Managing an insurance commission plan for insurance producers and agents challenges even the most experienced insurance agencies. The right structure weighs both producer demands with agency financial concerns. In striking that balance, agency management must navigate a number of questions.
More often than not, insurance agents and producers earn commission through insurance sales. However, there may be other factors at play. That’s true whether they work in property, casualty, life, auto, or health insurance. Even the most experienced producers still ask questions about where their commissions come from. Agencies need to understand the landscape thoroughly to deliver commission earnings reliably and keep producers focused on their goals.
Whenever we implement commissions for an insurance agency or broker, we encounter many of these questions ourselves. Let’s explore them and how to find the answer.
1. How Do You Split Commission Fairly?
The answer to this question depends on several factors. First, who splits the commission? If the commission splits between two producers who worked on a sale, the amount each one contributed to the sale should determine the split.
However, if producers regularly split commissions with a support team or another party, the split needs to be consistent. Support teams that qualify leads and perform other tasks deserve a piece but less than the selling agent’s cut. That split is generally determined and managed by the agency employing both agents and support teams.
Insurance agency commission structures balance producer incentives with financial demands of operation.
Other parties that may earn a portion include retired producers who’ve handed over their book of business. Sometimes, producers make arrangements with other agents for a partnership of some sort. These splits get handled between those agents and producers and the agency generally doesn’t have to manage the arrangement.
A good way to determine fair splits is to evaluate how other agencies handle these arrangements. That information will give you an industry standard to follow. It will also tell you what producers and agents expect.
However an agency chooses to split commissions, it needs to communicate that properly to agents. Withholding such information could result in high turnover on the team and disrupt selling patterns — and cost more money in the long run.
2. What Is the Standard Carrier Commission Rate?
When determining what rate carriers will pay, agencies need to do a little research. Carrier commissions vary by insurance type, insurance company, and territory. So there’s really no set answer to this question.
By doing a little research, an agency can find typical ranges for a particular insurance industry. For instance, agents selling health insurance earn between 40 percent and 100 percent of first-year premiums and one to two percent on renewals.
Based on the agency’s area of focus, its location, and the carriers it works with, most can pull the typical rates through investigation. It also helps to open lines of communication with the carriers directly to get confirmation on what and how they pay.
3. How Do You Confirm Carrier Commissions Match Up to the Right Producer or Agent?
The process of connecting carrier commission payments to the producers or agents owed is complicated. Many carriers issue statements to agencies that detail commissions earned and policies sold. However, the earning agent sometimes gets overlooked.
Ensuring that commission is routed to the right payee, agencies have to untangle a mess of data. Generally, this is accomplished by comparing producer codes or policy numbers from each statement line against a book of business maintained by the agency. It can be tedious and prone to human error.
Luckily, tools like Core Commissions simplify this process with a framework agencies can customize. The tool will help identify producers responsible for a policy sale when it combines the converted carrier statement with data from the agency.
4. How Do You Ensure Residuals Are Paid to Producers and Agents Consistently?
When producers earn commission on every premium paid, commissions must be tracked over a longer period of time. That means every time an agency manager or commission administrator sits down to calculate earnings, they have to attach that premium payment to the right producer. Generally, this is happening for more than one agent and over different timeframes. It gets complicated to track all of that.
Once again, data and an effective tool to track it will simplify this process. Core Commissions records distributions of commissions over time and can end those commissions when the residual period is up. It ensures producers and agents get paid residuals reliably and accurately each time without additional work from an administrator.
5. What Portion of Commissions Should an Agency Take?
The cut an agency earns from commissions depends entirely on the financials and makeup of that organization. When agencies provide tools and infrastructure to agents and producers, they may be entitled to a larger cut more often. However, taking too much of a cut might contribute to high turnover in agents and producers unhappy with their take-home pay.
Again, it’s important to communicate how an agency splits commissions so that producers and agents aren’t surprised when they get their checks.
Do you have other challenges or questions when it comes to insurance commissions? We can help you solve them with reliable and powerful commission management software.
Set up a demo with us today and we’ll walk you through everything Core Commissions can do for your insurance agency.