How Can Insurance Carriers Retain and Reward True Producers?

Not long ago, we published an extensive report on Callidus Software (NASDAQ: CALD), a leading San Jose, California (US)-based provider of on-premise and on demand sales performance management (SPM) and enterprise incentive management (EIM) solutions for global companies across multiple industries (see Enterprise Incentive Management Leader Responds to Market Demands). The vendor's products allow large enterprises to strategically and holistically manage incentive-based compensation, establish sales quota targets, and align territories, which often result in improved sales and distribution performance (see Sizing the Enterprise Incentive Management OpportunityAnd the Challenges Ahead). Some of the vendor's high-profile customers or partners include 7-Eleven, Accenture, CUNA Mutual, Hewlett Packard (HP), IBM, Philips Medical Systems, Sun Microsystems, and Wachovia.

Since the time of our report, Callidus has been prospering, with continued growth and burgeoning customer wins (including several within the on demand space), a steadily improving profit and loss picture, and the forming of a strategic partnership with SAP. To this end, Callidus TrueComp and Callidus TrueInformation products have joined the privileged few on the list of "SAP-endorsed business solutions." Add to this good news the first Callidus-SAP win at Safety-Kleen; the largest Callidus user conference thus far (with about 500 attendees); an agreement with a provider of sales resource optimization software, the TerrAlign Group (, to deliver the Callidus Territory Optimization solution; and finally, the launch of virtual training capabilities for Callidus users, the vendor has good reason to be upbeat.

TerrAlign developed the world's first desktop-based territory optimizer almost two decades ago for a leading pharmaceutical company, and is now the first and only software vendor to deliver a territory alignment and optimization solution on's Apex platform. TerrAlign also provides strategic services that include promotional response modeling, field force sizing, account profiling, call planning, territory optimization, and territory realignments.

This alliance and the resulting Callidus Territory Optimization product have broadened Callidus's product offerings to address the critical elements of effective SPM: territory, quota, and compensation management, as well as modeling and analytics (such as major realignment simulations, ongoing territory maintenance, what-if modeling, opportunity leveling, etc.). Owing to its integration with the flagship Callidus TrueComp product, this new offering aims at maximizing sales performance by optimizing territories and account assignments, assigning the "right" quota, and providing comprehensive geographic sales insight. This territory coverage, which is more efficient, should benefit customers with increased sales revenues and market share, decreased travel costs, and reduced turnover.

However, the vendor is not resting on its laurels. Callidus has recently shown its intent to oblige its customers within certain industries that have specific requirements. Callidus now has nearly $80 million (USD) in revenues and about 120 global user corporations across multiple industries as clients. These industries include retail banking (22 percent of the install base); insurance (21 percent); manufacturing, high tech, and life sciences (23 percent); retail and distribution (12 percent); and telecommunications (the remaining 22 percent of customers). Although Callidus's products can serve the pay-for-performance program needs of virtually all companies, the vendor has focused principally on the above six key market segments.

Covering All Horizontal SPM Functional Bases

Across any industry, the scope of SPM and EIM covers the planning phase. During this phase, sales and channel managers should be enabled to model and allocate quota and territory targets, with sales and finance managerial teams implementing and executing the sales plans, while sales representatives have to understand the plan. In short, the idea of this phase is to align incentives more closely to the direct sales force and channel objectives, ultimately contributing to the company's goals of profitability and increased revenues.

Then comes the execution phase. Sales and channel managers have to now gain the insight and understanding of the actual sales performance. With the sales force monitoring its own performance (and conducting its own calculations), the sales and finance teams have to resolve any issues that occur (often discrepancies between these teams' versions of the truth). This phase is where the "rubber meets the road," and the idea is to quickly and successfully launch new products into the market and to motivate the sales force to sell both the new and the existing (often cash cow), mature products. The goal, again, is to increase revenues, eliminate overpayments to the sales force and channel, and minimize (if not eliminate) disputes within the channel.

