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May 05, 2002 at 08:00 PM
By Shelby J. Smith
The Internet has fallen short in selling insurance directly to consumers, and there is little hope this reality will change anytime soon. The Internet is, however, becoming a cost-efficient way for carriers and distributors to provide producers with needed supplies, support and information to write business.
The acceptability of “e-mode” is developing, as older producers become cyber-proficient and current cyber-savvy producers gain sales experience. Most carriers and distributors now have online sales materials, rate histories, forms, applications, software, commission tracking and much more.
Unfortunately, the Internet is not a primary tool for most producers for two reasons. First and foremost, there is no monetary incentive to substitute the Internet for hard copy and home office dependency. Second is the inconvenience of having to use several Internet sites to access a multiple carrier menu of favorite products.
Most carriers have developed online capabilities and are committed to maintaining these facilities. These are fixed costs. The marginal cost of another user is zero; thus, to the extent producers substitute the Internet for home office assistance and hard copy habits, total production costs of the carriers will be lower.
Accordingly, doesn’t it seem logical for these cyber-producers, who help reduce the carrier’s production costs, to receive special compensation in the form of enhanced commissions?
Unfortunately, most insurers cannot currently measure the cost effectiveness of their producers. Granted, each producers business is meticulously tracked, but the lack of cost-per-premium-dollar by producer prevents companies from identifying cost-effective producers.
In lieu of functional cost capabilities, carriers try to retain the high-volume producers, nix the low-volume ones, and agonize over the majority in between.
A better alternative might be a zero-marginal-cost, Internet-only option and an enhanced commission for those producers willing to accept such. This may work well, especially for the middle majority of producers whose cost effectiveness currently escapes quantification.
In the absence of a functional cost measurement for premium dollars, insurance companies have implemented a “street level” commission. To discourage cutthroat commission competition and to guarantee spreads sufficient to assure service and support from distributors, insurers generally require distributors to pay identical “street level” commissions to producers without regard to cost effectiveness.
This lack of price competition among distributors, and insurers’ inability to measure cost, has prompted distributors to shift service and support to the home office.
