How to Use Relationship Data to End Insurance Commission Clawbacks

The strength of an insurance partnership is about more than good vibes—it’s about the money. A strong partnership delivers real bottom-line value for both parties; a weak one often feels like a one-way street.

For insurance carriers and agencies in the distribution chain, the state of your distribution channel management comes into sharp focus when it’s commission time. Many accounting departments fall onto either side of a better-safe-than-sorry divide. To the left, we have the folks who’d rather pay their partners faster, who understand that the speed of the check contributes to the trust of the relationship. These insurance businesses run the risk of paying out inappropriate commissions, facing state insurance regulators, or having to tussle over commission clawbacks. To the right are the folks who play it safe and hold their commissions in “pending” or “held” status until they’ve thoroughly vetted that the agent was licensed and appointed at all times of the sales cycle. These companies that follow the rules have a different risk. By delaying payments they might make their distributors angry or even break the Department of Labor wage payment rules.

The complex insurance commission hierarchy structure 

Commission accuracy is complicated because of the various differences between carrier-to-agent relationships. A single agent may have multiple avenues for getting a commission from a carrier, with different lines of business or agency structures sitting between them, all impacted by:

• Product-specific commissions
• Relationships between agencies and other business entities such as a financial marketing organization (FMO), insurance marketing organization (IMO), national marketing organization (NMO), brokerage general agent or agency (MGA), or managing general underwriter (MGU)
• Agent-to-agent relationships like uplines and downlines, brokers vs. captive agents, referrals, and W-2 or 1099 employees
• Geographical and regional factors

Where current ICM methods fall short

Many incentive compensation management (ICM) methods face the same issues endemic to other legacy insurance infrastructure: they’re manual, labor intensive, slow, and prone to human error. This means missed payments or clawbacks, and, overall, business risk. 

• Legacy systems include everything from pen and paper to multiple (typically dated) technology systems. Even when there’s some “modern technology” involved, systems don’t connect with one another and leave staff to spend time checking and cross referencing information. 
• Shadow accounting happens when a history of legacy system troubles and human errors make agencies and agents start to doubt they’re being paid correctly and begin doing their own math. This works about as well as you’d expect. Instead of focusing on sales, insurance agents and insurance agency leaders spend time recalculating their compensation and comparing it against their paychecks. 
• Audits and compliance checks may be more necessary and frequent if those in your distribution channel commonly wonder if they’re receiving the right commission payments. Not only are these audits themselves time-consuming, but if you’re working with legacy systems, the time-suck is multiplied as people work to gather the information for an audit from numerous, disparate sources. 
• Trust vacuums arise from incorrect or slow commissions payments. Payment errors or delays ultimately erode your working relationships and reputation.

Digital ICM upgrades alone aren’t enough

It’s easy to see the trouble with managing this complexity by hand, with Ashley and Jim trying desperately to keep all the data current on a spreadsheet (or, let’s be honest, a large number of different spreadsheets, web browser tabs, and PDF documents). Using a digital ICM solution to enforce payment structures and state regulations is a solid first step in solving for accurate commissions. At AgentSync, we happen to integrate with several ICMs that do just that. But an ICM alone isn’t enough. Without a way to connect these different relationships into a consolidated and reactive hierarchical structure, then every change to a relationship could have a cascading effect on calculating the commissions for every single downstream person or entity. That means your commissions could be delayed or erroneous if:

• A carrier updates the compensation structure, contract, or product offering for downstream agencies
• An agent moves agencies, adds or drops an appointment, moves states, or gets promoted
• An agency is part of a merger or acquisition, changes its designated responsible licensed person (DRLP), expands states, or adds or drops a carrier relationship

If you don’t have a way of reflecting accurate hierarchies in your commissions payment system, then every one of these changes can set off a whack-a-mole effort to update every place you store data.

Risks to poor distribution channel management when it comes to commissions

One of the worst risks of automating everything in a “set it and forget it” manner without accurate hierarchies is that someone will get paid a commission while in the midst of a compliance violation. 

Whether it’s an agency whose designated responsible licensed person (DRLP) has let their license renewal lapse (often negating the validity of the licenses of every agent selling under them), or an individual agent who hasn’t kept up on child support payments but is an upline for 20 other agents, these things happen! But they present a legal, financial, and reputational harm to your business. 

How AgentSync Hierarchy Management stops money from ruining your relationships

Imagine a world where one of your agency partners sells a branch, changing the commissions structures and hierarchical relationships for 200 agents. This data firedrill is a regular occurrence for the carriers and agencies that have high-M&A partners. And it’s a situation ripe for commission clawbacks.

Now imagine that it takes your team 10 minutes or less to update this new information in your system. Imagine that, once the team changes that single structure in your core system, that information automatically synchronizes up and down the other impacted agent and agency records, and, since you’ve integrated your distribution channel management system data with your ICM, you’re done. It’s accurate. No other handwringing, changes, spreadsheet shuffle, or action necessary. 

That’s the power of AgentSync Hierarchy Management. It’s not about “doing more with less,” it’s about doing less while getting more. 

Accurately reflecting the complex network of insurance relationships is more than a nice to have. It means nearly eliminating inaccurate commissions, drastically lowering your risk, and having an audit-ready data log that saves you time and money.

To learn more about how managing hierarchies well can elevate your commissions management, check out our page or schedule a personalized consultation.