Last but not least is the visibility phase. Sales and finance teams must analyze the incentives' performance and understand the revenue performance and quota opportunities. For instance, if sales are lagging mid-quarter, the managers can simulate how to drive sales and change the incentives, and thus make strategic decisions that are more sound so that they are able to identify what factors effectively motivate the sales team. The idea is to also eliminate the so-called phenomenon of "shadow accounting" that results from a lack of visibility and the consequent mistrust between the sales representatives and payroll staffers (see Are Sales Incentives Even in Tune with the Corporate Strategy?).

To meet the (often conflicting) needs of sales management, financial managers, and sales forces, Callidus offers a number of modules within its broad SPM product suite. For instance, on the planning side are self-explanatory products like Callidus Quota Management, Callidus Territory Management, and Callidus TrueComp Modeling (for forecasting purposes). By embedding Hyperion performance management software, Callidus Quota Management aims at making quota creation and management easier by enabling sales and finance executives to identify and assign fact-based quota targets based on a multidimensional analysis of past sales, territory potential, growth, and quota performance data from the Callidus TrueComp Datamart. An accurate quota target can be created for a suitable sales executive in the appropriate territory at the right time by building multiple top-down and bottom-up quota allocations and roll-up what-if scenarios, and then by comparing them via side-by-side views and variance analysis.

The visibility phase is covered by Callidus TrueInformation (for sales transparency) and Callidus TrueAnalytics (for sales incentive insights). TrueInformation is the reporting component of the overall Callidus TrueComp Enterprise solution, and serves to distribute goal and achievement information to the extended enterprise by being a self-service, scalable, Web-based production reporting application for incentive compensation systems throughout an organization. The Callidus TrueAnalytics suite offers sales, marketing, and finance executives and analysts the strategic insight and ad hoc analysis capabilities they need to drive sales performance. The solution consists of graphical dashboards that can be configured to enable sales, marketing, and compensation professionals to monitor, analyze, and explore multidimensional elements. Such elements include sales performance by region, team, product, or channel; customer growth; and sales incentive costs.

The remaining execution phase falls to Callidus TrueComp Manager (for incentive plan agility in terms of quick and easy re-creation of compensation plans) and Callidus TrueResolution (an efficient workflow management solution). For example, Callidus TrueResolution is a rule-based application that aims at streamlining and automating the resolution of incentive compensation disputes. This reduces the associated cost and diversion of management and sales resources. The software automates functions such as changes, transfers, and splits to territory assignments; quota adjustments; organizational changes; and payee information updates. The application also allows sales professionals and business partners to submit and track their claims through a Web-based, self-service workflow process. It enables sales professionals to request updates to compensation data such as sales credit, compensation, quota, and organizational changes, and compensation issues can be resolved quickly compared to doing so using manual-, e-mail-, and telephone-based systems.

The huge volume of sales and incentive data and transactions must be integrated bidirectionally with such systems as sales order management, human resources (HR) and payroll, general ledger (G/L), accounts payable (A/P), sales force automation (SFA), and so on. In industries that rely heavily on indirect channels with a vast number of distributors, resellers, brokers, dealers, agents, etc., the situation is much more complicated. The issue of mistrust and claims of underpayment (or overpayment) are only compounded in a value chain of independently run entities, especially when there is a lack of visibility. Possibly the best example is the highly regulated insurance space (especially life insurance), whereby insurance carriers have to closely track the credentials (licenses, accreditations, appointments, etc.) of distributors, brokers, or dealers (all commonly referred to as producers), and provide integration to agency management systems.

Solving Insurance Incentives' Pain Points

Delving deeper into the requirements of some of its target industries, in mid-2007, Callidus unveiled Callidus TrueProducer, the first producer and distribution management software solution specifically designed for the insurance industry's unique product, regulatory, and organizational issues. TrueProducer is engineered for large and midsize insurance carriers that have extensive independent distribution channels or numerous captive (exclusive) or non-captive agents. Informally referred to as a channel manager solution (and in tune with partner relationship management [PRM] conceptssee What Does the Future Hold for PRM?), TrueProducer is Callidus's first industry-specific application. The insurance industry is the vendor's single most important sector; Callidus has more marquee insurance customers than anyone else in the market. While the product is useful in most sectors of insurance (property and casualty, for example), it is most needed in the life insurance area.

