It’s about building a book of business: incentives of insurance salespersons from future renewals

Thomas R. Berry-Stölzle () and David L. Eckles ()
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Thomas R. Berry-Stölzle: University of Iowa
David L. Eckles: University of Georgia

The Geneva Papers on Risk and Insurance - Issues and Practice, 2019, vol. 44, issue 4, No 7, 702-731

Abstract: Abstract Most property-liability insurance contracts are short-term contracts which can be renewed at expiration. With an average policy renewal rate of 89%, selling a policy not only generates immediate revenue but also results in expected future revenue for an agency. Outside employment options give salespersons negotiating power to claim a fraction of their increased production. This link between current performance and future compensation creates implicit incentives. Our empirical analysis documents a strong positive relationship between the fraction of renewals and salespersons’ output, and between output and salespersons’ compensation. These results hold regardless of whether salespersons receive a fixed salary, a combination of salary and commission, or compensation entirely based on commission. Overall, these findings support the view that property-liability insurance salespersons have strong incentives to build a book of business, and that these indirect sales incentives allow insurance agencies to offer compensation schemes with a fixed salary component.

Keywords: Compensation schemes; Incentives; Career concerns; Insurance salespersons (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1057/s41288-019-00136-8

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