Managing Commission Agreements as an Agency Grows

Mergers and acquisitions (M&A) are common in the insurance industry. In 2022, there were almost 600 M&A transactions, valued at over US$4 billion. However, with these M&A’s come the challenges of unifying core systems and their associated data. One common challenge related to merging agencies is the complexity involved with managing different commission agreements in their AMS, which creates processing challenges after the merger. The solution is having the technology to automate the validation, integration, and orchestration of commission agreement data which significantly reduces the time spent manually auditing commission agreements. M&A Challenges of Managing Commission Agreements

When agencies go through the M&A process and the acquiring agency brings on the new book of business, the merged agency has to adjust to processing different policy agreements and commission percentage splits. What’s more, in order to handle the new size of the agency, the finance team handling the commission process should grow to handle the additional work. But often this does not happen, and the complexity involved with managing a growing number and array of commission agreements leads to more errors as the workload increases.  

Agencies’ finance teams are required to manually audit each policy’s commission agreement and structure, and ensure that the commission agreements are correct. The increased number of commission agreements that agencies have to deal with post-merger means finance teams end up spending more money, time and effort to identify errors in commission rates and percentages. In many agencies, this process is extremely manual and frequently involves using Excel pivot tables to audit each commission statement. This is not effective if an agency’s goal is to scale and manage more agents’ commissions.  

Even for small agency acquisitions, there is a significant amount of data involved when bringing two organizations together. By sticking with manual processes, the likelihood of errors will be substantial. For example, if an agent makes a mistake when selecting the commission agreement options on a policy sold, the error has the potential to affect the entire commission statement. This creates accounting disparities that require the agency’s finance team to identify and reconcile.

If the disparities between commission agreements in the books of the two agencies are not corrected swiftly, the acquiring agency cannot recognize the true value of the acquisition. In some cases, the process of integrating the two books can take months, with resulting financial implications.

The DataFix Solution

The Synatic DataFix solution can automatically review commission agreements within all agencies’ AMSs and flag policies and transactions that have discrepancies. The solution can then update agreements and percentages automatically or notify agents of necessary corrections directly in the AMS systems.

DataFix performs constant audits on the commission agreements and percentages, the platform can also send an alert to notify the finance team of adjustments that need to be made. DataFix aims to “true-up” the commission agreement auditing process during an M&A creating a single record of truth for new agency to work with. DataFix solves the auditing challenges of commission agreements by cleaning commission data and creating a clear, precise, and holistic view of policy commission agreements and rates with speed and accuracy.  

Benefits after M&A of Synatic’s DataFix

As agency M&A activity continues, the need to find a solution that speeds up the process of making clean, reliable commission data available is critical. The Synatic DataFix solution ensures commission agreements are accurate and helps to build trust in the commission process. Sorting out policy commission agreements in the early stages after an M&A occurs allows agencies to avoid downstream challenges when errors are not identified in time. It also cuts down the laborious, manual efforts that many finance teams go through after an M&A.  

If you want to learn how you can simplify agency M&A and build a smoother, more streamlined commission process that can keep up with your growing agency, contact Synatic today.

Dennis Rivera
December 5, 2023
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