How We Calculate

The Compensation Conundrum

When selecting a compensation system today, insurance carriers have a choice to make:

1. Choose an industry-agnostic system, gaining complete control and flexibility for lengthy and costly implementations and configurations
2. Choose a purpose-built system, gaining faster implementation and out-of-the-box, insurance-specific features

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At Chestnut, we believe purpose-built is better, but we have learned that not all purpose-built systems are the same. As table stakes, any purpose-built compensation system should be able to calculate commissions and incentive compensation accurately, but that capability alone does not necessarily translate to providing the reporting, insights, and understanding that carriers desire. Achieving those goals depends on how the system performs those calculations and stores the results. It is in this how where Chestnut’s Producer Performance Management (PPM) stands apart.

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Chestnut’s Approach to Calculating

We calculate commissions and incentive compensation using insurance-specific data and inputs. For commissions and transaction-level compensation we leverage premium transactions, policy data, producer data, compensation and performance plans, and rules. And for summary-level compensation we leverage aggregated performance metrics, producer data, compensation and performance plans, and rules. But rather than just calculate values, PPM handles each transaction as part of a ledgering system, leveraging accounting concepts like a chart of accounts and double-entry accounting. Each commission calculation then becomes part of the book of a policy, and each incentive compensation calculation becomes part of the book of a producer.

This application of a ledgering system and tracking data at such a granular level provides several key benefits:

• Guarantees accuracy – Double-entry accounting ensures nothing is lost or out of balance — not even by a penny.
• Enables insurance-specific reporting out-of-the-box – Chart of account with insurance-specific concepts like earned commissions, advanced commissions, chargebacks, etc. provides carriers with visibility into what has been paid, what needs to be paid, and what debt remains outstanding.
• Unlocks rollups and reporting at any level – Chart of account at a policy-level can be aggregated to the producer-level, to upline producer-levels, all the way up to the carrier-level, providing a comprehensive understanding of metrics at both the granular level as well as the desired summary level. This capability is particularly powerful for debt reporting and debt management — an area where many existing platforms fall short today.
• Safeguards retroactive changes – Calculating and tracking data at such a granular level through a ledgering system ensures that retroactive changes are applied accurately and to the right policy and/or producer. This process ensures complete transparency and understanding into any changes, including when multiple retroactive changes that affect the same accounts are layered on top of one another.
• Streamlines carrier accounting – Because PPM incorporates a ledger, concepts can easily be mapped to support carrier accounting and cost allocation criteria, reducing implementation costs and carrier configuration requirements.
• Improves analytics and insights – As is true for all data, “data cannot be created out of thin air” — granular data can always be summarized, but summary data cannot be further dissected if the right underlying data was not originally captured. By tracking data at such a granular level, PPM creates and future-proofs a robust library of metrics for analytics, which can be further supplemented with and augmented by additional data from the carrier.

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Achieving Success with Technology

Enabling Chestnut’s granular calculation and data model requires a robust tech stack that can compute real-time and scale efficiently, consistent with How Our Tech Stack Solves Legacy Issues. Of note, we rely on Go, AWS, Kubernetes, and Temporal to provide efficient coding and processing, to enable elastic load balancing and auto-scaling, and to ensure all transactions post reliably. Neither a philosophy about granular data alone nor technology alone can provide carriers with the compensation platform they need, but by unifying them at Chestnut, PPM provides carriers with not only the compensation platform they need but with the compensation platform that they want. I am excited by the progress we have made with Chestnut PPM, and I am even more excited by what the future holds as we further expand the benefits afforded by our approach to granular data.

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