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Strong Incentive

Automated compensation systems offer a way to improve efficiency, streamline compliance and attract agents. But legacy environments stand in the way of flexible commissions processes.

Q: How far has the insurance industry come in terms of automating commissions and compensation processes? What stands in the way of further automation?

A: Brendan Malley, Lincoln Financial Group: Most carriers are dealing with a lot of legacy systems and a fair number of manual processes in the existing environment. That said, virtually everyone is in some phase of upgrading their technology. What's driving that is the combination of Sarbanes-Oxley, the competitive environment, new products with added layers or levels of complexity, particularly as it relates to compensation plan design, and, of course, the ever-changing distribution environment. But it's challenging, if not impossible sometimes, to support all of that with a legacy systems environment.

A: Chuck Holverson, Sammons Financial Group: Insurers look to differentiate by providing their distribution partners with timely information and compensation. Currently, many companies have patched solutions together that provide the pieces to their strategy. Sammons has embarked on an enterprise initiative to consolidate its distribution management systems. Consolidation will support the strategic partnership, allow various distribution alliances the flexibility to differentiate and help manage the overall cost of support.

A: Vincent Petrone, CSC: Separate systems for each distribution channel create fragmented information and more manual support. The insurance industry desperately needs to bring commission processes and data out of legacy administration systems and into a consolidated distribution management solution and database. Insurers that consolidate distributor data and aggregate the commission results for production reporting and bonus incentives by harvesting unanalyzed commission data from the legacy systems are using a Band-Aid solution. The real value in automation is to replace the commission processing in the legacy systems and consolidate all the raw commission calculations into a single platform.

A: Robert Warfield, Callidus Software: While there has been solid growth in the number of companies that have purchased commercial incentive compensation management systems, only 8 percent of the target market is using enterprise software for incentive compensation; the rest is using spreadsheets or homegrown systems. Automated systems provide the flexibility to change compensation plans as business strategy is adjusted, the scalability to process tens of millions of transactions for tens of thousands of payees in a short window of time, and the insight into sales and incentive data to understand the effectiveness of sales compensation programs.

Q: What technology environment best supports flexible and reliable commissions/compensation systems? What role do standards play?

A: Malley, Lincoln Financial Group: Carriers are pursuing more of a service-oriented architecture with Web-based applications. From a compensation perspective, they are looking to provide more self-service capabilities to the producers, providing more information than we have in the past, and providing it in a more-organized fashion. This will allow producers to have more control and empowerment over their interactions with the carrier. Standards are very important because they help us to provide consistency and allow us to more readily support product rollouts and new distribution relationships. However, in many cases, they're either not fully evolved yet or they tend to be loosely used.

A: Holverson, Sammons Financial Group: The ability to scale is very important. Maintainability, flexibility to support various distribution models and an ease in keeping current with new releases is necessary. Obviously, reliability is key as we expose more information with breathtaking immediacy. The desired platform allows for understanding business forces and sharing with stakeholders -- and sharing the information the way the stakeholders want it.

A: Petrone, CSC: Two factors must be considered: 1) Systems must support large volumes; and 2) open systems help to control support costs. Many insurers have hundreds of thousands of distributors and process millions of commissionable events each day. At the same time, these insurers are constantly challenged to support connectivity to third-party intermediaries. Only open systems can meet that challenge cost effectively. No single technology offers both flexibility and reliability for insurance commissions and compensation. Systems need to deploy the right technology for the right function.

A: Warfield, Callidus Software: The incentive compensation requirements of insurance companies are extremely complex due to volume of data, and multitudes of producer hierarchies and split agreements. We have found that a full J2EE architecture -- running on industry-leading databases such as Oracle, SQL Server and DB2, and on operating systems such as Solaris, AIX and HP-UX -- is the way to achieve the flexibility and scalability combination required.

Q: How can commissions/compensation automation help carriers comply with regulatory requirements?

A: Malley, Lincoln Financial Group: The automation of commission and compensation systems is extremely important in terms of complying with regulatory requirements, continuing education requirements and anti-money laundering rules and regulations. The reason is that commission systems tend to contain mission-critical sales data as well as all the demographic data around the producers. The problem that we face is that if you don't have all the data on a consolidated platform or database, it makes reporting very difficult.

A: Warfield, Callidus Software: Automating incentive compensation helps companies address regulatory requirements. Incentive compensation management systems typically provide full auditing and tracing capabilities that make it possible for carriers to understand each compensation payment in great detail. Additionally, comprehensive, Web-based reports are great vehicles to highlight any regulatory issues.

Q: What future capabilities will be added to commissions and compensation systems?

A: Malley, Lincoln Financial Group: The concept of self-service is where some of the future capabilities lie. Specifically, capabilities on a lot of carriers' radar screens are things like pay-on-demand and providing analytical tools/dashboards, allowing a producer to initiate name and address changes over a portal on the Web. It's not rocket science, but many carriers have been prohibited from being able to provide capabilities like this because of their legacy system environment.

A: Holverson, Sammons Financial Group: Future capabilities include information sharing -- internally and with external partners -- business process workflow to reduce processing time and expense, flexible compensation models and supporting systems, integrated business data capture, business intelligence analysis to provide a compass to the organization, and flexible systems to support change.

A: Petrone, CSC: Commission systems will become more strategic to achieving business goals, even beyond driving revenue growth. By analyzing system information, carriers can verify they are incenting their salesforces on actions that support strategic direction, use compensation to drive correct behavior and thereby increase agility in the marketplace. Self-service, tiered levels of service and producer portals are the innovations that will drive results in the future. Distributors today are demanding access to compensation data and production results on a real-time basis. Technology is just beginning to emerge among the major carriers for producer portals that allow real-time self-service to back-end applications. In the future, carriers will be able to distinguish themselves to their distributors by the level of service they can provide.

Brendan Malley

2nd Vice President, Producer Solutions

Lincoln Financial Group


Chuck Holverson

Director, IT Corporate and Operations Solutions

Sammons Financial Group

Midland National Life Insurance Co.

(Fargo, N.D.)

Vincent J. Petrone

SVP, Life & Annuity Division

Financial Services Group


(Austin, Texas)

Robert Warfield

SVP, Engineering, and CTO

Callidus Software

(San Jose, Calif.)

Commissions Strategies

Peggy Bresnick Kendler has been a writer for 30 years. She has worked as an editor, publicist and school district technology coordinator. During the past decade, Bresnick Kendler has worked for UBM TechWeb on special financialservices technology-centered ... View Full Bio

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