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Medium Profitability Organizational Changes

Vitality Insurance

#Financial Services #Insurance
ProHub Comment

This case teaches the critical importance of aligning incentive structures with business objectives. Vitality's sales contests inadvertently created perverse incentives where agents 'gamed' the system by timing sales to maximize bonuses rather than generating genuine incremental value. The case demonstrates that bonus programs duplicating the underlying commission structure waste resources without adding strategic value.

Estimated Time 15 minutes
Difficulty Medium
Source Kellogg
50 / 100
Our client, Vitality Insurance, is a leading provider of supplemental insurance products in the United States. Vitality agents partner with companies to offer their employees optional, supplemental insurance for such conditions as life, long-term disability, etc. Vitality has undergone fairly steady growth in the past two years, but profit margin is decreasing. What should they do about it?

Clarifying Information

  1. Vitality is the leader in its category and has over 10,000 field sales agents (FSAs)
  2. Vitality sells all policies through FSAs who are solely compensated on a percentage commission of total new premium, (defined as premium from new customers or additional premium up-sell from existing policyholders)
  3. In addition to the commission, short term priorities are often communicated via sales contests that focus on a particular customer segment or activity and pay a bonus in addition to standard commission
  4. Major costs: sales, G&A, and advertising
  5. Competition: Few competitors in this mature market with similar growth. Vitality is a leader in the space; competition not the focus
  6. Industry: Agent turnover is very high on a yearly basis (though was lower during the recessionary period)