to ensure selection of the right platform. We hope that these insights will shed some light on the most important considerations for selecting and properly implementing the best application for your needs.

  1. Producer Management & Compliance
  2. Tracking Policies & Premium Details
  3. Crediting & Charge Backs
  4. Reporting & Analytics (for the producers)
  5. Data Management

CHALLENGE 1 | Producer Management & Compliance

Producer management is a critical and highly complex requirement for carriers as it has direct impact on onboarding, compensation eligibility, agreements, hierarchical management, debt management and much more. The problem is further magnified by the sheer volume of both active and inactive producer data that must be accurately managed and updated regularly along with maintaining the history. The ability to onboard multiple channels and brokers as well as an in-house sales force, manage correspondence, maintaining licenses and appointments and facilitate the necessary reporting is a key factor in determining a good fit for your situation.

Tracking and ensuring compliance related to paying producers is critical for insurance companies in addition to having that same data accessible through an API or direct source for consumption in other systems. Without the ability to ensure you are paying (or not paying) producers based on their eligibility to sell specific products and policies in a certain region, carriers run the risk having to pay significant financial penalties.

  SPM Technology Alignment & Considerations:

Solutions that do support producer management well are not always integrated with a solid compensation system and is an essential component that the SPM providers are trying to solve. Due to the customizable nature of producer management, if you have a homegrown legacy system supporting this it is hard to find a replacement with as many features. It is possible, however, to utilize a separate solution for Producer Management from your compensation for insurance if you are able to integrate it relatively seamlessly and effectively. This specific challenge sheds light on the fact that a generic (one size fits all) solution will likely not meet your needs.

If producer management is in scope, it will be very important to ensure your requirements around this challenge can be documented and communicated to any vendor you engage as it relates to a solution review. However, if you simply need to connect your Producer Management platform, the field for incentive compensation solutions will open up a bit from an options standpoint, but it will still require a close look at
the vendors to ensure they can integrate natively and/or have examples of clients where they have. Care is required when identifying the right fit for your organization.

CHALLENGE 2 | Tracking Policies & Premium Details

To accurately pay sales compensation within the insurance space, firms do not have the luxury of summarizing customer payment data, but instead will need to track the producer relationship to a book of business at a policy level and the premium activity associated to that policy. Commission payment will be dependent upon the solutions ability to handle transactional calculations based on paid premiums at the policy level. Payments must also be distributed across complex direct and indirect hierarchies which often results in a single premium transaction paying anywhere from 3 to 10 (or more) producers.

Factors contributing to the complexity include the type of premium (new/renewal), issue date and premium effective dates, any potential advance commissions paid, policy changes, terminations and more. Given the high-volume nature of insurance it is critical that the solution support policy level calculations and retroactive adjustments in a fully automated manner while also storing multiple years of history for regulatory purposes, retro calculations, and reporting.

  SPM Technology Alignment & Considerations:

While some of the larger/older solutions do provide transactional processing, this is not a capability that is often requested and as such should invoke closer review by a firm looking into SPM solutions. And although insurance focused SPM platforms will typically have this capability (as they very much understand this requirement), they may not do a great job of tying this information into a reporting or analytics solution that would then be made available to the producers, management and the admin team.

CHALLENGE 3 | Crediting & Charge Backs

It is common for producers to have multiple roles, product or geographic hierarchies in place simultaneously, while also requiring tracking of historical hierarchies for retroactive processing. It becomes even more challenging when you fold in compliance and eligibility rules across the hierarchy which in effect requires a fully automated self-correcting platform.

Crediting can be very challenging in insurance due to the need to handle transactional level processing while also factoring in the complexities of producer and policy management. Additionally, insurance has more potential for retroactive adjustments than most industries which must be fully automated to ensure accuracy and regulatory compliance.

Retroactivity can be as simple as a “charge back” for a policy that termed in less than 90 days or can be far more complex in terms of the need to recapture payments made incorrectly based on any number of critical effective dated logic (retro license termination, retro change in hierarchy, retro policy ownership change, annualized premium not collected, etc.). Automated retroactive processing (and audit trails) in insurance is a critical component of feeling confident in the accuracy of payments and delivering maximum return on investment.

