For those who are unaware, my day job is as a data/commissions analyst for an insurance brokerage, where I make reports that no one reads and process commissions that, on the contrary, everyone cares about a great deal. For a variety of reasons, commissions analysis is not a very popular aspect of data analysis, and it is not my purpose today to discuss those reasons. What I would like to discuss is that there is a marked difference between the amount of work that is required to deal with a commission statement and the amount of money that is in said commission statement. Let us lay the ground rules. The amount of time it takes to obtain any particular commission statement is roughly the same, and the differences are not very great. Some statements are e-mailed to us, often requiring a password to open the protected excel file, some files are online behind logins, some files are in various forms of excel files and other are in .pdf or .txt form that have to be converted into Excel files for us to process. And while some of the files for various reasons are more difficult to process, for the most part (with a few notable exceptions) they are about equally easy to process no matter how large or how small they are.
Although this is the case, there are stark differences in how much money comes in on these commission statements. While I noticed this offhand while doing some commissions processing for tomorrow’s period, I thought it would be worthwhile to look at the numbers a bit. Statistics are something I do for fun, and I thought it would be revealing to see just how disproportionate an amount of commissions was provided by particular carriers (for purposes of confidentiality, none of the carriers or amounts will be stated). And, as I expected, the results were pretty extreme in terms of the disproportionate amount of effort relative to the amount of commissions that were received, in ways that are probably not reflected in the way that insurance brokerages work. While a brokerage like ours has a lot of contracts, only a few of them contribute materially to the amount of commissions money we actually receive. As I stated, the results are dramatic.
How dramatic? Here goes. When looked at by statement, there were 92 different commission statements that I have processed for this pay period, which is a pretty typical amount (it is usually in the 80-100 range). Of those 92 statements, the top 3 statements alone (from the same carrier), provide more than 74% of all the commissions that we processed during the past two weeks. The top ten statements, which come from a total of 5 carriers, provide just over 94% of our entire commissions for this pay period. The other 82 statements not in the top 10 provide less than 6% of the entire amount of commissions despite being no easier or quicker to process. This sort of pareto analysis expresses just how skewed the amounts we are dealing with are in terms of commissions. Only eight statements have more than 1% of the total commissions, and only 27 statements reach even .1% a share of the total commissions we have received, while the top 3 statements, all from the same carrier, remember, contain 34.24%, 26.43%, and 13.30% of the total, respectively.
When we look at the commission share by carrier, including several carriers who have a great many statements that can be aggregated together, the picture is no less skewed. The top carrier, with the top 3 statements for the period, has a share of more than 74% of the total commissions. Only six carriers have a share of more than 1% of the total commissions for the past week, and the top ten carriers of the 37 total carriers take up more than 97.4% of the entire total of commissions. Again, this suggests that there is a stark difference in the value of different carriers, a difference that is not generally appreciated when one looks at the large number of contracts and deals that are often pursued by brokerages. The vast majority of carriers, each of which has their own format and each of which has their own login page and their own forms that must be filled out and so on and so forth, contribute very little to the bottom line, far less than even pennies on the dollar, while those companies at the top contribute by far the lion’s share of commissions receipts in a very small number of statements.
Now, it may be argued that the many smaller deals and smaller carriers in terms of commission are important for various reasons, because they provide coverage in segments that it is important to have as part of one’s portfolio (individual medical or international or critical illness, for example), or because they provide coverage in geographic areas that are important to have, or because they allow a lot of options to compare from that increase the credibility of an agent’s sales pitch, all of which are indeed true. Yet the fact remains that a great deal of the carriers add complexity and processing time without pulling their weight in terms of actual commissions brought in for the company. What is to be done about that is less easy to determine, as this disparity is not likely to decrease the tendency of people in operations who want more options for their agents to sell to make deals that make very little impact on the bottom line. Nevertheless, it should at least help people involved in making such decisions better understand which carriers are the most important and which relationships can be cultivated for further mutual profit. That is, alas, an issue far above my own pay grade. I just work with the data.