iStock_000016170228_SmallCustomer actions like spending significantly on an offering or purchasing across multiple lines of business are precursors to long and profitable relationships, say widely held beliefs. So it is not surprising that insurers and financial institutions will spend heavily to nudge customers or intermediaries down the path to deeper and broader purchasing behavior.

This nudging comes in many forms, including contests, awards, discounts or rebates. These incentives are almost always based on the customer or intermediary reaching an incremental milestone tied to trial or increased use (spend). And pushing a customer or intermediary to achieve a milestone has value—unless it doesn’t.

For example, consider credit card customers who spend precisely the dollars needed to reach their airline mile bonus then cancel their card. Or the insurance agent who writes new business with one carrier in order to win a president’s club trip, and then shifts that business to another carrier the next year in order to do the same. Milestone-based bonuses are designed based on the average value of those who reach the target thresholds, but there are always individuals who meet the mark and nothing more, ever.

I am referring specifically to “incentive gaming,” or the practice of artificially or unnaturally pushing to reach a milestone in order to “win,” with no intent of continued spend or participation. We see this behavior all the time in our work with financial companies and insurers, and in general it is something we work hard to minimize through our design and tracking work.

But is all gaming bad? This is a question we were able to explore with an insurer over a period of years during which contests were added and then removed.

Agents who “play the game” were worth less on average

The insurance company knew that it was important to get new agents producing quickly, since agents who ramp up fast tend to stay longer and have more productive careers. With that in mind, managers instituted a bonus program that paid agents and sales leaders extra incentives for hitting specific production milestones in a short time period—a matter of weeks—from when the agents start. They ran this program for a year and then cancelled it the year later (shifting funds to other agent-centric programs).


In the graphic above, can you figure out where the company set the milestone target? It was pretty clearly set at $10,000, as evidenced by the massive number of agents who achieved that specific threshold during the contest period (in Year 1).

In assessing this program, we looked at the go-forward value of all the agents who produced during the contest year, and compared that with a comparable cohort of agents who produced in the following year, during which there was no contest. Not surprisingly, we found significant evidence of the detrimental impact of gaming:

  • Agents in the contest year were twice as likely to never again produce for this carrier—generating no future value and rendering the bonus payment a net loss.
  • Agents in the contest year in general had 15% lower retention than those who were developed in the following year, when no bonus milestone was set.

This meant that, on average, an agent who was developed during the contest period (Year 1) was worth less than an equivalent-producing agent developed outside of the contest (Year 2). So in this instance, gaming was clearly bad, right? Maybe not.

The game itself may create value in aggregate

When looking at individuals—say, two agents who each produced $12,000 during the periods in question—it’s hard to show that the contest added value. But when looking across the agent population as a whole, a different story emerges.

When we studied the two cohorts in totality, we found that agents during the contest period (Year 1) produced more value in aggregate—both in the short term and over the long term. This was the case for a few reasons:

  • Agents produced more during the period. This can clearly be seen by the shift in the curves above. And this excess production has value in the short term.
  • So many agents produced more during the contest period that, even with lower retention, the future production of those agents significantly exceeded that of the comparison group.
  • In general, many more agents were brought through the system, which can be attributed at least in part to the appeal of the contest for agents and managers.

So while there unquestionably was gaming in this program, the net results for the carrier were still positive and the contest investment delivered significant return on investment.

Lessons learned

There were several lessons learned from this exercise that should be considered whenever designing a milestone-based program:

  • Accept that gaming will happen, and design with gaming in mind.
  • Be careful where you put the milestone: Too low, and negative gaming will become extreme; too high, and engagement will be insufficient to drive any action.
  • Work to counterbalance the impact of gaming, for example, through direct outreach and intensive tracking to identify and address bad behaviors.

Ultimately, the carrier reinstated the bonus program with a few tweaks aimed at retaining its overall value but mitigating the negative impact of gaming. And that’s probably a good approach to follow in general.

Topics: incentives, motivation, Jason Brown, insurance agents, contests, gaming