How Insurance Agency Commissions Work
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Commission is a chain: the customer pays the carrier, the carrier pays the agency, and the agency pays the producer.
The chain, in three links
- The customer pays the premium to the carrier.
- The carrier pays the agency a commission: a percent of the premium, set in your carrier contract. It is often higher on new business than on renewals.
- The agency pays the producer a share of that commission, called a split, by the producer's commission plan.
Example. Jane pays $1,200 a year for auto. The carrier pays your agency 12%: $144. The producer's split is 30%, so they earn $144 × 30% = $43.20, and the agency keeps $100.80.
How to calculate producer commissions works through the sums, and What Is a Commission Split? covers what moves a split up or down.
How do insurance agents get paid?
Most insurance agents are paid a share of the commission the agency earns on each policy they sell, called a split, set in their commission plan. Some are paid a salary instead, or a salary with a smaller split, and many also earn bonuses for hitting targets. Example: on a $1,000 policy where the agency earns 10% and the agent's split is 40%, the agent makes $40. How much do insurance agents make per policy? works through more examples.
Bonuses on top
A bonus pays an extra amount when a target is hit. The common kinds:
- Per policy: a flat amount on each policy written.
- Tiers: a higher rate, or a bigger amount, once a producer writes past a threshold.
- Milestone: pays when a running total reaches a big target. See What Is a Milestone Bonus?
- Streak: pays for hitting a target several periods in a row. See What Is a Streak Bonus?
- Team: pays everyone eligible when the team reaches a shared goal. See What Is a Team Bonus?
Example. A plan pays 3% of premium, and 4% once a producer writes $30,000 in a month. A producer writes $32,000. If the higher rate covers every sale that month, they earn $32,000 × 4% = $1,280. If it covers only the premium above the threshold, they earn $30,000 × 3% + $2,000 × 4% = $980.
Decide which way your tiers work, and write it into the plan.
When a policy cancels
A chargeback takes back commission on a policy that ended early.
- Prorated: the producer keeps the part for the days the policy was active, and the rest comes back.
- Full: all of the commission comes back, however long the policy was active.
Example. A 6-month policy paid the producer $40 and cancelled after 30 days. Prorated, they keep 30 ÷ 180 of it, $6.67, and $33.33 comes back. Full, all $40 comes back.
Pick one method, write it into the plan, and use it every time.
When a sale pays
- Paying on the written date pays the producer sooner. Some policies never issue, so you take money back more often.
- Paying on the issue date waits for the carrier to issue the policy, so you never pay on one that does not take effect. A sale written in one month that issues the next is paid in the month it issues.
Checking what the carrier paid
Each carrier sends a statement listing the policies it is paying you on. Checking each line against your own sales catches policies it left off, wrong rates and sales on the wrong producer. See What Is Commission Reconciliation?
Plan mistakes that cost trust
- A plan nobody can work out. A producer should be able to check their pay from their own sales.
- No written plan. Each producer should have one they have read, with the rates, the bonuses and what happens when they leave.
- Changes applied to past sales. Start every change on a future date.
How Producify works it out
In Producify, pay is worked out for each person from the sales linked to them.
A commission plan pays a base rate on each product line, either a percent of the premium or a flat amount per policy, and you can add bonuses on top. An Earnings Tier applies its rate to all the issued or written premium in its window, including sales before the threshold.
Producify does not read carrier statements, so reconciling a carrier's payment against your sales is still your step. See How pay works.
Frequently Asked Questions
What happens to a producer's commissions when they leave?
It depends on the producer agreement, so write it down before you hire. Many agencies stop renewal splits when a producer leaves.
What's a contingency bonus?
A bonus the carrier pays the agency, not the producer, for the year's results, such as profit on the business or premium volume. It is separate from the commission on each sale.
How do I handle a commission dispute?
In Producify, open Payouts and pick the producer and the period. Commission Detail lists every sale that pays in this period, grouped by product line, with its premium, rate and what it earned. Then walk through the one sale in question, not the whole plan.
Work out commissions from your sales
Producify's Pay Team records each run: who was paid, how much, and which sales it covered.
Producify is commission tracking software for independent and captive insurance agencies.