Commission Payments vs Cash Flow

[KFM7]

I am a new independent agent and new to this forum (which has been an excellent resource for someone new).

I am setting up a new agency and putting together a business plan for it. I have a couple of questions:

1) What is the cash flow of commissions paid on new premiums that are paid monthly or paid in full upfront. ie. if the client pays monthly, is the commission paid monthly pro-rata to the number of months on the policy (6 or 12mo)?
If paid in full, what does the cash flow look like?

2) Roughly what percentage of customer chose to pay monthly vs pay in full upfront?

Thank you.

 

[fed up]

If you are truly new please let me share some advice which I have seen ruin new agents. Most customers do not pay in full but most companies will pay you an advance based upon future paid premiums. If you submit an application for 100 premium per month you will receive a commission based on a 1200 yearly premium. Charge backs are hell! Your "best" customer has 30 days after receiving the policy to accept it and some don't. Some realize they forgot to plan for the premium outlay. When you can afford to...take your commissions "as paid" until you have a good income rolling in from renewals and premium payments
That $10,000 commission advance looks great but your pockets won't suffer the $10,000 chargeback refund when the policy is declined or lapses

 

[VolAgent]

For auto and renters, most people will pay monthly, although there are still some that pay in full. For home, most will be paid in full as most homes have a mortgage with the insurance in escrow. There are always exceptions, but this is the general rule now days.

Most companies will advance you the full policy commission, yearly for home and renters, for auto 6 months or 12 months depending upon carrier and policy length. If the policy lapses or is cancelled for any reason, they will charge back the unearned portion.

Now, most carriers do advance renewals as well, although some don't. Travelers quickly comes to mind as a company that pays renewals as earned.

Chargebacks will happen, and they will be the worst when you are getting started too. You're new, you are building the relationship as well as you could, and you have fewer or no renewals to absorb them.

 

[KFM7]

To both of you - thank you for the reply and insights. This makes sense. Assuming you can absorb the upfront cashflow hit - it would make sense to build a business with strong recurring cash flows - but thats a big assumption.

Would you have a rough percentage of chargebacks against written premiums. ie would there be roughly 10% or 20% etc of premiums written that end up in a chargeback situation. I could allow for this rolling amount then in a plan.

Thanks again.

 

[moneycage 2018]

I am a new independent agent and new to this forum (which has been an excellent resource for someone new).

I am setting up a new agency and putting together a business plan for it. I have a couple of questions:

1) What is the cash flow of commissions paid on new premiums that are paid monthly or paid in full upfront. ie. if the client pays monthly, is the commission paid monthly pro-rata to the number of months on the policy (6 or 12mo)?
If paid in full, what does the cash flow look like?

2) Roughly what percentage of customer chose to pay monthly vs pay in full upfront?

Thank you.

I am new to the Business, too. I have been given the advice that if you can do it to be paid "as earned" instead of as and advance. Because charge backs and vectors give the industry a bad name.

On a funny note, I was told then when talking to recruiters, some will brag about there earnings, and to ask for there 1099's and not there paystubs. Because the paystub will show the advances they get and not there true earnings.

 

[VolAgent]

A lot of the advice on this page is very life-centric. So please take a lot of it with a grain of salt.

For home and auto, the biggest reason you will lose people in the first term will be non-payment. Some will switch right after taking out the policy because they kept looking and found something cheaper. So really important to sell value and try to shut down that behavior, which is impossible to stop completely.

You'll also lose some at renewal because they went shopping again.

I don't have any good numbers handy, but I say if you anticipate losing 30% of your new business, you'll be safe. Eventually you want to get over 90% in retention, but that takes time of building people loyal to you and your agency, and getting better at building value and loyalty.

Without a huge bankroll, I believe you would be very hard pressed to go as earned in home and auto starting out.

 

[fed up]

P&C you don't get very many chargebacks in the initial year of the policy, not many people will shop your rate right after they have become a customer. 2-3 years down the line it is a slightly different story, especially if your carriers have taken a rate increase or the policy has some claims added. Healthcare really depends on what you are selling. MedSups tend to be stable for at least a year, MedAdvantage seems to have the potential to change every year. Life is where you can run into difficulty because the "Advance premium" is so very tempting. You take $100 as the initial premium payment and you get a check for 500-600 or more based on your production. The customer free looks the policy and declines it after 25 days and you have to pay back the commission. Policy lapses after 6 months and you pay back the unearned commission. I had a cousin who "earned" 25-30,000 in commissions in her first few months because of contacts and previous relationships. She was dumbfounded when she wasn't earning anything because the majority of the first policies were free looked. She was 25000 in arrears. Opt to take a few as earned if you can, take a few on advance. You will be much happier with your bank account

 

[KFM7]

My apologies - I had asked this question on the Auto Insurance forum but did not specify in the question I was only asking about Auto premiums to. Regardless - the extra info you have all provided on the other lines is very useful.

Thanks again

 

[moneycage 2018]

My apologies - I had asked this question on the Auto Insurance forum but did not specify in the question I was only asking about Auto premiums to. Regardless - the extra info you have all provided on the other lines is very useful.

Thanks again

No worries what happens is on the side bar of the forum, every question just gets posted but on the side bar they don't specify the forum topic. Seems like alot of Life Insur. guys on here so they see it and immediatly respond.

 

[indienoise]

What kind of clientele you are hunting makes a big difference here. If you are selling nonstandard auto, take everything you can as-earned, otherwise your cash flow will absolutely be unpredictable. You'll never know what to expect. Figure on about 10% commissions, and you will have tons of non pays, cancel/rewrites, etc.
If your market is blue collar or "standard" clientele, figure on somewhere between 25-40% leaving or cancelling in the first year. 12-15% commissions.
Preferred clientele, or mass affluent, 10-25% will leave one reason or another in their first year with you. Commissions should be 15% or so, possibly more depending on carrier. Your premium per household will likely dip compared to standard even though you've got higher limits and more stuff to cover.
All require different strategies to get and retain. Best of luck!