Commission or incentive management has long been a neglected area of investment for insurers and banks alike. However, Datamonitor’s Daniel Mayo says that in a bid to become more effective sales institutions, spend by FSIs across Europe and the US on related systems will reach $566 million by 2006. This comes as insurers re-focus on future business growth, after years of cost cutting…
Effective management of commissions is central to the effectiveness of any sales process. Not only are commissions the single most important way of incentivizing sales staff and instilling a sales culture within an organization, they are also essential for aligning business strategy with execution.
This is becoming increasingly true of the financial services sector where market dynamics, including greater product commoditization and customer savvy, are forcing banks and insurers alike to become more effective sales organizations. For insurers, the allure of the mass-market raises the key question of how to sell lower-value products through multiple (sometimes external) channels. For banks, on the other hand, the central questions concern the branch and how to create a sales culture where there previously was little.
However, most financial services providers have had little incentive to invest in effective commission management systems in the past and continue to rely on an array of custom-built applications and spreadsheets for managing commissions, often siloed by product and/or channel and requiring heavy amounts of manual support. Not only are these existing processes highly inefficient, but they are also becoming a growing obstacle to the implementation of changing and more demanding sales strategies. As a consequence, commission systems transformation is now emerging as a major priority for banks and insurers alike. Datamonitor expects spending by retail financial services institutions (FSIs) on these systems to grow at a compound annual growth rate of 10% globally to 2006, reaching $566 million.
Developing a commissions backbone
To overcome the complexity and inflexibility associated with existing commissions systems, an important overhaul will be needed. FSIs must aim to develop a single enterprise-wide, fully automated commissions backbone spanning all channels and products. FSIs will therefore look for solutions that will fully automate the process from plan design through to payments calculations whilst simultaneously being highly scalable across channels.
Because both banks and insurers typically deal with highly distributed environments (branches, agents), the ability to manage systems centrally is paramount. The objective therefore is to create a single automated compensation backbone that can extend across channels and be managed centrally. For this reason, Datamonitor expects FSIs to favor J2EE or .NET based development environments, which carry the major benefits of great flexibility and scalability, as well as web-based deployment to allow for integration of distributed environments and central management.
Although basic automation and management of the core compensation process is the first central step to achieving an optimized sales process, Datamonitor believes that in the medium term FSIs will turn their attentions more to linking performance and compensations more systematically, notably through the wider introduction of variable-pay schemes. In order to do so, however, FSIs will need the ability to measure staff performance and fix objectives relative to compensation. This will drive investment in more sophisticated objectives, quota and referral management solutions.