Equinox makes a small variable go a long way: Includes chart

In an industry run entirely on a commission basis, there’s not a lot an insurer can do to shake things up. Insurance advisors are generally an entrepreneurial group, taking care of their own costs, offices and assistants — if they have the latter two at all.
Relative to the brokerage and banking industries, there is not a lot to work with for distributors trying to distinguish themselves in insurance. A little sales promotion here or there helps in the short term but, overall, it’s a pretty even playing field.

So what makes Equinox the pick of the bunch? After all, it isn’t the only managing general agency, nor is it the only distributor to offer the so-called “level” commission structure rather than the “heap” structure.

By joining an MGA, an advisor can pool all his or her sales with those of other advisors and enjoy a higher bonus commission level from the insurer. There is power in those numbers because, even after paying out a portion of the compensation to the MGA, an advisor still nets a far higher commission than possible when swinging at contracts independently.

Daniel Dessureault, general manager of Equinox, says the Manulife Financial Corp. -owned firm provides a place at which reps can do their business and the rest is left to old-fashioned wholesaler competition.

“That is the beauty of our system — it’s a
level playing field. Our key partnership providers compete in terms of how they serve brokers and how they support brokers.
But as far as compensation [goes], it is one grid,” he says. “If an advisor chooses to write with one of the four carriers with which we have an agreement, the compensation is the same. There is no special incentive to go one way or another.”

Although it is not an MGA, Great-West Life Assurance Co. operates a similar shop, essentially allowing wholesalers to compete for business through its resource centres across the country. Leander Dueck, senior vice president of individual distribution at Great-West Life in Winnipeg, expounds the virtues of “levellized” compensation, calling it a “win-win-win” model.

“The client gets served on a regular basis,” says Dueck. “It works for the advisor because he’s paid more evenly. And it works for us because the block of business stays in force, and that’s profitable for us.”

First-year reps usually choose the heaped payment method because they can earn a lot quickly, but essentially they are being paid for a service fee they haven’t earned.
Generally speaking, most big producers in the industry prefer the level payout structure, by which they defer greater up-front commission in return for higher renewal payouts. “If you want to make more money quickly, you can go to the heaped-up model in the marketplace,” says Dueck. “In our model, we’re paying significant renewals and service fees on an ongoing basis, as long as that customer is being served.”

Proponents of the level model argue that not only is it more responsible but its structure also leaves advisors less vulnerable to the potentially punishing cost of chargebacks — meaning that when policies are cancelled, advisors are less likely to have to pay back what they have earned. In the heaped model, an advisor could have a chargeback haunt him or her five years after the contract was sold and the commission sunk into the advisor’s swimming pool.

The advisor is still exposed to chargebacks under the level model, but an insurer can stand out by shortening the time during which an advisor may be charged back for a cancelled contract. A Freedom 55 Financial rep in Ontario nails it on the head: “[We have] a three-year chargeback,” he says.
“Most places have two-year chargebacks.”

@page_break@As one advisor explains: in terms of cash flow, heap and level payouts net out somewhere along the way, but you have to factor in the risk of chargebacks — and an extra year of exposure may make a difference. Freedom 55 advisors gave their firm a 7.3 for compensation — still a solid B, but on the downward slope of the bell curve.
Only Clarica Financial Services Inc. reps rated their firm lower for compensation.

Clarica, part of the Sun Life Financial Inc.
group of companies, provides a variation on the level commission theme, paying advisors the same amount in Year 10 as in Year 1, arguing this gives the company “leading customer retention and persistency of business,” according to Jack Garramone, president of Waterloo, Ont.-based Clarica.

The level commission structure is part of a trend by insurers to encourage deeper relationships with clients. While strictly fee-based insurance provision doesn’t seem to be in the future picture, product pricing and commission structures are changing. At Guelph, Ont.-based The Co-operators Group Ltd. , Jim Wingrove, director of the agency department, says incentive compensation is built into its program to enhance the quality of advisors’ businesses. “We are trying to encourage …
trusted advisor relationships,” he adds. “The more types of product a client has with an advisor, the more of a relationship there is.”

Great-West Life’s Dueck says level compensation also provides insurance advisors with a way of valuing their businesses for succession planning, another industry trend. The model, which has been around since the early 1980s, allows advisors to build tangible renewal streams for transferring businesses to the next generation of advisors.

What is Equinox’s secret? It doesn’t distinguish itself as an MGA, nor by level compensation. Perhaps the key is providing some peace of mind with “middleware”:
simple technology collects data from its four preferred partners — Manulife, RBC Insurance, AIG Life Assurance Co. of Canada and Standard Life Assurance Co. —
and offers reps consolidated, weekly commissions. Dessureault is being coy when he says there is no incentive for reps to do business with these partners. Reps who do business with other insurers lose the continuity and simplicity of their books of business.

Sometimes a small variable can make a big difference. IE