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Complete Guide to Insurance Commissions

By September 2, 2020 No Comments

Insurance agents earned a median salary of $50,940 in 2019. The highest paid 10% made upwards of $125,500, according to the U.S. Bureau of Labor Statistics. The differences are largely made up of how much these agents or producers collected in insurance sales commission.

We’ve found that insurance agencies and brokers manage some of the most complex sales commission programs.

When was the last time you looked at how your producers are getting paid? Determining insurance commissions is challenging. For one thing, many agencies work with multiple carriers, all of whom have their own commission structures. And each product nets a different commission. Meanwhile every carrier generates a different commission report in various formats for producers that then need to be converted—a tedious and time-consuming task.

Because of those variables, we’ve found that insurance agencies and brokers manage some of the most complex sales commission programs, most of which they have no control over.

To help break down the typical way an insurance commission plan works, we developed this guide. (For the basics on sales commission plans, visit our Complete Guide to Sales Commissions.)

Goals and Strategy

When evaluating—or re-evaluating—an insurance commission plan, agencies and other organizations need to consider what they intend to gain. 

If the priority is new business, increasing immediate commission on first-time policies might motivate producers to aggressively bring in fresh clientele. When retention is key for an agency, then an account executive might be a good addition to the team so that they can cultivate the relationship with your clients, getting a kicker for each renewal. 

Whatever the overall goal of the agency, the insurance commission plan needs to support it. Be sure to lay out all paths to success and determine how your team can lead the company there and how they should be compensated for that.

Organization Within the Agency

Who works at the agency and what do they do? It may seem like a simple question but if you’ve got producers with different levels of experience, prioritizing different clients, and generating their own leads, you need to be keenly aware of that. It will influence how those producers get paid.

For instance, the agent who’s been working in the industry for twenty years, who owns all of their client relationships, generates their own marketing materials, and generates their own leads may want a higher commission than the brand new producer who gets 99% of their leads from the agency. There may also be supporting roles, like account executives, who expect a portion of the commission as well. This could result in splits or overrides that the accounting team needs to navigate.

Size of the agency or organization may also determine certain factors within the commission plan. For instance, many smaller agencies tend to have more complex calculations to tackle each commission cycle. This is because the smaller the agency, the more flexible they are with informal partnerships, overrides, splits, and other adjustments that result in varying commission percentages across the organization. 

On the other hand, larger, more established agencies maintain more of a consistent structure that doesn’t often allow for variation within commission plans.

Insurance Commission Structure Based on Insurance Type

The way an agent or producer is paid really depends on the type of insurance policy they sell. 

  • Life Insurance: Agents and producers who sell long-term policies such as life insurance, which last at least ten years, earn a high commission upfront. Often the commission on new business reaches above 40% on the first year’s premium with renewals earning far less.
  • Health Insurance: Producers working in health insurance follow a similar structure to those in life insurance. They take home higher commissions early that generally expire after about three years altogether. Renewals net them very low commissions since they’re more focused on finding new business.
  • Property and Casualty Insurance: When it comes to home, auto, and other property and casualty insurance policies that have shorter lifespans, producers collect a lower commission on a policy’s written premium. Typically, in new business with P&C insurance, the producer sees around 5% to 20% with just a slightly lower percentage on renewals. 

Other Variables

Aside from the who, what, and how, there are additional variables to be taken into account and that will have impacts on how producers get compensated for their work.

  • Client Support and Follow Up: Traditionally, producers not only sold policies, but they also managed and supported client relationships to ensure renewal. Some larger organizations have hired account executives who can take these tasks out of producer hands and ensure a continued focus on new business. Since those producers are no longer responsible for client support and relationships, they may earn a lower commission or share commissions with account executives or other support roles at the organization.
  • Lead Generation: This task may fall under the purview of the producer, meaning that they are fully responsible for new business and entitled to the full commission. But some agencies have implemented programs that generate leads for their agents. One example we’ve heard involved an agency that invited producers to take part in lead generation programs but did not require it. If a producer did not take part but benefitted from the program, their take home was reduced by 5%. So whether or not producers generate leads will impact how much they earn on commission.
  • Marketing and Other Resources: If the agency invests in materials that help producers sell, that may impact how much of the commission they have a claim to. In these cases, an agency may secure a portion of agents’ commission in order to fund the marketing and selling resources it produces. 
  • Partnerships and Other Agreements: Two agents may team up to land new business and get a policy signed under an informal partnership or agreement that splits their commission 25%/75% or something along those lines. Often these agreements happen for a limited time and may not even be reported to the agency so the agents must determine the breakdown themselves. However if the agreement does get submitted, that’s another calculation that needs to be added to the commission cycle. 
  • Succession: Retiring agents occasionally pass on their book of business to a younger producer. As part of that agreement, the retiree may claim a portion of their ongoing commissions for those existing clients. For example, a retiring agent agrees to allow their younger counterpart to take over relationships with all of their clients in return for 20% of every commission they receive from those clients for the next five years. Eventually, that agreement may expire and the full commission will shift to the succeeding producer.

Insurance Commission Vocabulary

  • Carrier Statements: Reports sent from the insurance carrier that determine how much an agency and its agents receive in commission for a policy. This often outlines the highest level information and requires someone at the agency to break it down even further, calculating commission payments to each producer or employee owed on that policy.
  • Chargebacks or Clawbacks: We mentioned this one in our Complete Guide to Sales Commissions as well but it’s important to bring this back for insurance purposes. Chargebacks or clawbacks happen when a policy is canceled before a particular milestone. If an agent has already earned commission on that policy, they may have to repay all or a portion of it.
  • Orphan Records: If carriers aren’t clear on which agent earned a commission on their policy, this may result in an orphan record that the agency then needs to track down and determine how to assign appropriately to the deserving producer.
  • Override: We covered this How to Speak Sales Commission Management but it’s also relevant to insurance commissions. When one producer takes home commission from the sales of another, that’s an override. This generally happens when a manager earns a commission on their employee’s sale.
  • Policy Number: This identifies the specific policy for which an agent or producer earns a commission. Once the policy is sold, a number is generated for it and its commission is assigned to the one who sold it.
  • Premium: The payment made by the client. The commission is based on the amount paid by the client, which is generally broken down into monthly installments. The seller may earn the full commission upfront or with each premium payment made.
  • Residual: If the producer earns commission on each premium payment made, that’s known as residual commission.
  • Split Commissions: When more than one producer is involved in the sale of a policy or if an account executive assists with renewal, the commission on the sale or renewal needs to be split between all of them.

Even basic insurance commission plans can require a lot of management time and effort. We can help you navigate through all of it and automate the entire process. In fact, our Managed Service program could take the whole operation out of your hands. We can convert statements, import data, easily run commissions, generate reports, and more. Drop us a line or set up a free demo and we’ll show you how.

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