  SPM Technology Alignment & Considerations:

Some key advantages to some of the more robust SPM solutions (not just insurance specific) include their ability to handle:

• Highly complex crediting logic and assignments
• High volumes of data
• Policy and participant level tracking and reporting
• Various types of data sources that provide the measures needed for crediting

Though not all systems are up for this challenge, there are a number of SPM solutions that have demonstrated the ability to manage complex crediting with high volumes successfully for large insurance companies (e.g. over 10k producers) at the transaction line level. Over time, these solutions have developed robust capabilities through advanced data management (e.g. ETL) and crediting logic capable of handing the most complicated scenarios. This includes efficient and accurate crediting on an ongoing basis, the ability to alter crediting rules to accommodate changes in plans, agreements or subsequent crediting logic and the ability to adjust credits systematically and exceptionally as needed.

CHALLENGE 4 | Reporting & Analytics (for the producers)

Understanding that producers (if they become unhappy) can either leave with their book of business or reduce new business focus with the carrier… it is an on-going effort to improve the producers’ experience. A key element to support producer satisfaction is transparency which is best managed by providing clear, concise and accurate reporting breaking our new versus renewal commissions, key bonus metrics, book of busines views and compliance profiles. Many companies are hyper focused on providing a good experience, carriers constantly struggle to organize data (e.g. transaction line level data) in a way that can be viewed by both the producers and the managers.

Reporting focuses on:

• Clearly identifying the business, channel and products that are being paid
• Timeline data and milestones; year to date, target levels and achievement
• Quick and easy access to participant and customer views and book of business data
• Summary levels and team views
• Program/Plan performance
• Policy renewal details for client contact and reminders
• Ability to extract data to load to a CRM or spreadsheet for more sophisticated producers and agencies

 SPM Technology Alignment & Considerations:

Assuming the underlying data is accurate and complete, and the SPM solution is configured appropriately, SPM solutions available on the market can deliver rich data sets that can be tailored for the specific users within an organization. Over the last 20 years, SPM vendors have advanced their capabilities to deliver extremely insightful dashboards and intelligent analytics to support not only performance management but also ensure strategy decisions are supported by relevant data. With these advancements, producers and managers can leverage drill-down capabilities within reports to see both summarized and highly detailed information regarding their commissions. As most of these systems are also highly configurable, clients have the ability to customize prebuilt reports or create new ones from scratch.

While there are advantages to leveraging an Insurance focused SPM solution, many of the top solutions can handle Insurance reporting/analytics needs if they are configured correctly and with an expectation of tracking/paying at the transaction line level.

CHALLENGE 5 | Data Management

Data needed to support the inherent complexities of paying agent commissions can be substantial. Often, systems/programs/outside suppliers will need to have a full integrated and automated data strategy that will support on-going processing of compensation with the additional need to perform historical look ups and maintain accurate calculations of compensation. Tracking the volume of contracts, policy and/or participant level information is challenging and requires detailed planning and a solid design. The data is required to be used not only in incentive compensation processing but in the detailed reporting, tracking of changes, and consumption via API or direct feed within the company.

 SPM Technology Alignment & Considerations:

Given the requirements around data automation across various source systems, it is critical to assess the vendor’s experience connecting their system to source systems within the insurance space. While some solutions provide standardized integration capabilities, these should be reviewed closely to ensure capabilities or alignment and management of data being provided through insurance specific sources. The solutions must be able to provide the ability to look back at effective dated detail, summarized data and process changes retroactively in a clean efficient manner. Compensation solutions are primarily driven and track activity at a payee/agent/broker level and the need for policy, contract holder data is not often easy to manage. Keeping this in mind as you look for a suitable solution will aid you in your selection.

SUMMARY

The challenges discussed in this paper for insurance often present difficulties for SPM solutions since they are not well designed specifically for the insurance industry given that are they are built for a variety of industry verticals. These challenges are managed differently from company to company and finding the right solution may look different from one company to another.

While considering a SPM solution for insurance, keep in mind the needs and challenges to support producer management, compliance, premium tracking, credit and charge backs, reporting and analytics, and data integration. Each solution will manage these differently and diligence should be taken to determine what the best set up is that suits your needs.

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