Page 118 - The UnCaptive Agent

INSURANCE CARRIERS 91

How do insurance companies pay agents? The first
way insurance companies pay agents is based on com-
missions for policies written, expressed as a percentage of
the gross premium for the policies the agents sell for the
company. In the IA channel, new business commissions
range from approximately five percent to as much as
twenty-five percent for some specialized products. The
average commission, if it even exists anymore, is fifteen
percent. Carriers are increasingly using production
bonuses as incentives for agents to produce new busi-
ness. These bonuses typically are paid as incremental or
additional commission. Bonus plans have varying rules
that change as frequently as every month or quarter, are
designed to meet the carrier’s new business production
goals, and can result in significant income increases to
the agency.
Another way carriers pay agencies is profit sharing.
Profit sharing is something that is unfamiliar to captive
agents but is commonplace in the independent agency
system. Profit-sharing is paid at the end of the year based
upon the premium volume that the agent writes with a
given carrier and that agent’s loss ratio achieved on that
book of business. Insurance companies’ profit-sharing
payments can range from .25 percent to as high as ten
percent of the earned premium (and a few companies
pay profit sharing on written premium) in the agent’s
book of business with that carrier.
Typically, profit sharing is paid based upon a table of
factors where the lower the loss ratio for the agency, the
higher the percentage paid, and where the greater the
volume the agency produces with that carrier, the greater
the profit-sharing percentage is paid. The first problem
small agencies have is that they’re very seldom able to
produce enough business with a carrier to even qualify
for a profit-sharing bonus. Some insurance companies