GAs/FMOs/IMOs & Commissions

[ComeCorrect]

Apparently in MD some carriers don’t allow you to contract directly with them so you have to go thru some type of GA/FMO/IMO etc. I had an issue where the carrier offered a 12 month advance (which I selected when I filled out my contracting paperwork) but my GA/FMO/IMO (i.e. middle man scam artist) decided that they would only authorize a 9 month advance due to agents leaving them on the hook for bad advances once they leave. This was not made aware to me until I received welcome letters from two carriers. So should I just suck it up and take the 9 month advance or just choose not to write business with these carriers?

I feel like I’ve been duped!

P.S. I plan on going as earned as soon as I can but this is going to set me back a little.

 

[Thatguy]

advances are decided by the carrier with approval from your IMO/GA (or vice versa.) If they don't feel like they wish to take that chance, that is completely up to them. I personally am not a big fan of large advances. If you write good business, then the advance is fine; but I have no idea if you are going to write good business until you actual write the business and time has passed. When the option is available, I don't ever approve a 12month advance. Most of the time, I approve a 6 month (or sometimes 9 month) advance for agents. All of my personal contracts are on as-earned basis, and that is how I prefer it to be. My agents can get advance if they so choose, but the contract for my agency is strictly as-earned to prevent charge backs. When you first start writing, you may need the extra incoming of having a high level advance; but most carriers charge you interest/fee for getting the advance (there are some that do not) and the risk is just too high. It has been my experience (don't go attacking me if it is true in your case) that most agents who demand a 12 month advance are not going to write quality business and the persistency rate will be low. A good producing agent sees the value of a continual stream of incoming as opposed to having it all at once.

If you are insisting on a 12 month advance, I suggest you talk to your IMO to see if that is possible. If they refuse and you feel that you absolutely must have a 12 month advance then you can look for other IMO/FMO to get other contracts. Hopefully, you were wise enough to ask for an upfront conditional release in the event things don't work out. If not, then you can still look for other carriers and find one that offers you what you want.

I caution you against 12 month advances, they can be very costly to you if your persistency is not high!

 

[Crabcake Johnny]

If you want MD advice just contact me - [email protected]

 

[Josh]

Have you ever gone after an agent for a debit balance? I'm going to guess know and give you some free advice: you never want to have to do it. The reality is that most agents who incur a debit balance are too broke to ever pay it back and the best you can do is either keep them from getting contracts or ruin their (probably already damaged) credit. A good agent should have better than 75% persistency which means that if you give them a 9 month advance you'll probably never have to chase them for money, even if they leave.
I only have a few contracts I take commissions on as earned, but most of them have at least a 9 month advance because I need money to use for marketing to keep things growing. That being said, usually if someone is insistent about a 12 month advance that sends up some flags for me. Let me know if you're looking for street life contracts, but the reality is a 9 month advance is probably a good idea for all parties involved.

 

[The Hunter]

I have found nine month advances to be a industry standard.
There are very few companies that offer a 12 month advance. I would be very nervous if I had to eat the advance chargebacks on a 12 month advance commission agreement.

ps 9 month advances can make a upline nervous as well.

 

[Thatguy]

Have you ever gone after an agent for a debit balance? I'm going to guess know and give you some free advice: you never want to have to do it. The reality is that most agents who incur a debit balance are too broke to ever pay it back and the best you can do is either keep them from getting contracts or ruin their (probably already damaged) credit. A good agent should have better than 75% persistency which means that if you give them a 9 month advance you'll probably never have to chase them for money, even if they leave.
I only have a few contracts I take commissions on as earned, but most of them have at least a 9 month advance because I need money to use for marketing to keep things growing. That being said, usually if someone is insistent about a 12 month advance that sends up some flags for me. Let me know if you're looking for street life contracts, but the reality is a 9 month advance is probably a good idea for all parties involved.

A persistency of 75% is HORRIBLE in my book! I consider anything below 80% to be bad and for the very reason you just mentioned above. If you have to go after an agent who can't pay, you'll get no where. The only thing you can do is place them on vector or their credit; neither of which gets you your money back.

So let's do some math here

- Let's say you are selling FE and the "street level" is 90%, and the GA level is 120. That's a 30% override; a fairly realistic number. Many GA do not get that high of an override and some get more, but I'm just using best case scenario.
- Standard face value of $50 per month, on a 12 month premium is $600 ALP.
- Agent commission is $540 on a 12 month and the GA override is $180.
- Let's say you write 4 per week for 2 months making a total of about 32 sales (4*4*2)over 2 months. (that may or may not be realistic for some people.)
- Your total commission is $17,280
- The GA override is $5,760.
- That's at 100% persistency.

Now on Month 3, you go from 100% down to 75% persistency and the agent drops off the face of the planet. Here are the results:

- Company goes after agent, and when they fail; the ENTIRE amount rolls up to the GA. For easier math, I'm going to say the company does a 100% chargeback since it's only been 2 months on the books.
- 75% of 32 is 24 policies. So 8 policies have fallen off the books.
- Total owed back to the carrier is $5,760.
- Total commission collected by GA in override is $5,760.
- Leaving the GA with exactly nothing.

So in this particular case, the GA comes out even. But as you can see, the more policies you write, the worst the numbers get. This is only one example of a 75% persistency, and it does not reflect lots of other factors; but it is an accurate sample of what can happen. The higher the override, the more protection is offered to the GA. The lower the advance rate, the more protection is also offered. There has to be a happy medium in protection and a good quality level contract to agents.

This is the why I find that FMOs who offer huge level MGA contracts to agents without knowing what they can do, to be foolish and questionable. I also consider anything below a 80% persistency to be horrible. In my OPINION a good persistency level has to be above 85%. When an agent proves that they can write good quality business and can produce volume, then a GA should definitely give them a higher level contract and take less of an override because the agent has proven themselves. That does not seem to be the case with many FMO these days.

