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Enterprise incentive management (EIM) systems quickly have emerged as the leading alternative to traditional processes for managing producer relationships and compensation.

Designed to support the complexities of incentive compensation management, EIM leverages technology to offer flexibility and scalability, as well as best-of-breed functionality that support large multi-product and multi-channel environments. These features have become necessities as insurers continually strive for channel dominance, where diverse distributor networks help create and sustain competitive advantage and, in turn, drive shareholder value.

Fueled by this desire to increase company revenue and profitability, carriers are actively transforming their field forces by leveraging enterprisewide compensation solutions as a means to achieving this goal.

For most insurance companies, the management of distribution channel compensation has been undervalued greatly as a means for increasing sales activity or reducing costs. While historically seen as an administrative back-office process, this viewpoint is rapidly changing as insurance carriers evaluate the tools necessary to support a shifting distribution landscape brought on by new market pressures and marked by complex distribution relationships. EIM systems steadily have gained importance in many organizations, as strategic initiatives focused on increased sales and profitability are driven by the management and transformation of a carriers distribution force.

In addition, this move toward diversifying distributor growth and management has exposed glaring limitations and gaps in the standard practice through which most large insurance carriers service and incent their producers. The chasm only widens as one travels to the systems application level, where rapid response to shifting business drivers has challenged information technology groups to keep pace with market demands. The emerging struggle of complex business initiatives outpacing current system capabilities has further pressed the need and desire for alternative solutions.

Leveraging EIM Solutions

Carriers have long realized that the best way to motivate is through the wallets of individual producers, where commissions drive loyalty and performance. The better a carrier can manage and adapt the sales process, the more likely that it is perceived as a market leader. This focus on retaining top agents has led many insurers to evaluate what incentive processes best motivate and align their field force and distribution channels.

New methods, which embrace various facets of an agents relationship with both the end consumer and the carrier, have lead to the development of dramatically different compensation programs. Diversification of product offerings, performance measures and roles is re-defining the compensation landscape and helping insurers achieve market presence through agent loyalty and product innovation.

On the flip side, as insurance companies leverage EIM solutions to transform their field force, savvy high-performance producers and distribution groups are demanding standard service levels for their business. They are increasingly looking for added extras from an incentive compensation program and insurance carrier, such as flexible selling agreements and payment periods, single check and statement processing, innovative bonus offerings, and on-demand reporting. Producers are actively leveraging sales performance and loyalty as drivers for securing lucrative selling arrangements, and insurance companies are viewing EIM solutions as a way to remain competitive.

Transforming the field force through use of EIM systems has opened the door to compensation programs based on a myriad of measures and metrics. Compensation plans are being geared around agent performance and many carriers have tiered agents based on year-to-date sales. Compensation programs also are developing metrics based on non-financial measures, such as customer retention, cross selling and lead generation. These new plans are dramatically changing the way financial institutions pay and manage their agents, and companies are looking toward incentive management solutions specifically geared toward supporting these features as a means to better handle these changes.

What to Look for from an EIM Solution

Inevitably, any decision to move ahead with an EIM implementation will initially raise the question: Build or buy? The decision should be evaluated from both a short-term and long-term perspective. If a company is looking for a short-term, low cost, immediate custom fix to a readily definable problem, building a solution may prove more cost effective.

Many times in the case of a purely short-term fix, the package solution alternative may feel like a cannon is being used to solve a problem where only a fly swatter is needed. However, if a company is looking at an enterprisewide compensation program, where long-term initiatives will need to be rapidly and quickly responded to, the build option may just create another custom hard-coded system that takes too long to update. While initial costs to a build solution may seem reasonable, the long-term costs may prove overwhelming. Most packaged software systems may prove initially more expensive but will have a long-term upside in terms of response to changes, ease of coding and ability to support any compensation.

Further, maturity within the incentive compensation management space is giving carriers greater diversity in vendor offerings. Several EIM vendors are responding to insurance-specific requirements by actively developing solutions that support the complexities of this vertical market. Insurers experiencing severe compensation problems would be well served to spend time investigating and evaluating alternative and progressive incentive compensation management solutions.

Regardless of which offering a company chooses, most EIM systems should support high- volume processing needs, including daily pay cycles, large volumes of retroactive adjustments and complex crediting scenarios. Multi-channel distribution must also be supported, and organizational structures with changing relationships and hierarchies should be maintained with relative ease.

EIM applications should increase communication and provide easy access to data, where users can view calculation results, and data is stored at a granular level for superior ad hoc querying and detailed reporting. Beyond providing essential requirements such as flexibility and scalability, EIM also influences and supports other initiatives, such as enabling organizations to tie distribution profitability to individual producer performance. These solutions track and manage sales goals and performance measures on a product-by-product basis, empowering organizations to establish, implement and communicate motivating compensation plans for their distributors.

is the product manager for the Insurance Vertical at Centive (formerly Incentive Systems), based in Bedford, Mass., which markets EIM software and services.


Reproduced from National Underwriter Edition, May 28, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.