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

Author

Listed:
  • Thomas R. Berry-Stölzle

    (University of Iowa)

  • David L. Eckles

    (University of Georgia)

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.

Suggested Citation

  • Thomas R. Berry-Stölzle & David L. Eckles, 2019. "It’s about building a book of business: incentives of insurance salespersons from future renewals," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 44(4), pages 702-731, October.
    • Handle: RePEc:pal:gpprii:v:44:y:2019:i:4:d:10.1057_s41288-019-00136-8
    DOI: 10.1057/s41288-019-00136-8
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