How do insurance agents get paid? This is a question that many people have and yet they feel uncomfortable asking about it.
An agent is compensated for the work they perform for an individual or a business usually in the form of commission. Insurance companies pay on average around 10%-15% of the policy premium. This is paid each year the policy is renewed.
This goes to the agency and a pretty common pay structure is to pay the agent 50% of that commission on new business. Each following year the agent receives 25% of that commission on renewal.This incentivizes the agent to continue to write new business and helps to pay for things like support staff and overhead. So that means that if the premium is $100,000 a year, the agent would be getting $7,500 on new business and $3,750 each time the policy is renewed.
In addition to the commission, insurance companies will reward agencies who have a large amount of premium with them and meet certain growth requirements and loss ratios. This is called profit sharing. Profit sharing is usually paid on an annual basis and is generally a percentage of the total premium and the amount of growth within that year.
Why is this important to understand? Because an insurance agent should perform on a level that is at least equal to the amount of money they are being paid. Asking for a menu of services is a good way to see what exactly is being paid for. Sometimes there may even be services the business is unaware of and that are readily available to them.
Another way insurance agents are compensated is in the form of additional fees and sometimes commission may be waived in favor of a fee. Fees are usually reserved for larger companies who require different kinds of attention. Loss control, exposure identification, large amounts of changes, claims monitoring and analysis, etc. may constitute a need for the agent to charge these fees. These are usually spelled out so that it is very clear why the fee is being paid. If it is unclear why a fee is being charged, requesting that information from the agent is completely acceptable. If they are unable to give a meaningful menu of services, it may be time to look for a new agent.
Every business is different and is going to have different needs from their agent. It is important to know the amount an agent is being paid because $7,500 is way too much if all they are doing is renewing a policy once a year.