Understanding the Commercial Insurance Compensation Model
Producer Compensation
Insurance Compensation is a three tiered system that passes premiums from business owners to insurance carriers, revenue (commission) from insurance carriers to agencies and commission from agencies to producers.
BUSINESS PREMIUMS > AGENCY REVENUE (COMMISSION) > PRODUCER COMMISSION
In the examples below, you will see hypothetical premiums for a Property & Casualty and an Employee Benefit business. The first slide illustrates the purchased lines of coverage and the estimated premiums for each line. The second slide highlights the revenue captured by the agency and the new and renewal commission earned by the producer.
Property & Casualty Compensation – Premium
In this Property & Casualty (P&C) example, six lines of coverage have been purchased for a total of $585,000 in annualized premium. Premiums and commissions will always vary based on a number of factors, however in this scenario, Workers Compensation and Cyber Liability commissions are 10%, while General Liability, Auto, Property & Umbrella commissions are 15%.
Based on the commission structure and $585,000 in premium, the estimated agency commission for this account would be $72,000.
Property & Casualty Compensation – Agency Revenue & Producer Commission
Most agencies or brokerages operate on a new and renewal commission split with producers. In this example, we have used 40% for first year (new) commissions, and 25% renewal (ongoing) commission which is standard in Southern California.
Based on $72,000 of annualized agency revenue, a producer would receive $28,800 first year commission, and $18,000 in renewal commission.
Employee Benefits Compensation – Premium
In this Employee Benefit (EB) example, five lines of coverage have been purchased for a total of $1,540,000 in annualized premium. Premiums and commissions will always vary based on a number of factors, however in this scenario, Medical commissions are 4%, while Dental, Vision, Life Insurance and Disability commissions are 10%.
Based on the commission structure and $1,540,000 in premium, the estimated agency commission for this account would be $70,000.
Employee Benefits Compensation – Agency Revenue & Producer Commission
Most agencies or brokerages operate on a new and renewal commission split with producers. In this example, we have used 40% for first year (new) commissions, and 25% renewal (ongoing) commission which is standard in Southern California.
Based on $70,000 of annualized agency revenue, a producer would receive $28,000 first year commission, and $17,500 in renewal commission.
Validation Schedule
Now that you understand how business premiums translate to producer commission, you will want to understand how you build a book of business and move from a guaranteed base salary to straight commission. The goal for any producer is to receive new and renewal commission, but there is a process to get there. Click HERE to understand the validation process and the goal of building a million dollar book of business.