It is my opinion that agents who insist on 12 month advance, or insist on supper high level contracts without any proof of production, is very questionable as to the ability to produce quality business and/or the validity of whatever claims they may be making to the GA in order to get that contract.

 

[magagent]

You mention that an agent must "earn" high contracts, what exactly do you bring to the table that allows you to "earn" the override of the agent?

 

[theinsuranceman]

A persistency of 75% is HORRIBLE in my book! I consider anything below 80% to be bad and for the very reason you just mentioned above. If you have to go after an agent who can't pay, you'll get no where. The only thing you can do is place them on vector or their credit; neither of which gets you your money back.

So let's do some math here

- Let's say you are selling FE and the "street level" is 90%, and the GA level is 120. That's a 30% override; a fairly realistic number. Many GA do not get that high of an override and some get more, but I'm just using best case scenario.
- Standard face value of $50 per month, on a 12 month premium is $600 ALP.
- Agent commission is $540 on a 12 month and the GA override is $180.
- Let's say you write 4 per week for 2 months making a total of about 32 sales (4*4*2)over 2 months. (that may or may not be realistic for some people.)
- Your total commission is $17,280
- The GA override is $5,760.
- That's at 100% persistency.

Now on Month 3, you go from 100% down to 75% persistency and the agent drops off the face of the planet. Here are the results:

- Company goes after agent, and when they fail; the ENTIRE amount rolls up to the GA. For easier math, I'm going to say the company does a 100% chargeback since it's only been 2 months on the books.
- 75% of 32 is 24 policies. So 8 policies have fallen off the books.
- Total owed back to the carrier is $5,760.
- Total commission collected by GA in override is $5,760.
- Leaving the GA with exactly nothing.

So in this particular case, the GA comes out even. But as you can see, the more policies you write, the worst the numbers get. This is only one example of a 75% persistency, and it does not reflect lots of other factors; but it is an accurate sample of what can happen. The higher the override, the more protection is offered to the GA. The lower the advance rate, the more protection is also offered. There has to be a happy medium in protection and a good quality level contract to agents.

This is the why I find that FMOs who offer huge level MGA contracts to agents without knowing what they can do, to be foolish and questionable. I also consider anything below a 80% persistency to be horrible. In my OPINION a good persistency level has to be above 85%. When an agent proves that they can write good quality business and can produce volume, then a GA should definitely give them a higher level contract and take less of an override because the agent has proven themselves. That does not seem to be the case with many FMO these days.

It is my opinion that agents who insist on 12 month advance, or insist on supper high level contracts without any proof of production, is very questionable as to the ability to produce quality business and/or the validity of whatever claims they may be making to the GA in order to get that contract.

110% CORRECT! I've lost a small fortune over 10 years recruiting agents who either had no work ethic, not coachable,etc. I now almost look for reasons NOT to contract a new recruit. If an agent quits after a few months the GA will lose $$. If you recruit all the time you can lose your a-ss. From my calculations the GA needs a min. 35% override to not lose $$ on an agent quitting after just a few months.

If anyone disagrees please prove your point here with numbers, because numbers will not lie.

I wish someone could prove me wrong because I like recruiting and training.

 

[Thatguy]

You mention that an agent must "earn" high contracts, what exactly do you bring to the table that allows you to "earn" the override of the agent?

I've earned my production and have reports to PROVE it; can you say the same? The risk that every MGA takes is the responsibility of those agents and the quality of their business. Large insurance carrier, like the John Hancock or Lincoln Financials, do not offer high level contracts directly to an agents for a reason. You can call LF or JH directly and get a direct contract..... for about 85%. If you want anything higher, you have to go through an MGA or IMO. Think it's easy to get an IMO contract with JH? Try it! There's only a handful in the country.

When an MGA gives out a contract, that MGA is responsible for that agent. MGA have been known to have been sued for wrong doings by their agents; and the financial responsible of the business is always the responsibility of the upline.

I am not there telling the agents that I bring to them anything; I'm not trying to sell you on writing with me. I tell you what I have to offer and you take it or leave it; and many leave it because they want a higher level contract than what I can offer. I am conservative with my practice, I don't do radical contracts or concepts that haven't been tested and proven. But that conservativeness keeps my team in a manageable size, AND it produces fantastic agents who understand the value of working their way up and having the pride and honor of achieving their status. I started out as a 60% agent on Settler's Life, and as a 12% contract level on Assurant Health. I earned every contract increase along the way and can prove it to any carrier that requires proof of production to obtain an MGA contract.

 

[Josh]

You mention that an agent must "earn" high contracts, what exactly do you bring to the table that allows you to "earn" the override of the agent?

Thanks for bringing up the question! Some carriers wont even talk to organizations that can't commit to less than 1 million a year in premium and have the production reports to prove it. Agent's and agencies, even ones with thousands of agents, will join with others to bargain with carriers for better contracts. What the GA/IMO/FMO or any other upline brings is the ability to get contracts, get higher paying contracts, provide leads support, provide product knowledge, and/or extra help when there is a difference of opinion with a carrier about something. One of the challenges within the industry is that some Agencies will give out a high contract to anyone that can fog a mirror and don't really expect anything out of it. When I was getting my life contracts and expanding into that market I didn't go with the highest contracts I could find, I started working with an IMO that I could work with and felt comfortable doing business with. Part of what I needed to do to get the contracts I have was layout the production I've done in my previous lines of business and the business model I was going to use for my agents. I probably could have gotten higher contracts with other companies, but I have a relationship with my upline that has helped me grow my business in ways an extra couple of points on the business couldn't.