Managing costs: a survey shows concern for the soft market as well as high salaries and rising health-care premiums.

Business Management Group has been conducting national compensation and benefit surveys for agencies since 1990, and our most recent survey reveals agents carefully managing costs while expanding services.

The survey details 46 different employee positions, salary ranges and benefit options for agencies of various sizes in seven regions of the country. It also gives us insight into agency trends and challenges. Our 2005 survey respondents, who are in agencies with less than $1 million to more than $25 million, are taking steps to better manage total compensation costs. They are concerned about the soft market, but also about high salary costs and rising health-care premiums. In response, they are changing their traditional approaches to compensation, but they also are investing in the positions which will sharpen their sales abilities.

As health insurance premiums continue to rise by double-digit percentages, a growing number of agencies are shifting more of the benefits costs to employees. Seventy-four percent of agencies require employees to contribute to their health-care premiums, up from 61% four years ago. The employees' contribution toward their personal health-care coverage averaged 11%, but when family coverage was added, the employee was contributing 58% of the premium. Health-care costs also are taking a toll on training and development. Educational subsidy programs for professional designations were offered by 79% of the agencies in our 2003 survey compared with 68% of the agencies in this year's survey.

Agencies saw salaries increase since our last survey, particularly for account managers (CSRs) and management positions. This year agencies tell us they plan to offer lower salary increases than they did in 2004. But they are giving their employees the opportunity to earn additional dollars through bonuses or incentives. In 2003, we found that 82% of agencies offered bonuses or incentives to managers and 74% offered them to nonmanager staff. Today, the number of agencies offering these plans increased slightly, with 86% of the participants offering them to managers and 75% offering them to nonmanager staff. The majority of participants this year have bonus plans that reward employees for achieving goals aligned with the agency's goals.

As agencies look for other rewards to offer employees, they are providing more flexible benefits and work schedules. Telecommuting, job sharing, and part-time employment allow agencies to till more positions than they might be able to do with strictly full-time employees. The percentage of agencies offering flexible work hours has grown steadily since 1999, from 39% to 53% in 2005. Designated leave benefits, such as paid sick, personal and vacation days, also are slowly being replaced with a bank of paid time-off plans. Under a PTO plan, all leave is combined into one general pool and the employee decides how it will be used. This approach allows employees more flexibility in using their time off.

Another trend is the addition of new positions at agencies, which allows agencies to bring greater value to the client. Larger insurance agencies today are more likely than not to hire a director of risk management, a claim specialist and/or a loss control specialist. These professionals go on sales calls with producers to demonstrate the agency's expanded services. Once the account is sold, the claims specialist develops reports to assist clients in analyzing and understanding their claims experiences. Loss control specialists bring a variety of auditing and training services designed to help the client prevent future claims. The claim specialist position now appears in 69% of agencies with revenues of $5 million or more, while the director of risk management is in 53% and the loss control specialist is in 56% of these agencies.

One trend identified in the 2003 survey--the shortage of trained producers--continues. Agencies focused on organic growth generally want to hire two or more producers each year. However, they find it difficult to compete for available talent. As an alternate strategy, they are hiring salespeople from other industries or recent college graduates and training them to be producers. Increasingly, agencies are hiring sales managers to mentor new sales people and provide coaching and direction to experienced producers. Approximately one-third of agencies with more than $5 million in revenues and 42% of the agencies with revenues of $10 million or more have full-time sales managers.

Each agency must develop a total compensation plan which supports its cost structure. But being aware of industry trends can help agency managers work through the many options available and provide the most rewarding plan possible.

Sharon Cunningham, a Best's Review columnist, is president of Business Management Group, a management consulting firm based in Hartford, Conn. She can be reached at [e-mail].