Solutions by Industry

Compensation Incentives: A Case Study

A leading North American Property and Casualty Insurance company used APT's Test & Learn™ Management system to pick the most effective agent commission structure.

  • A leading P&C insurance company designed and implemented a complex set of experiments to test different commission structures.
  • Using APT's Test & Learn for Producers™, rapid analyses were performed for each agent compensation alternative, with a focus on measuring incremental new insurance premiums by tier, renewal premiums by tier, and commissions paid on new premiums and renewal premiums.
  • The analysis revealed that certain programs performed better than others and could be fine-tuned to maximize impact. APT helped the insurer identify the right programs, which were worth $10s of millions per year more in pre-tax profits.
The Company:

A leading North American Property and Casualty Insurance company

The Challenge:

A large US insurer believed that its agent commission structure might be sub-optimal. Historically, the structure had offered one level of commissions for new policies and another for renewals. Top management wondered whether altering the structure would lead to higher profits.

The Solution:

Many compensation changes were suggested but, ultimately, it was determined that slightly increasing commissions across the board or changing the differential structure between new and renewal policies would lead to improved agent performance. While top management had a favorite structure in mind, the company designed and implemented a complex set of experiments, testing each different commission structure in different test cells. Selecting optimal sales incentives was certainly not a trivial issue as narrow changes in either incentive pay or sales performance could drive millions of dollars on to – or off of – the bottom line.

Using APT's Test & Learn for Producers™ solution, the impact of each tested alternative was compared to performance of the current program. Using the software, rapid analyses were performed for each agent compensation alternative, with a focus on measuring incremental new insurance premiums by tier, renewal premiums by tier, and commissions paid on new premiums and renewal premiums. Results were carefully evaluated for differences in performance based on dozens of potentially relevant agent attributes such as agent size, market competitiveness, agent market share, and length of relationship.

The Results:

The tests unambiguously proved that one of the tested alternatives (and not the program originally favored by top management) was superior to the others by a substantial margin. The difference in programs was worth nearly $50 million per year in pretax profits to the insurer.