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What is Your NUPP? Net Unvalidated Producer Payroll Explained

Posted on July 19, 2016 by Guy Weismantel

Digital Insurer blog header

There’s a new best practice benchmark that agency principals can use to inform their organic growth strategy.

It’s called NUPP (Net Unvalidated Producer Payroll to be exact).

In our e-book Managing Your Workforce in the Digital Era, we’ve included an explanation of the metric from Susan Hughes of Reagan Consulting: It's the “difference between what you pay, and what [the producer] pulls in - that's your investment in unvalidated producer payroll.”

Hughes explains: If an individual producer receives a yearly $50,000 salary and the same producer earns $30,000 in commissions for the actual business she generates for the agency, the difference between her annual pay and total commissions is your hiring investment in that particular producer, which in this case is $20,000. To arrive at the NUPP, all investments in developing producers are summed and then divided by the agency’s net revenues.

NUPP is expressed as a percentage of net revenues, and the recommended range is 1.5% to 2.5%.

Ok, so what does this all mean?

It means that if only a small portion of your developing producers, say 40%, validate within three to five years, you’re not hiring the right people or your training methods aren't working correctly. Either way, a process change is in order.

NUPP as a Guide to Your Hiring Decisions

There’s a direct correlation between your agency’s bottom line and the quality of your producers. More engaged hires are more productive and can better help the company achieve its revenue goals.

Reagan, in its 2014 Producer Recruiting and Development Study: Getting the Attention It Deserves – Achieving the Results You Need, offers three helpful measurements for establishing an appropriate level of hiring:

-   Sales velocity

Dividing the current year’s total new business by the previous year’s total fees and commissions gives you your agency’s sales velocity. Understanding the relationship between sales velocity and growth should help you determine the number of producers to hire.

-   Generational capacity

The concept assesses the contribution to sales velocity of producers in each age band (over 55, 46-55, 36-45, and up to age 35).

-   Producer investment

To reiterate, NUPP is your agency’s investment in the producers you hire as a percent of net revenues. The metric, however, doesn’t measure the effectiveness of an agency’s hiring practices, hence the development of its companion concept, effective NUPP, which is expressed as:

NUPP x hiring success rate = effective NUPP

An ideal effective NUPP is pegged at 1.0% to 1.5% of revenues. 

NUPP score

Employee Engagement in the Digital Era

While it is customary among insurers to hire producers from within the same industry, adding new blood into the mix should compensate for the 25% of insurance industry professionals that are expected to retire in 2018.

Once you’ve successfully brought new talent in, the next step is to keep them engaged.

Sandy Nessing, American Electric Power’s Managing Director of Corporate Sustainability, aptly describes employee engagement in a report by Forbes: Business strategy execution and goals achievement are impossible “if everyone is swimming in opposite directions.”

All this said, how exactly do you keep your employees engaged in the digital age?

I share several pointers below:

-   Workforce empowerment through training and technology

Well-trained employees are more productive, engaged, and motivated. Learning tools and methods you can implement include videos, MOOCs (massive open online courses), cloud-based learning systems, and customized digital learning courses.

-   Strong employer/employee relationship

The benefits of maintaining strong relationships with employees are many. Among them are productivity, reduced conflict, and employee loyalty.

-   Continuous employee feedback

Make employee feedback an ongoing process, instead of an isolated, annual event. Constant feedback ensures the agency’s objectives are clear to producers and what’s expected of them. It allows for immediate issue resolution so seemingly inconsequential events don’t escalate into full-blown catastrophes.

-   Culture of opportunity

Commit to creating a culture of opportunity within the company through delegation, communication, constructive criticism done privately, praise for jobs well done, public celebration of success, avoidance of micromanagement, and internal promotion.

Conclusion

Benchmarks and industry best practices exist and evolve to help agencies cope with the changing times. It is to your benefit to take advantage of them. Otherwise, you stagnate and become irrelevant in a landscape that clamors for solutions that are as fast as launching an app on a smartphone.

Change is particularly painful at the outset. But like we always say here at Vertafore: The pain of same is greater than the pain of change. Which pain you ultimately choose is up to you.

If you want to better maximize your workforce’s potential, learn more about how Vertafore can help you bring out the best in your employees.

Mr. Weismantel is the Vice President of Marketing at Vertafore. With 20 years of marketing and financial leadership in companies such as Microsoft, Business Objects, Baxter HealthCare, Caremark International, and Expedia, Guy’s career has focused on bringing differentiated products to market and providing the “compelling reason to purchase” for customers and prospects alike.


Guy has a Bachelors Degree in Accounting from the University of Notre Dame, and a Masters Degree in Business Administration from the Kellogg School of Management at Northwestern University.

 

 
 

 

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