It might be useful at this point to analyze typical producer administration business processes throughout the three major SPM phases mentioned previously. Namely, during the planning phase, life insurance carriers have to sign up, or "on-board," a producer to sell their products, and design multiple and interlocking contract payment hierarchies and schedules (which are subject to the ever changing roles of producers and carrier product bundles).

Traditionally, on-boarding a new producer entails a number of time-consuming manual tasks. It starts with a producer filling out a carrier request form and signing a contract. After the producer is able to provide valid license information and other necessary credentials (such as appointments, education level, etc.), the carrier can then request an appointment for a new producer at a regulatory state institution or agency, and add that producer to its policy administration system. Most of the information needed is the producer's demographics data (that is, the producer's name, ID number, date of hire, address, e-mail address, etc.), the contract information data (relationship and payment schedule), and license and appointment data, which can be captured manually or, ideally, automatically.

During the execution phase, carriers must track producers' demographics as well as manage their licenses and appointments (that is, any outstanding or impending renewal requirements), producer debts (such as tax liens and garnishes, company reimbursements, etc.), contract hierarchies, and payment and rate schedules. Finally, the overarching visibility process must address the viewing of all pertinent producer data, contracts, and credentials, and the constant analysis of producer performance. Lately, profitability concerns, the US Sarbanes-Oxley Act (SOX), and other regulatory requirements (see Thou Shalt Comply (and More), or Else: Looking at Sarbanes-Oxley) have been compelling life insurance carriers to manage producer compensation more actively as a risk management move, because this is their largest controllable expense.

Taking care of producers is critical for any carrier in order to remain competitive in today's insurance marketplace. This is especially true for independent non-captive agents, who make conscious decisions every day as to which product to sell to their customers. On the other hand, producers are competing more and more for mindshare in today's environment, and to grow their mindshare, they must provide the best service available to both the end customers and the carriers.

Within all the phases discussed above, insurance carriers face many barriers to providing the best service to their producers. Common challenges during the planning phase start with long on-boarding times. Historically, producer on-boarding has been handled with manual and disparate, homegrown systems that were typically inefficient, inaccurate, and repetitive, and that would often result in less than positive interactions with insurers. Then, lengthy contract maintenance (where it is difficult to make even simple changes) and the lack of carriers' insight into producers' productivity meant that the best producers may not have been getting paid on schedule, which does nothing to increase their motivation, satisfaction, or loyalty.

As for the execution phase, updating multiple, disparate legacy systems (based on hard-coded compensation rules) with each new contract and producer is difficult at best and requires extensive support from the information technology (IT) department. In spite of a hefty IT administration, there is a constant danger of data inaccuracies, wasted resources, and slower responses. Furthermore, duplication of data and effort inevitably leads to negative multiple versions of the truth. In many cases, producers have no reliable self-service capabilities or Web-based portals to access and ensurein a simple and timely mannerthat their demographic information is current. On the carrier's side, producer administrators have no way to trace or to reliably check producers' credentials in order to conform to industry regulations.

The issue of visibility has traditionally been plagued by the need for multiple legacy systems for reporting, where integration with other systems is difficult, and there is no easy way to analyze producer performance. Overall, legacy systems that are difficult to update reduce business agility. These systems impact a business with their reduced ability to grow product and mindshare, and by adding unnecessary costs. What's more, multiple systems increase the risk of noncompliance because of their inherent multiple versions of the truth. A common occurrence in the insurance industry is duplication of data or effort, which leads to inconsistencies, difficulties in updating information, and a reduction in business agility. In addition, the inability to track submissions to government agencies often puts companies at risk of noncompliance.

This is part one of the series How Can Insurance Carriers Retain and Reward True Producers? In part two, Callidus's TrueProducer EIM/SPM solution, designed to address problems specific to the insurance industry, will be examined in greater detail.

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