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WHAT ARE THE AGENCY FORCE’S REAL CONCERNS?
UFAA has received thousands upon thousands of emails and telephone calls on the future roll out of the new “Smart Home” policy it is hard to know where to start. Let’s start with the Agency Force’s major concerns. The positive remarks about the possibility of a competitive homeowner’s policy can be summarized simply as “It’s about time.” The major concerns from the agents’ perspective on the “Smart Home” policy are: 1.) Will the agents be able to compete against those insurance companies that still offer the HO 5 and other policies? 2.) Why the huge commission cut? 3.) Will the commissions cut really make the insurance policies competitive when FGI is taking such a huge management fee off the top of every premium dollar?
Individuals from FGI (Management Company) have been touring the country recently holding meetings and informing the Agency Force that in order to be competitive on the “Smart Home” policy, the Agency Force commission rate must be reduced. And, make no mistake about it, it is a huge commission cut. An agent currently makes 20% new business and 14% renewal commission. That commission rate would be reduced to 14% new business and 10% renewal. When you analyze those percentage changes, reducing 20% to 14% represents a 30% reduction in income. On the other hand FGI has graciously agreed to a 01% management fee reduction to show they are sacrificing and sharing in the agent’s pain. It is hard determine FGI’s management fee in the Zurich report, but it is somewhere between 16% and 18% (Management fee agreement with the Exchanges allows the management company, FGI to charge up to 20%), so let’s use 18%. A reduction from 18% to 17% for the management company represents a 05% reduction in income from fees as opposed to the Agency Force taking a 30% reduction in commission income.
According to Zurich’s own annual financial reports in the last 02 years FGI/Zurich has made over $6,500,000,000 (yes, that is Billion) in management fees while the Exchanges lost approximately 1,455,000 Net PIF. There was a net loss of 1,400 Agents in 2013 and we have yet to verify the agent number gain/loss on paper for 2014. So one has to ask, why are the agents taking such a hit on their commission schedule when FGI/Zurich have made the bulk of the money in fees and will continue to do so?
Yes, the Agency Force has been told that they will still receive the 14% renewal commissions on the “Protector Plus” and “Next Generation” policies, but let’s look historically what has happened and will continue to happen in all probability. The Agency Force will not be able to write the “Protector Plus” or “Next Generation” policies anymore, so that risk pool will shrink and rates will go up. The agents will be forced to rewrite those policies into the New Smart Home policies to avoid losing them and the renewal commissions on the policies will go to 10%.The questions that are being asked most frequently by the Agency Force are: How did we get here? Who made these decisions? Why is the agent being made the scapegoat? If the agent is being blamed for the policies being uncompetitively priced because of excess agent commission on the product then why does FGI/Zurich enrich themselves with such high management fees? While we are on the subject why does FNWL pay the Agency Force significantly less on new business life applications than most other insurance carriers?
Finally, the most common remark UFAA hears from agents and District Managers (yes, District Managers, as their income will go down as well) is; If FGI/Zurich really wants to be serious about having a competitive product and pay a competitive commission then why is FGI/Zurich spending so much of the Exchanges’ money to expand into New York, New Jersey, Alabama, Tennessee, etc? It is very expensive to expand to other states and sell insurance products. Could the real reason for the commission cuts be because the Exchanges have lost 1,455,000 Net PIF in the last 02 years? Because they lost 1,400 Net Agents in 2013? Because FGI/Zurich has taken $6,500,000,000 in management fees in the last 02 years and is continuing to spend the Exchanges premium money they obliviously don’t have, to expand to other states?