Insurance brokers seek advisers as producers

Jul 10, 2006 @ 12:01 am

By Gary S. Mogel

NEW YORK - For financial advisers who have been mulling getting more involved in insurance sales, now may be an excellent time to pull the trigger.

Many full-service insurance brokers, which sell employee benefits and life, health and property-casualty insurance, are seeking to jump-start sales by hiring and training more producers from other financial occupations.

That is the gist of the 2006-07 Owner, Executive and Producer Compensation Survey of 162 insurance brokerage firms released last month by Business Management Group Inc., a subsidiary of The Hartford (Conn.) Financial Services Group Inc.

"With the shortage of sales talent in today's market, hiring producers from outside the insurance industry has become a key recruiting strategy," said Suzy Hammett, vice president of BMG. "The shortage was caused not by adverse publicity from the [New York Attorney General Eliot L.] Spitzer investigations but by insurers doing away with their training programs, due mainly to cost considerations."

The firms initially tried to fill the sales void by hiring people who used to work in the marketing departments of large insurers, Ms. Hammett said. When that source dried up, they tried college graduate recruiting, but most grads weren't interested in selling an intangible product.

Analytical experience

Many insurance brokers and agencies are seeking accountants and financial advisers, because much of their business requires analyzing client financial statements, according to Ms. Hammett. Advisers are coveted by insurance firms because they usually know employee benefits and life, health, disability and long-term-care insurance.

"Most insurance firms started as property-casualty specialists, and the smaller ones often lack expertise in other coverage lines," Ms. Hammett said. She defined a "smaller" firm as one with less than $2.5 million in annual revenue.

Firms of that size often will agree to make advisers independent contractors for insurance sales so that the advisers don't have to give up their own financial advisory practices, Ms. Hammett added.

Most advisers already review their clients' insurable loss exposures, including loss of income and medical expenses, as well as potential property damage or legal liability arising out of ownership of businesses, investment properties, homes and vehicles, according to a March survey by The Chubb Group of Insurance Companies in Warren, N.J.

Many advisers will choose to affiliate with or develop a referral relationship with insurance brokers rather than become direct producers.

For instance, Keith Singer, president of a Fort Lauderdale, Fla., advisory firm with $35 million under management that bears his name, has established a referral relationship with a local independent insurance agency.

But some advisers are willing to abandon unprofitable planning practices in favor of full-time insurance sales, according to Ms. Hammett.

A potential drawback for some advisers that are compensated on a fee basis is that insurance compensation usually is by commission. That can create a conflict of interest, according to Donald Calcagni, an adviser in West Conshohocken, Pa., with Santa Barbara, Calif.,-based Mercer Advisors Inc., which manages $3 billion.

Income potential

Advisers can expect additional income of about $55,000 by agreeing to produce business for smaller brokers with less than $500,000 in annual revenue and about $192,400 at brokers with more than $25 million in annual revenue, according to the survey.

"Commissions are about 2 to 5 percentage points higher on the employee benefits and life health side of the business, compared to the property-casualty side," Ms. Hammett said. That is because the compensation paid to the insurance brokers by the insurance companies is higher, she added.

An advantage of getting into the employee benefits business is that those premiums - on which the commissions are based - are going up, while in many other lines, premiums aren't going up as much, are stagnant or are falling, Ms. Hammett said.

Bank advisers are ahead of their non-bank counterparts in selling insurance.

Income from insurance sales last year was $3.9 billion, up 8% from the previous year's level, according to Michael White Associates LLC in Radnor, Pa.


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